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Greece has failed to repay €1.6 billion loan to the International Monetary Fund (IMF), hours after eurozone ministers refused to extend its bailout.

However, eurozone ministers say they will discuss a last-minute request from Greece for a new two-year bailout on July 1.

Greece is the first advanced country to fail to repay a loan to the IMF and is now formally in arrears.

There are fears that this could put Greece at risk of leaving the euro.

The IMF confirmed that Greece had failed to make the payment, shortly after 22:00 GMT on June 30.

“We have informed our Executive Board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared,” said IMF spokesman Gerry Rice.

Gerry Rice confirmed the IMF had received a request from Greece to extend the payment deadline, which he said would go to the board “in due course”.

With the eurozone bailout expired, Greece no longer has access to billions of euros in funds and could not meet its IMF repayment.

The European Central Bank (ECB) has also frozen its liquidity lifeline to Greek banks. Meanwhile, ratings agencies have further downgraded the country’s debt.

Eurogroup chairman and Dutch Finance Minister Jeroen Dijsselbloem earlier said it would be “crazy” to extend the Greek bailout beyond its June 30 deadline as Athens was refusing to accept the European proposals on the table.

Greece’s left-wing Syriza government, elected on an anti-austerity platform, has been in deadlock with its creditors for months over the terms of a third bailout.

Speaking after the conference call with other eurozone ministers, Jeroen Dijsselbloem said that a Greek request for a new €29.1 billion European aid program would be considered in a telephone conference on July 1.

According to new reports, Greece may submit new proposals on July 1 that rein in its spendingGreece fails to pay IMF debt 2015

Greece’s request on June 30 asked for funds from Europe’s bailout fund – the European Stability Mechanism – as well as a restructuring of Greece’s public debt.

German Chancellor Angela Merkel earlier said she had ruled out further negotiations until after July 5 referendum, which will ask Greeks if they want to accept the deal offered by their creditors.


The Greek government took the unilateral decision to hold a vote last weekend, angering eurozone ministers.

Greece is hopeful that Eurozone ministers will recognize the fiscal progress it has made.

Eurozone finance ministers are meeting in Brussels on May 11 to continue negotiations on a deal to release a portion of billions of bailout funds.

Greek ministers say they will honor a payment of €750 million ($834 million) to the IMF due on May 12.

No breakthrough is expected at today’s talks, with many issues unresolved.

Greece’s left-wing government has said it will not break anti-austerity electoral promises, something that has put the country at odds with European creditors.Greece eurozone

The country has until June to agree a new reform deal with its creditors.

PM Alexis Tsipras is reported to have told his cabinet that Europe needs to acknowledge the economic reforms that Greece has made.

Eurozone ministers are not hopeful of a deal being struck.

“We have made progress, but we are not very close to an agreement,” Eurogroup chair Jeroen Dijsselbloem told the Italian newspaper Corriere della Sera.

“It will surely not be reached at the Eurogroup meeting on Monday,” he said.

Greece did meet May 6 deadline to pay €200 million in interest to the IMF.

Portugal’s central bank has announced a plan to rescue Banco Espirito Santo (BES).

The group will be split into two – a “good bank” with the healthy assets and a “bad bank” with the riskier ones.

The “good bank”, which will be called Novo Banco, will be loaned 4.9 billion euros ($6.6 billion) from what is left of Portugal’s bailout fund.

The move had been expected after BES on Friday reported a record loss of 3.6 billion euros for the first half of the year.

Since June, when concerns about the financial health of the company first came to light, its shares have plunged 89%.

BES, which is Portugal’s largest listed lender, will be delisted from the stock market on Monday, with shareholders set to lose almost all their investment.

All of BES’s depositors will be protected.

BES will be delisted from the stock market, with shareholders set to lose almost all their investment

BES will be delisted from the stock market, with shareholders set to lose almost all their investment

“The plan carries no risk to public finances or taxpayers,” said Carlos Cosa, Portugal’s central bank governor at a late night news conference in Lisbon.

“There was an urgent need to adopt a solution to guarantee the protection of deposits and assure the stability of the banking system,” he added.

Novo Banco will consist of the bank’s core business of taking deposits and lending to home-buyers and companies.

It is so far unclear what will happen to the “bad bank”, most of which relates to other businesses in the Espirito Santo Group, which include tourism, health and agriculture.

The cash injection for Novo Banco comes from a so far unused part of Portugal’s bailout fund from the EU and the International Monetary Fund (IMF).

The idea is that Novo Banco will be run by the “resolution fund” – set up as part of the eurozone’s banking reforms and funded by Portugal’s financial institutions. The bank will eventually be sold off, with the proceeds used to pay back the 4.9 billion euro loan from the bailout fund.

