Late last night Eurozone finance ministers agreed to a 10 billion Euro bailout package.
This is less than South Cyprus wanted or expected. However ministers feel that this amount will be enough to save South Cyprus from bankruptcy. 17 billion Euro had been asked for but it was felt that this amount would create too much debt burden.
The deal was reached after talks in Brussels between the ministers and the IMF. It is conditional on South Cyprus shrinking its banking sector, raising taxes and reducing its deficit.
Cyprus banks were badly exposed to the Greek economy which has also received two huge bail outs and will need more.
Bank depositors will have to share in the pain with a one off tax of 6.75% for depositors with less than 100,000 euros and 9.9% for those with higher deposits in Cyprus bank accounts.
Despite being totally against this tax, President Anastasiades has had to comply and in fact the authorities have ensured that the tax can be collected already. Monday is a Bank holiday in South Cyprus and the tax will be imposed on Tuesday. This is to prevent massive withdrawals from the banking system. However it should be noted that over the last few months, following debates about the so called ‘haircut’, a large amount of funds have already left the island’s banks.
Finance Minister Michael Sarris will be travelling to Russia after the weekend to see what help he can get there.
There is speculation that Russia would be willing to extend the 2.5 billion euro loan it already has made and perhaps at a reduced interest rate.