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Cyprus gov’t defends taking painful deal

Young Cypriots march in protest.

Young Cypriots march in protest.

NICOSIA –The government of Cyprus has defended a ‚10 billion bailout deal to save its banks from collapse, amid warnings the island faces deep recession.

Laiki (Popular) Bank, the country’s second largest, will be wound up, but small savers will be protected.

Depositors with more than ‚100,000 (US $130,000), many of whom are Russian, face big losses.

President Putin has told Russian officials to restructure a ‚2.5 billion loan extended to Cyprus in 2011.

Suspicion has been growing in Russia that Europe is using the banking crisis to target Russian money in Cyprus.

The European Central Bank had set a deadline of today for the deal, which came a week after the Cypriot parliament rejected a proposed bank levy on small and large deposits.

On Friday the new bank restructuring plan was passed by Cypriot MPs. No further vote is needed as there is no levy on deposits under ‚100,000, which are insured under EU deposit guarantee rules.

However, the memorandum of understanding between Cyprus and the EU – the formal agreement that triggers eurozone bailouts – will probably require the Cypriot parliament’s approval, according to the Open Europe think tank.

A “no” vote at that stage could still put Cyprus’s eurozone membership at risk.

The people of Cyprus now face a shrinking economy with the main industry, offshore banking, being shut.

However, Cypriot government spokesman Christos Stylianides said the deal had prevented a “disorderly” exit from the euro.

“The important thing is that we have reached an agreement that allows us to kick-start the economy and lay the groundwork for a new beginning,” he said in a statement.

“Without doubt that there are painful aspects that will place a burden on all of us.”

IMF head Christine Lagarde said the bailout deal agreed was “a comprehensive and credible plan” to help restore trust in the banking system. (BBC)

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