In a statement, Novo Banco’s chief executive, Vitor Bento said “the key uncertainties that have been hanging over the institution for some time have now been removed”.

“Novo Banco is also taking with it… a dedicated workforce, a strong customer focus and comprehensive banking services that help to drive the Portuguese economy,” he added.

Vitor Bento was installed as chief executive of BES just three weeks ago as part of a management reshuffle designed to restore confidence in the bank.

The European Commission said it approved of the rescue plan.

“The adoption of this resolution measure is adequate to restore confidence in financial stability and to ensure the continuity of services and avoid potential adverse systemic effects,” it said in a statement.

Portugal itself only recently emerged from a three-year bailout plan. It was lent 78 billion euros in total by the EU and the IMF on the condition that it implemented severe austerity measures.

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The IMF has approved a $17.1 billion bailout for Ukraine to help the country’s beleaguered economy.

The loan comes amid heightened military and political tension between Ukraine and neighboring Russia.

The loan is dependent on strict economic reforms, including raising taxes and energy prices.

The money will be released over two years, with the first installment of $3.2 billion available immediately.

The head of the International Monetary Fund, Christine Lagarde, said the fund would check regularly to ensure the Ukrainian government followed through on its commitments.

The IMF has approved a $17.1 billion bailout for Ukraine to help the country's beleaguered economy

The IMF has approved a $17.1 billion bailout for Ukraine to help the country’s beleaguered economy

In March Ukraine put up gas prices by 50% in an effort to secure the bailout.

The government has also agreed to freeze the minimum wage.

The bailout had to be approved by the IMF’s 24-member board, which includes a Russian representative.

The IMF loan will also unlock further funds worth $15 billionn from other donors, including the World Bank, EU, Canada and Japan.

In December last year, Ukraine agreed a $15 billion bailout from Russia, but this was cancelled after protests forced out pro-Russian President Viktor Yanukovych.

On Wednesday, the IMF warned that Russia was “experiencing recession” because of damage caused by the Ukraine crisis.

The fund said $100 billion would leave Russia this year, partly caused by the US and EU sanctions.

The sanctions were imposed after Russia annexed the Crimea region from Ukraine last month.

The IMF bailout will also make available $1 billion in loan guarantees from the US, which was recently approved by Congress.

Earlier on Wednesday, an international conference in London ended with a commitment to help Ukraine recover tens of billions of dollars worth of assets which were allegedly stolen by the ousted President Viktor Yanukovych and his allies.

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Panicos Demetriades – the governor of Cyprus central bank – has resigned after reportedly experienced difficulties with the government and had been criticized for his handling of the country’s 10 billion-euro bailout.

There was no official statement on Monday about why Panicos Demetriades had stepped down.

Panicos Demetriades’ departure comes after Cyprus’ bailout was thrown into doubt when its parliament rejected a key part of the plan, and then passed it a day before the deadline was due to expire.

A spokesperson for the European Central Bank said: “The ECB takes note of the resignation of Panicos Demetriades who has been the governor of the central bank of Cyprus through very difficult times and played an important role in the implementation of the adjustment program.”

They added: “We count on a fruitful cooperation with his successor.”

Panicos Demetriades has resigned after being criticized for his handling of Cyprus' 10 bn-euro bailout

Panicos Demetriades has resigned after being criticized for his handling of Cyprus’ 10 bn-euro bailout

Cyprus was nearly bankrupted after Greece’s financial crisis in 2010.

The country’s banks were hit heavily but its government did not have the funds to issue a bailout.

Slow economic growth and the stance of international lenders, who stopped offering loans, added to the pressure on the country’s finances.

Panicos Demetriades, formerly an economics professor at the University of Leicester, was appointed in May 2012 for five years by Cyprus’ former communist president, Demetris Christofias.

The former president has reportedly been blamed for policies which could have contributed to Cyprus’ crisis.

Last year Cyprus’ banking system was rescued from collapse by a 10 billion-euro bailout from the EU and IMF.

Current president, Nicos Anastasiades, said in September he might ask the country’s supreme court to rule on whether Panicos Demetriades could be sacked.

That was despite the ECB last year issuing repeated warnings to the Cypriot authorities not to interfere with the governor’s work.

Last month Cyprus’ lawmakers threw the bailout program, and the country’s next tranche of cash, into doubt over a bill allowing state firms to be privatized.

Cyprus’ parliament rejected a key part of the country’s bailout plan.

As part of the 10 billion-euro ($13.7 billion) deal with the EU and International Monetary Fund (IMF), lawmakers have until March 5 to pass a bill allowing state firms to be privatized.

