March 25 - Cyprus clinched a last-ditch deal with international lenders to shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for a 10 billion euro bailout. Ciara Sutton reports.
▲ Hide Transcript
▶ View Transcript
A branch of the Bank of Cyprus was bombed as a bailout deal was agreed.
Many fear the country's financial industry has been similarly damaged.
SOUNDBITE) (Greek) MAN IN THE STREET SAVVAS GEORGIOU, A PENSIONER, SAYING:
"The decisions taken are harsh, it is a catastrophe, it will be a long time before things are right again."
(SOUNDBITE) (Greek) MAN IN THE STREET, CHAMBIS YAKOS, SAYING:
"It all happened very fast, we were listening to the discussions but we don't understand it, we are not mathematicians."
To supplement a 10 billion euro loan from the EU Cyprus will tax bank depositors holding more then 100,000 euros.
Laiki Bank, the country's second-largest and most troubled, will close - it's bad assets put into a separate bad bank
Its smaller deposits will be transferred to the Bank of Cyprus. which will be shrunk and restructured.
Significant losses are likely says Tobias Blathner from Daiwa Capital Markets.
TOBIAS BLATHNER, EUROPEAN ECONOMIST, DAIWA CAPITAL MARKETS, SAYING:
"When you look at pension funds, when you look at small and medium sized companies, they need access to funding, they need current accounts to be rolled over. So all of this of course will be a very challenging task while you actually wind down the banks."
The deal was swiftly endorsed by euro zone finance ministers.
(SOUNDBITE) (German) GERMAN CHANCELLOR, ANGELA MERKEL, SAYING:
"I believe that a fair burden distribution was achieved. On the one hand, banks have to take responsibility for themselves which is what we have always said. We do not want tax payers to save banks."
But questions remain about the bailout.
It's not meant to support banks and Yannis Tekrides an analyst in Cyprus says it could devastate the economy.
(SOUNDBITE)(English) ECONOMIC ANALYST, YANNIS TEKRIDES SAYING:
"The way forward from here surely is going to involve a credit crunch, and that is going to hit the private sector, maybe hard, I don't know, it depends how things develop on the liquidity side. But surely too many companies and too many people will lose money."
President Nicos Anastasiades had hoped to protect the country's position as an offshore financial centre.
But wealthy investors - many of them Russians - are expected to withdraw their funds when banks reopen damaging an industry that before the crisis was worth 8 times the island's GDP.
Press CTRL+C (Windows), CMD+C (Mac), or long-press the URL below on your mobile device to copy the code