Cyprus deal reached that will protect small depositors

Cyprus was close to reaching agreement with its international lenders on a new bailout package early today that will protect depositors under €100,000.

According to EU sources, agreement was reached in principle just before midnight between Cyprus and the troika on the new proposal, which will see the island’s second largest bank, Laiki, wound down. As a result, deposits of more than €100,000 will be faced with losses, possibly up to 40 per cent.

The deal must be passed by euro zone finance ministers, who were being briefed on the proposal early today.

The Cypriot president, Nicos Anastasiades, flew to Brussels with his finance minister Michael Sarris yesterday afternoon as the EU and IMF upped the pressure on Cyprus to accept a deal or face financial collapse.

Some Cypriots accused the president of betraying the Cypriot people and demanded his resignation, while others called for a referendum on the proposed bailout.

As talks foundered on the issue of bank restructuring, Cypriot state media carried reports that President Anastasiades was threatening to resign.

In a sign of the difficulties that still remained in reaching agreement, the meeting of euro zone finance ministers was delayed by almost four hours, commencing just before 10pm.

Earlier, Mr Anastasiades and Mr Sarris met the heads of the European Council, European Commission and the group of 17 euro zone finance ministers. They were later joined by IMF managing director Christine Lagarde and Mario Draghi, head of the European Central Bank.

On the table

Among the measures on the table yesterday were a proposal to restructure and shrink the banking sector, which would involve the splitting of Cyprus’s second largest bank, Laiki, into a “good” and “bad” bank. The good bank would then be incorporated into the country’s largest bank, Bank of Cyprus.

It is understood that this measure formed part of today’s agreement.

A tax of 20 to 25 per cent on deposits of more than €100,000 in certain banks was under consideration.

A proposal to move the €9 billion in emergency funding that the European Central Bank has already lent Laika on to the balance sheet of the Bank of Cyprus emerged as a key sticking point in the negotiations, with Cyprus reluctant to saddle its main bank with the debt.

Working through issues

Minister for Finance Michael Noonan said that while he hoped for an agreement, it would "not be easy". "They are working through issues, but it will take a while to come up with full agreement on those issues," he said ahead of the meeting. The EU's guarantee on deposits under €100,000 was "absolutely sacrosanct".

"We would never hit depositors in Ireland, we believe the €100,000 is absolutely sacrosanct and there is absolutely no circumstances in which we would touch depositors because they are guaranteed and that guarantee applies across the euro zone," he said.

While political discussions took place in Brussels, protests continued in Cyprus. Party leaders were summoned in the afternoon to the presidential palace to be briefed on Skype by Mr Anastasiades.

Mr Anastasiades tweeted, "We are undertaking great efforts. I hope we have a solution soon." He also spoke on the phone to US secretary of state John Kerry, who was in Baghdad. On Saturday, employees of Laiki Bank and the Bank of Cyprus demonstrated outside their union offices.