On Thursday, the lawmakers threw it out, jeopardizing the next tranche of cash.

The government says it will re-submit the bill with some amendments.

Cyprus' parliament rejected a key part of the country’s bailout plan

Cyprus’ parliament rejected a key part of the country’s bailout plan

The deal was agreed in March last year in an attempt to stave off the collapse of Cyprus’s banking sector and the wider economy.

It included moves to restructure the banks, along with other measures such as tax rises and privatizations.

Late on Thursday, the privatization bill was narrowly defeated after parliament split 25-25 on the vote, with five abstentions. This meant the legislation failed to pass.

The vote took place as hundreds of people opposed to privatization staged a protest outside the parliament building.

A government spokesman, Christos Stylanides, said the bill would be amended to reflect concerns over workers’ rights after privatization.

The new version of the bill would be submitted to the House of Representatives on Friday.

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Ireland is to make a clean break from its 3-year 85 billion euro bailout programme in December, without seeking precautionary funding.

Irish PM Enda Kenny confirmed the move during a speech to the parliament.

The Irish economy is emerging from one of the deepest recessions in the eurozone, having sought an international bailout in November 2010.

Ireland is due to leave the EU-IMF bailout on December 15.

Enda Kenny said: “We will exit the bailout in a strong position. The government has been preparing for a return to normal market trading.

“We will set out a path to a brighter economic future for our people, a path from mass unemployment to full employment, from involuntary emigration to the return of thousands of people who have to leave for other countries to find work.

Ireland is to make a clean break from its 3-year 85 billion euro bailout programme in December, without seeking precautionary funding

Ireland is to make a clean break from its 3-year 85 billion euro bailout programme in December, without seeking precautionary funding

“Today is just the latest step in that ongoing journey, a significant step indeed but also just another step towards our ultimate job of getting Ireland working again.”

He added that German chancellor Angela Merkel pledged to work closely with Ireland to improve funding mechanisms for the economy, including access to finance for small and medium businesses.

International Monetary Fund managing director Christine Lagarde said the performance of Ireland bodes well for the future.

“The Irish authorities have established a very strong track record of policy implementation. This bodes well as Ireland exits its EU/IMF-supported programme,” she said.

It is understood a decision not to seek a special overdraft facility was finalized at an emergency cabinet meeting on Thursday, ahead of Finance Minister Michael Noonan flying out to a summit in Brussels.

The Department of Finance said confidence and sentiment towards Ireland has improved considerably in recent months and domestic and international economic conditions were also improving.

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Greek Finance Minister Yannis Stournaras has said the country may need a third bailout but would not accept new austerity measures.

Yannis Stournaras said: “If there is need for further support to Greece, it will be in the order of about 10 billion euros [$13.4 billion], or much smaller than the previous programmes.”

Greece has already received two bailouts totalling about 240 billion euros.

Meanwhile, Cerman Chancellor Angela Merkel has warned about writing down any more Greek debt.

She said a so-called haircut of Greek debt would be bad for the stability of the eurozone, which has seen a return in investor confidence after years of worrying about the future of the single currency following bailouts of several nations – most recently, Cyprus.

“I am expressly warning against a haircut,” Angela Merkel said.

Greek Finance Minister Yannis Stournaras has said the country may need a third bailout but would not accept new austerity measures

Greek Finance Minister Yannis Stournaras has said the country may need a third bailout but would not accept new austerity measures

“It could trigger a domino effect of uncertainty with the result that the readiness of private investors to invest in the eurozone again falls to nothing.”

Angela Merkel’s comments come after Germany’s finance minister, Wolfgang Schaeuble, said – for the first time – earlier this month that Greece will need another bailout to plug a forthcoming funding gap.

The issue of bailouts is a sensitive one in Germany, where Angela Merkel faces elections for a third term on September 22.

Many Germans feel they have already contributed enough to European bailouts.

The International Monetary Fund (IMF) last month estimated Greece would need around 11 billion euros in 2014-15.

On Sunday, Yannis Stournaras told Greek newspaper Proto Thema that any further bailout would be smaller than the previous two.

But he also warned that Greece would not accept any more forced spending cuts from its partners.

“We are not talking about a new bailout but an economic support package without new [austerity] terms… until 2016, the targets – our obligations – have been set and other measures or targets cannot be required.”

The Greek economy has shrunk further than any other in Europe, with bailout money only released on condition that the government imposes cuts and implements restructuring.

It comes after most of the 18-member eurozone countries came out of recession earlier this year.

