Cypriot banks were heavily exposed to Greek sovereign debt and took substantial losses during the debt write-down which Greece forced upon its creditors as a condition of the nation obtaining its second EU/IMF bailout. As a result, Cyprus needed to find €23 billion in order to safeguard its banking sector, but the EU/IMF were only prepared to lend the nation €10 billion towards this total with the Cypriots having to find the remainder. In the end, this left the Cypriots with little alternative to raiding the bank accounts of larger depositors – anyone with more than €100000. These investors were levied up to 60% of their holdings, but were to be credited with shares in their banks equivalent to the value of the funds sequestered.
The EU finance ministers have agreed to implement the bailout and Cyprus has been given the first tranche of €2 billion of funding. A further €1 billion will be released before the end of June. Cyprus is engaging on banking reforms which will lead to the winding up of the second largest bank, Laiki Bank, and restructuring the Bank of Cyprus. The “raid” caused consternation in many quarters since bank deposits are supposed to be sacrosanct, but EU law only guarantees deposits up to the €100000 level. Cyprus is expected to cut back its banking sector significantly; reduce jobs within the public sector and increase taxes in the coming months.
The same meeting is set to agree to release of the next tranche of Greek bailout funding which is said to be worth €7.5 billion. The
ECB/IMF/EU troika praised Greece for its progress in tackling the nation’s deficit since 2010, but noted that progress on structural
reforms and dealing with tax evasion had been insufficient.