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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.