Greece’s troika of lenders – the European Commission, the European Central Bank and the IMF – will review the aid programme in the autumn.

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The International Monetary Fund has admitted that it made mistakes in handling Greece’s first international bailout.

The IMF said it was too optimistic in its growth assumptions and said a debt restructuring should have been considered earlier.

Greece was granted a 110 billion euro ($145 billion) bailout by the IMF and EU in May 2010.

Another 130 billion euro rescue package was approved in February 2012.

Greece’s first bailout came amid fears the country would default on its debts and that it could spark debt contagion in the eurozone.

The IMF has now released a study looking at the handling of the programme.

It admitted that it bent its own rules on exceptional access for the programme to go ahead.

To justify exceptional access, one of the four criteria that must be met is that public debt is sustainable in the medium term.

But the IMF said: “Even with implementation of agreed policies, uncertainties were so significant that staff were unable to vouch that public debt was sustainable with high probability.”

But staff wanted to go ahead with exceptional access because of fears that any spillovers from Greece would threaten the rest of the eurozone and the global economy.

The IMF then amended the criterion to where debt was not sustainable with high probability, “a high risk of international spillover effects provided an alternative justification”.

The IMF has admitted that it made mistakes in handling Greece's first international bailout

The IMF has admitted that it made mistakes in handling Greece’s first international bailout

The IMF described the programme, which ran from May 2010 to March 2012, as a “holding operation” that gave the euro area “time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy”.

It said it had notable successes such as achieving strong fiscal consolidation, Greece remaining in the eurozone and any spillovers that might have had a severe impact on the global economy were relatively well-contained.

But it also said there were notable failures, chiefly market confidence was not restored, the banking system lost 30% of its deposits and the Greek economy experienced a much deeper-than-expected recession.

Greece’s economic output (GDP) in 2012 was 17% lower than in 2009, compared with the IMF and EU’s initial projection of a 5.5% decline. The original growth projections were not marked down until the fifth review in December 2011.

The unemployment rate in 2012 was 25%, compared with the original programme projection of 15%.

The IMF added that in future Fund staff should be more skeptical about official data.

The Fund also criticized the delay in restructuring Greece’s massive debt load by forcing private holders of Greek bonds to take losses, which eventually took place in the first half of 2012.

“Not tackling the public debt problem decisively at the outset or early in the programme created uncertainty about the euro area’s capacity to resolve the crisis and likely aggravated the contraction in output,” the report said.

It said an upfront debt restructuring would have been better for Greece but this was “not acceptable to the euro partners”, some of whose banks held large amounts of Greek government debt.

The report also said there was no clear division of labor between the IMF, the EU and the European Central Bank, the so-called “troika”.

It said that while there were “occasional marked differences of view” within the troika, these were generally not on display to the authorities so did not risk slowing negotiations, and noted that “co-ordination seems to have been quite good under the circumstances”.

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Portugal plans to cut 30,000 civil service jobs and to raise the retirement age by one year to 66 as it tries to meet the terms of a bailout.

PM Pedro Passos Coelho said civil servants would also be required to work 40 hours a week instead of 35.

The proposals, which would be applied mostly from next year, would save 4.8 billion euros over three years, the prime minister said.

Austerity measures have proved deeply unpopular and have triggered large protests.

“With these measures, our European partners cannot doubt our commitment” to the bailout, Pedro Passos Coelho said in an address to the nation late on Friday.

Portugal’s PM Pedro Passos Coelho announced new austerity measures from next year that would save 4.8 billion euros over three years

Portugal’s PM Pedro Passos Coelho announced new austerity measures from next year that would save 4.8 billion euros over three years

“To hesitate now would harm the credibility that we have already won back,” he added.

Portugal received a 78 billion euro bailout from the EU, the European Central Bank (ECB) and the IMF in 2011.

Unemployment stands at nearly 18% – a record high – and the economy is expected to shrink for a third consecutive year in 2013.

Last month, the Portuguese Constitutional Court struck down more than 1 billion euros ($1.3 billion) of proposed cuts, which included the suspension of holiday bonuses for public sector workers and pensioners.

That forced the centre-right government to look elsewhere for savings – though it has ruled out raising taxes.

“We will not raise taxes to correct the budgetary problem resulting from the Constitutional Court’s decision,” Pedro Passos Coelho said.

“The way must be through the structural reduction of public spending.”

Portugal’s main Socialist opposition party has accused Pedro Passos Coelho of inflicting excessive austerity on Portugal in pursuit of an ideologically driven programme.

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Cypriot President Nicos Anastasiades has announced he will appeal for extra assistance from the EU after it emerged yesterday that the country would need to raise an extra 6 billion euros ($7.8bn) to secure a 10 billion euro bailout from Brussels and the IMF.

