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Saturday, March 16, 2013

Cyprus secures $13 bn bailout from eurozone, IMF

BRUSSELS (AP) — Cash-strapped Cyprus secured a €10 billion ($13 billion) bailout package from its European partners and the International Monetary Fund in a bid to prevent the island nation from entering a bankruptcy that could rekindle the region's debt crisis, officials said early Saturday.

In return for the rescue loans, Cyprus will trim its deficit, significantly shrink its troubled banking sector, raise taxes and privatize state assets, said the Netherlands' Jeroen Dijsselbloem, president of the Eurogroup meetings of the 17-nation eurozone's finance ministers.

[...] Joerg Asmussen, a member of the European Central Bank's governing council, sought to dismiss fears of bank troubles stemming from the levy, saying the ECB stands ready to provide financial institutions with emergency liquidity assistance.

In a sign of how exceptional and urgent a decision the one-time levy is, Cypriot banks are already implementing measures to make sure that depositors cannot withdraw money to shrink the tax basis, Asmussen said.

While the Cypriot bailout is many times smaller than Greece's €240 billion package or Ireland's €67.5 billion, it is still considered crucial to the future of the eurozone because a default even by a small country could roil financial markets and undermine investor confidence.

Cyprus' financing needs to recapitalize its banks and keep the government afloat were initially estimated to total €17 billion, which is almost the equivalent of Cyprus' annual economic output and would have ballooned the country's public debt to about 140 percent of its economy, a level the IMF considers unsustainable.

[...] the European Central Bank, concerned that prolonged uncertainty over Cyprus could hurt market sentiment across the eurozone, had pushed for a swift deal, even threatening to cut the country's financial system off from emergency funding.

To appease its potential rescue creditors, Cyprus has already accepted an independent audit of its banks, which hold billions in Russian deposits, to soothe concerns voiced by Germany, France and others that they launder dirty Russian money.