Cyprus president criticizes bailout terms

NICOSIA Wed Jun 12, 2013 12:31am IST

Cypriot President Nicos Anastasiades reveals an economic stimulus package after an economic bailout inflicted considerable losses on bank savers in Nicosia April 19, 2013. REUTERS/Andreas Manolis

Cypriot President Nicos Anastasiades reveals an economic stimulus package after an economic bailout inflicted considerable losses on bank savers in Nicosia April 19, 2013.

Credit: Reuters/Andreas Manolis

NICOSIA (Reuters) - Cypriot President Nicos Anastasiades has launched scathing criticism over the terms of an international bailout which forced massive losses on bank deposits, saying the support lenders displayed to Greece was absent in the case of Cyprus.

Cyprus, one of the smallest economies in the euro zone, was forced to wind down one bank, and seize savings in a second to qualify for a 10 billion euro ($13 billion) aid package from the International Monetary Fund and the EU in March.

In a letter to lenders, collectively known as the troika, Anastasiades expressed concern onerous conditions for aid were a stranglehold over an economy facing deep recession, with legacy debt from the wound-down bank adding to the vulnerability of the banking system.

To prevent financial collapse and be eligible for aid, Cyprus is closing down Popular Bank, also known as Laiki, and converting sizeable deposits in Bank of Cyprus into equity to help recapitalize that bank.

The process, known as a 'bail-in', was a first in the history of the euro zone debt crisis. Thousands of depositors lost their savings, and subsequent capital controls were imposed to prevent a drain on remaining deposits. Those controls are largely still in place.

"It is my humble submission that the bail-in was implemented without careful preparation," Anastasiades says in the letter, reported by Cypriot financial website Stockwatch and other local media outlets.

Cypriot finance minister Haris Georgiades, who Anastasiades said had already alerted lenders to potential pitfalls without receiving a response, declined comment on the matter.

As part of the aid package, Laiki and Bank of Cyprus were forced to sell their Greek branches, while deposits the banks had in that country were exempt from the bail-in, to avoid contagion to Greece.

"As understandable as ring-fencing may be, this was absent at the time of deciding the Greek PSI (Private Sector Involvement) in relation to Greek government bonds which cost Cyprus 25 percent of its GDP," Anastasiades wrote.

He was referring to a Greek sovereign debt restructuring which imposed heavy losses on Cypriot banks in early 2012.

"The heavy burden placed on Cyprus by the restructuring of Greek debt was not taken into consideration when it was Cyprus's turn to seek help," Anastasiades said.

Bank of Cyprus, which is assuming some of Laiki's assets, was also forced to assume Laiki's emergency liquidity assistance (ELA) liability, a funding lifeline provided from the European Central Bank. ($1 = 0.7533 euros)

(Writing By Michele Kambas; editing by Ron Askew)

Religion and Politics

REUTERS SHOWCASE

Fund Raising

Fund Raising

Flipkart raises $700 million in fresh funding.   Full Article 

Reforms Push

Reforms Push

Modi may order insurance, coal reforms if vote delayed - officials.  Full Article 

Reuters Exclusive

Reuters Exclusive

India looks to sway Americans with nuclear power insurance plan  Full Article 

To Boost Growth

To Boost Growth

Crank up public spending to revive growth - chief economic adviser.   Full Article 

Bold Steps

Bold Steps

SpiceJet rescue plan marks bold bet on Indian aviation recovery.   Full Article 

New Airline

New Airline

Tata, Singapore Air venture Vistara to take off on Jan 9.  Full Article 

Online Sales

Online Sales

Knock knock. Who's there? Amazon's best-selling holiday author.  Full Article 

Hacking Attack

Hacking Attack

N.Korea says did not hack Sony, wants joint probe with U.S.  Full Article 

Reuters Poll

Reuters Poll

BSE Sensex to hit 32,980 by December 2015  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage