EU finance ministers approve Cyprus bailout deal, funded by bank assets seizure
Imagine waking up to find out that as much as 40 percent of the money you thought was safely deposited in the bank was seized, without your permission, to bail out a near-bankrupt government.
That's just what thousands of large depositors in Cyprus woke up to Monday morning after European Union officials accepted a last-minute deal offered by the island's lawmakers to secure a $13 billion bailout to avert imminent financial meltdown.
The deal, which also slashed the island's oversized banking sector, came as euro ministers in Brussels threatened to cut off crucial emergency assistance to Cyprus' embattled banks after business on Monday if no agreement was reached.
Without that EU funding, Cyprus' banks would have collapsed, dragging the country's economy down with them and threatening the small Mediterranean island's membership of the 17-strong group of European Union countries that use the euro -- all of which would have sent the EU's markets spinning.
"It's not that we won a battle, but we really have avoided a disastrous exit from the eurozone," Finance Minister Michalis Sarris said in Brussels.
"This decision is painful for the Cypriot people. This decision was a defeat of solidarity, of social cohesion, which are fundamental freedoms, fundamental principles of the European Union," Parliament President Yiannakis Omirou told AP.
The deal also angered Russia's leaders. It is believed that many of the affected large accounts belong to Russian depositers, and Moscow has been a major lender to prop up the Cypriot banking system. It's been estimated that Russians have more than $31 billion deposited in Cyprus banks.
Dmitry Medvedev reportedly likened the deal to "the stealing of what has already been stolen continues," the Telegraph reported, a reference to Vladimir Lenin's explanation of the Bolshevik seizure of capitalists' assets and property.
Last week Medvedev likened the bank seizure to "a certain period of time by Soviet authorities, who did not stand on ceremony when it came to people's savings."
Russian President Vladimir Putin, meanwhile, ordered the government to look into restructuring the terms of a more than $3 billion loan, a move that appeared to please EU ministers.
Cyprus banks, meanwhile, were rationing the amount of money they were dispensing to 100 euros, trying to avert a run on cash from nervous depositers.
Under the deal, Laiki, the country's second-largest bank, will be restructured, with all bond holders and people with more than 100,000 euros in their accounts facing significant losses. The bank will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation's biggest lender, Bank of Cyprus.
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