Cyprus avoids bankruptcy with $13 billion bailout deal

People walk past flags from the European Union, and Cyprus displayed for sale on March 25, 2013 in Nicosia as Cypriots celebrate Greece's independance day.

After more than a week of turmoil, eurozone finance ministers reached a last minute deal to grant Cyprus a $13 billion bailout.

Under the current agreement, bank depositors with less than $130,000 will not lose any money. However, bigger depositors -- most of them foreigners -- may be taxed up to 40 percent. Last week, the Cypriot parliament rejected a bailout plan that would have taxed smaller bank depositors 7 percent.

Cyprus' finance minister Michalis Sarris greeted the deal with relief.

"We have averted the possibility of bankruptcy, we really avoided a disastrous exit from the eurozone," Sarris said.

Though Cyprus achieved a rescue deal, analysts say serious damage to the country's banking sector has been done. As banks reopen, many foreign depositors are likely to move capital out of the country. The rating agency Moody's has said in a report this morning that the bailout dealings in Cyprus "will have profound long-term negative consequences" for the country and the region.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...