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Cyprus Avoids Potential Bankruptcy Plunge After Agreeing to Bailout Terms

March 25, 2013 at 12:00 AM EST
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GWEN IFILL: Next to two economic stories about Europe, one a near-crisis, the other a comeback.

First to Cyprus and its desperate efforts to find a way out of financial chaos. The country today avoided a potential plunge into bankruptcy after agreeing on terms for a bailout from its Eurozone partners.

Margaret Warner has our coverage.

MARGARET WARNER: It was still dark in Brussels when Cypriot Finance Minister Michalis Sarris announced the deal, a bailout totaling $13 billion. But his words did little to brighten the somber atmosphere.

MICHALIS SARRIS, Cyprus Finance Minister: I don’t think there is any denying that the Cyprus people will have to go through tough times and will suffer the consequences of a protracted period where wrong decisions were made.

MARGARET WARNER: Those decisions center around the oversized Cypriot banking sector, swollen with foreign money and now saddled with enormous bad debts. Under the bailout, large depositors in the two biggest banks will take substantial losses to help the government raise some $7.5 billion.

And the country’s second largest bank will be shut down. The Cypriot parliament rejected an earlier plan to tax all bank deposits, large and small. But this new agreement sparked little optimism in Nicosia, the capital.

SAVVAS GEORGIOU, Cyprus: The decisions that were taken were harsh. It is a catastrophe. It will be a long time before things are right again.

ELIZABETH LOAKOVOU, Cyprus: It’s a big shame what has happened. But with the way things were going, what else could they do? There was no other solution. God help us all.

MARGARET WARNER: The bailout does prevent Cyprus from falling out of the euro currency system, a prospect that alarmed financial markets last week. Still, the Cypriot foreign minister didn’t sound relieved.

IOANNIS KASOULIDES, Cyprus Foreign Minister: We feel rather bitter. And we feel rather that we have not been treated the same way as other partners, probably being the smallest, I don’t know. But we are a resilient people. And we are going to fight.

MARGARET WARNER: The news also got a chilly reception in Russia, where depositors hold an estimated $26 billion dollars in Cypriot banks. But in Germany, Chancellor Angela Merkel praised the deal.

ANGELA MERKEL, German Chancellor: I am very pleased that a solution was found last night. I believe that a fair burden of distribution was achieved.

MARGARET WARNER: Smaller Cypriot banks are expected to reopen tomorrow, after being closed for more than a week. The biggest, the Bank of Cyprus, will reopen Thursday.