* Cypriot bailout of 10 billion euros agreed by euro zone
* One-off levy on bank deposits to raise almost 6 bln euros
* IMF's Lagarde says backs deal, will make contribution soon
By Annika Breidthardt and Robin Emmott and John O'Donnell
and Jan Strupczewski
BRUSSELS, March 16 The euro zone struck a deal
on Saturday to hand Cyprus a bailout worth 10 billion euros ($13
billion), but demanded depositors in its banks forfeit some
money to stave off bankruptcy despite the risks of a wider bank
Cyprus becomes the fifth country after Greece, Ireland,
Portugal and Spain to turn to the euro zone for financial help
in the wake of the region's debt crisis.
In a radical departure from previous aid packages, euro zone
ministers forced Cyprus' savers, almost half of whom are
believed to be non-resident Russians, to pay up to 10 percent of
their deposits to raise almost 6 billion euros.
"I wish I was not the minister to do this," Cypriot Finance
Minister Michael Sarris said after 10 hours of late-night talks
where euro zone finance ministers agreed the package.
"Much more money could have been lost in a bankruptcy of the
banking system or indeed of the country," he said, adding that
he hoped a levy and bailout would mark a new start for Cyprus.
Without a rescue, Cyprus would default and threaten to
unravel investor confidence in the euro zone that has been
fostered by the European Central Bank's promise last year to do
whatever it takes to shore up the currency bloc.
The bailout was smaller than initially expected and is
mainly needed to recapitalise the Mediterranean island's banks
that were hit by a sovereign debt restructuring in Greece.
The levy on bank deposits will come into force on Tuesday,
after a bank holiday on Monday. Cyprus will take immediate steps
to prevent electronic money transfers over the weekend.
"As it is a contribution to the financial stability of
Cyprus, it seems just to ask for a contribution of all deposit
holders," Dutch Finance Minister Jeroen Dijsselbloem, who
chaired the meeting in Brussels, told reporters.
Such levies break the taboo of hitting bank depositors with
losses, but Dijsselbloem said it would not have otherwise been
possible to salvage its financial sector, which is around eight
times the size of the economy.
"We are not penalising Cyprus... we are dealing with the
problems in Cyprus," Dijsselbloem said.
In return for emergency loans, Cyprus also agreed to
increase its corporate tax rate by 2.5 percentage points to 12.5
This should boost Cypriot revenues, limiting the size of the
loan needed from the euro zone and keep down public debt.
Dijsselbloem said that under the programme, the island's
debt would fall to 100 percent of economic output by 2020.
International Monetary Fund Managing Director Christine
Lagarde, who attended the meeting, said she backed the deal and
would ask the IMF board in Washington to contribute to the
"We believe the proposal is sustainable for the Cyprus
economy," she said. "The IMF is considering proposing a
contribution to the financing of the package... The exact amount
is not yet specified," Lagarde said.
Cyprus, with a gross domestic product of barely 0.2 percent
of the bloc's overall output, applied for financial aid last
June, but negotiations were stalled by the complexity of the
deal and reluctance of the island's previous president to sign.
Moscow, which has close ties with Nicosia, is likely to help
by extending a 2.5 billion euro loan already made to Cyprus by
five years to 2021 and reducing the interest rate.
"We have had contacts in recent weeks with the Russian
government," said the EU's top economic official Olli Rehn.
"My understanding is that the Russian government is ready to
make a contribution with an extension of the loan and a
reduction of the interest rate," said Rehn, who is responsible
for economic affairs at the European Commission, the EU
Cyprus' finance minister Sarris will travel to Moscow for
meetings on Monday to try to pin down the new loan terms.
Cyprus originally estimated that it needed about 17 billion
euros - almost the size of its entire annual output - to restore
its economy to health.
But because a loan of that magnitude would increase its debt
to unsustainably high levels and call into question its ability
ever to pay it back, policymakers sought to reduce it by finding
more revenue sources in Cyprus itself.
Separately, euro zone ministers agreed to extend the
maturity of emergency loans to Ireland and Portugal to smooth
out their return to market financing this year and next, but
details of the extensions will be decided only in April.