Many warned there would be a devastating ripple effect if Cyprus wasn’t bailed out because of the high number of investors the country has attracted.
Low taxation has seen some 60,000 Brits move to the country, while another 80,000 Cypriots who live in the UK still have money in the Cyprus.
The deal will be similar to the agreement with Greece, Cyprus will have to cut it’s budget, shrink it’s banking sector and probably follow stricter banking regulation.
IMF chief Christine Lagarde said,
“We believe that this will form a lasting, durable and fully financed solution,”
Cypriot Finance Minister Michalis Sarris said,
“It’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone,”
The deal took 10 hours of negotiations between 17 finance ministers from difference countries in the eurozone, the IMF, the European Commission and the ECB.
Who Does Cyprus Owe Money?
The question many people have asked since the first talk of financial trouble in the eurozone was, who do these countries owe money to?
Cyprus has three creditors, they are,
- The International Monetary Fund,
- The European Commission
- The ECB
Who Is At Risk With The Cyprus Bailout?
- Anyone with savings over £85,000 could lose up to 40% of their money
- Russian nationalists are set to lose out heavily with them having around €30bn out of the €68bn in deposits
- Laiki Bank bondholders will lost out as the bank will be closed down
Russia were extremely unhappy with the deal and Cyprus’ finance minister, Michael Sarris, said,
“I think the Russians were understandably disappointed with this turn of events. They have had a long, successful and happy history and association and this has come partly as a shock despite the fact that many of these things had been rumored,”
It has been said that this could be just the beginning of the help Cyprus is going to need in order to fully recover, as confidence in the nation hits a new low.
Gary Jenkins of Swordfish Research said,
“The economy is crushed for the next god knows how many years. As soon as people can take their money out the banks, they will take it out. Confidence has disappeared. Who’s going to want to do business with Cypriot corporates right now?”