After Negotiations, Cyprus Agrees to a Euro Zone Bailout Package
After asking for a bailout in late June of last year, Cyprus has finally agreed on terms with finance ministers from euro area countries, the International Monetary Fund, and the European Central Bank. The agreement includes a one-time tax of 9.9% on bank deposits of more than 100,000 euros and a tax of 6.75% on smaller deposits. Michael Sarris, the Cypriot finance minister is confident that after this one-time levy, depositors should not flee Cypriot banks. Reaching terms was difficult because minimizing the bailout was essential, but Cyprus officials wanted to ensure that the island remain attractive to investors, including many Russians with large deposits in Cypriot banks.
Although the 17 billion euro bailout package for Cyprus was considerably smaller than the package offered to Greece, it is almost equal to the 18 billion euro GDP of the island. The package was cut to about 10 billion euros today, as the levy on bank deposits is estimated to generate 5.8 billion euros. In addition, Cyprus is raising its corporate tax from 10% to 12.5% and will be privatizing state assets.
Among the economic struggles of Cyprus, it is worth noting that politics have stood in the way of action. Former president of Cyprus, Demetris Christofias, a member of the Communist party, would not agree to any terms involving measures such as privatization. This political standstill has come in the way of economic recovery since Cyprus first asked for a bailout nearly eight months ago.
Written by: Constantine Kostikas
Source: The New York Times