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live Cyprus has reached an agreement with the lenders

25 March 2013 / 11:03:19  GRReporter
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Early in the morning, Eurozone finance ministers reached an agreement with the Cypriot government on the rescue of the collapsed economy of the country thus observing the ultimatum of the European Central Bank, which had warned that if no agreement were reached today, it would cease providing liquidity for the Cypriot financial system.
    Many of the details of the agreement are not yet known. What the president of Eurogroup Jeroen Dijsselbloem announced during the official press conference was that all deposits under 100,000 euro in Cypriot banks would be guaranteed. Deposits above this amount would be cut and used to recapitalize the banking system of Cyprus.
    Laiki Bank will immediately go bankrupt. It will be divided into a good and a bad part. The Bank of Cyprus will take control over the good part and the bad part will be closed. Deposits over 100,000 euro will fund the winding-up procedure. The Bank of Cyprus will also undergo restructuring, which will affect deposits exceeding 100,000 euro. The lenders and Cypriot authorities will decide in the coming weeks in what way and by what percentage.

The head of the International Monetary Fund Christine Lagarde defined the agreement reached as "credible and feasible." She announced that the mission of the Fund and other members of the supervisory Troika would remain in Cyprus and work to finalize the technical details of the economic programme. "In the coming weeks, I will recommend to the Board of Directors of the Fund that it grant the bailout to Cyprus," Christine Lagarde promised.

Meanwhile, the banks in Cyprus have dried up. Since yesterday, the amount that the people are allowed to withdraw from ATMs is set at a maxiumum of 100 euro per day. This applies to all banks in Cyprus until tomorrow, Tuesday, when they will officially open and when the new funds from the European Central Bank will start flowing into the banks. Markets reacted positively to the news from Brussels. The price of the euro against the dollar rose from 1.2983 on Friday to 1.3035 on Monday morning. The price of the euro against the Japanese yen has increased as well and it is now exchanged for 123.43 yen, while the rate on Friday was 122.56.
However, according to Moody's credit rating agency, the risk of Cyprus exiting the euro zone remains high. Sarah Carlson, an analyst at the agency, argues that the financial system of Cyprus is of the off-shore type and will not be able to withstand the crisis. As a consequence, the country will be unable to service its foreign debt, which leaves open the possibility of it leaving the euro.

Many observers express their concerns that the banks in Cyprus will not be able to open tomorrow because the reforms agreed cannot be implemented immediately. President Nikos Athanasiadis’ speech to the Cypriot people, which is expected at 7 pm, will shed light on many questions. However, the branches of Cypriot banks in Greece, which Piraeus Bank has acquired, will operate normally tomorrow.

Tags: CyprusLendersBank systemDeposits of 100000 euroEurogroupAgreementCapital
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