Saturday, March 23, 2013

Q&A: Cyprus bailout

BBC News
March 23, 2013

The Cypriot government is scrambling to secure a deal to raise the 5.8bn euros it needs to unlock a 10bn-euro bailout from the European Union and the International Monetary Fund (IMF). It has until Monday - the deadline set by the European Central Bank (ECB) which says it will cut crucial funding to Cyprus's banking sector if an agreement is not reached in the Cypriot parliament.

What kind of deal is Cyprus considering?

Earlier in the week, the Cypriot parliament rejected a plan to impose a levy on bank deposits - essentially taking a percentage of bank account balances to help raise the 5.8bn euros it needs. A revised proposal, exempting savers with less than 20,000 euros in their accounts, also appears to have been rejected.

Instead, a number of proposals have been suggested. These include nationalising Cyprus's pension funds, gathering together state assets to support a bond issue, or attracting Russian investment in its offshore gas reserves.

But talks in Russia appear to have ended with no agreement, and the latest plans involve dividing up the second-largest of Cyprus's stricken banks - Cyprus Popular Bank (also known as Laiki Bank) - into a "good" and a "bad" bank.

This would protect deposits of less than 100,000 euros, but potentially allow the government to raid higher deposits to help pay for the bailout.

Any deal needs to meet with approval in the Cypriot parliament as well as the EU, and the Monday deadline set by the ECB means the clock is ticking.


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