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Eurogroup Statement on Cyprus

2013-03-25 05:21:25

25 March 2013

The Eurogroup has reached an agreement with the Cypriot authorities on the key

elements

necessary for a future macroeconomic adjustment programme. This agreement is

supported by all

euro area Member States as well as the three institutions. The Eurogroup fully

supports the Cypriot

people in these difficult circumstances.

The programme will address the exceptional challenges that Cyprus is facing and

restore the viability

of the financial sector, with the view of restoring sustainable growth and

sound public finances over

the coming years.

The Eurogroup welcomes the plans for restructuring the financial sector as

specified in the annex.

These measures will form the basis for restoring the viability of the financial

sector. In particular, they

safeguard all deposits below EUR 100.000 in accordance with EU principles.

The programme will contain a decisive approach to addressing financial sector

imbalances. There will

be an appropriate downsizing of the financial sector, with the domestic banking

sector reaching the

EU average by 2018. In addition, the Cypriot authorities have reaffirmed their

commitment to step

up efforts in the areas of fiscal consolidation, structural reforms and

privatisation.

The Eurogroup welcomes the Terms of Reference for an independent evaluation of

the

implementation of the anti-money laundering framework in Cypriot financial

institutions, involving

Moneyval alongside a private international audit firm, and is reassured that

the launch of the audit is

imminent. In the event of problems in the implementation of the framework,

problems will be

corrected as part of the programme conditionality.

The Eurogroup further welcomes the Cypriot authorities' commitment to take

further measures.

These measures include the increase of the withholding tax on capital income

and of the statutory

corporate income tax rate. The Eurogroup looks forward to an agreement between

Cyprus and the

Russian Federation on a financial contribution.

The Eurogroup urges the immediate implementation of the agreement between

Cyprus and Greece

on the Greek branches of the Cypriot banks, which protects the stability of

both the Greek and

Cypriot banking systems.

The Eurogroup requests the Cypriot authorities and the Commission, in liaison

with the ECB, and the

IMF to finalise the MoU at staff level in early April.

The Eurogroup notes the intention of the Cypriot authorities to compensate

potential individual

victims of fraudulent practices, in line with established legal and judicial

procedures, outside the

programme.

The Eurogroup takes note of the authorities' decision to introduce

administrative measures,

appropriate in view of the present unique and exceptional situation of Cyprus'

financial sector and to

allow for a swift reopening of the banks. The Eurogroup stresses that these

administrative measures

will be temporary, proportionate and non-discriminatory, and subject to strict

monitoring in terms

of scope and duration in line with the Treaty.

Against this background, the Eurogroup reconfirms, as stated already on 16

March, that in principle

- financial assistance to Cyprus is warranted to safeguard financial stability

in Cyprus and the euro

area as a whole by providing financial assistance for an amount of up to EUR

10bn. The Eurogroup

would welcome a contribution by the IMF to the financing of the programme.

Together with the

decisions taken by Cyprus, this results in a fully financed programme which

will allow Cyprus public

debt to remain on a sustainable path.

The Eurogroup expects that the ESM Board of Governors will be in a position to

formally approve the

proposal for a financial assistance facility agreement by the third week of

April 2013 subject to the

completion of national procedures.

Annex

Following the presentation by the Cyprus authorities of their policy plans,

which were broadly

welcomed by the Eurogroup, the following was agreed:

1. Laiki will be resolved immediately - with full contribution of equity

shareholders, bond holders and

uninsured depositors - based on a decision by the Central Bank of Cyprus, using

the newly adopted

Bank Resolution Framework.

2. Laiki will be split into a good bank and a bad bank. The bad bank will be

run down over time.

3. The good bank will be folded into Bank of Cyprus (BoC), using the Bank

Resolution Framework,

after having heard the Boards of Directors of BoC and Laiki. It will take 9 bn

Euros of ELA with it. Only

uninsured deposits in BoC will remain frozen until recapitalisation has been

effected, and may

subsequently be subject to appropriate conditions.

4. The Governing Council of the ECB will provide liquidity to the BoC in line

with applicable rules.

5. BoC will be recapitalised through a deposit/equity conversion of uninsured

deposits with full

contribution of equity shareholders and bond holders.

6. The conversion will be such that a capital ratio of 9 % is secured by the

end of the programme.

7. All insured depositors in all banks will be fully protected in accordance

with the relevant EU

legislation.

8. The programme money (up to 10bn Euros) will not be used to recapitalise

Laiki and Bank of

Cyprus.

The Eurogroup is convinced that this solution is the best way forward for

ensuring the overall viability

and stability of the Cyprus financial system and its capability to finance the

Cyprus economy.