Nicos Anastasiades is urging EU leaders to change their policy towards Cyprus, but he is not asking for more money.

The president made the announcement ahead of a eurozone finance ministers meeting in Dublin.

According to a draft document prepared by the country’s creditors, the cost of the rescue has risen to 23 billion euros from 17.5 billion euros, with Cyprus now having to find 13 billion euros of this.

The Dublin meeting will review how Cyprus can raise its contribution to the bailout being put together by the EU and IMF.

A Cypriot official in Dublin said Cyprus is not seeking more bailout money, but is rather seeking help from EU to reduce the burden of the conditions to make the bailout possible.

Cyprus says it is not seeking more bailout money, but is rather seeking help from EU to reduce the burden of the conditions to make the bailout possible

Cyprus says it is not seeking more bailout money, but is rather seeking help from EU to reduce the burden of the conditions to make the bailout possible

Meanwhile, the German government has confirmed that the size of a eurozone bailout would not rise.

“The contribution from international creditors will not change,” said German government spokesman Steffen Seibert, noting that 10 billion euro package was “already very large”.

Nicos Anastasiades said he had already spoken to EU Economy and Euro Commissioner Olli Rehn ahead of the Dublin meeting.

The president also said he would also be writing to European Commission chief Jose Manuel Barroso and to EU President Herman Van Rompuy.

“The letter to Mr. Barroso and Mr. Rompuy will refer to the need for EU policy to change towards Cyprus by giving it extra assistance, given the critical times we are going through as a result of the economic crisis and the measures imposed on us,” Nicos Anastasiades said.

Analysts said the increase in the cost of the bailout meant Cyprus faced huge new challenges.

Jonathan Loynes, chief European economist at Capital Economics, said that the “biggest burden of the increase in the bailout will fall on depositors and bank bond-holders, whose combined contribution will rise from an expected 5.8 billion euros to 10.6 billion euros.”

Under bailout terms agreed in March, depositors with more than 100,000 euros in savings will bear part of the cost of the rescue.

The bank sector on which much of the Cypriot economy was dependent is shrinking, and thousands of jobs are being lost.

Laiki Bank is being wound up and its healthy assets transferred to the Bank of Cyprus.

Late on Thursday, Cyprus relaxed restrictions that were imposed last month on access to accounts in order to head off a run on banks.

The capital controls, the first that any eurozone country has applied, were put in place when banks reopened on March 28 after they were closed almost two weeks until a bailout agreement.

A new decree, which will remain in place for seven days, lifts all restrictions on transactions under 300,000 euros, a move aimed at helping cash-starved domestic businesses which had difficulty paying suppliers and employees.

Also, the daily limit on transactions outside of Cyprus not requiring prior approval is raised from 5,000 to 20,000 euros.

However, the daily cash withdrawal limit of 300 euros stays in place.

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Eurozone finance ministers meet in Dublin on Friday to finalize Cyprus bailout amid news that the country needs much more money than previously thought.

The meeting will review how Cyprus can raise its contribution to the bailout being put together by the EU and IMF.

The cost of the rescue has risen to 23 billion euros ($30 billion) from 17.5 billion euros, according to Cyprus’ creditors.

Meanwhile, Cyprus has loosened the capital controls it imposed last month.

Eurozone finance ministers meet in Dublin to finalize Cyprus bailout amid news that it needs much more money than first thought

Eurozone finance ministers meet in Dublin to finalize Cyprus bailout amid news that it needs much more money than first thought

In order to secure 10 billion euros from the EU and IMF, Cyprus will have to find the remaining 13 billion euros, 5.5 billion euros more than previously thought.

The finance minister of Luxembourg, Luc Frieden, said on Friday that Europe and the IMF could not increase their 10 billion euro share of the bailout.

“I believe the policy will be that the volume will remain at 10 billion [euros],” he told a German radio station.

Late on Thursday, a Cypriot government spokesman confirmed that one fundraising option being considered was the sale of some of the country’s gold reserves.

“The Cypriot government put various options forward, including this,” Christos Stylianides told a news conference.

Christos Stylianides blamed the gulf between the original bailout total and the new 23 billion figure on the previous administration and the time it took to negotiate a bailout, delays which pushed the cost of recapitalizing its banks much higher.

He accused former President Dimitris Christofias of failing to “take responsibility, and complete indecisiveness” in promptly negotiating a bailout.

Analysts said the increase in the cost of the bailout meant Cyprus faced huge new challenges.

Jonathan Loynes, chief European economist at Capital Economics, said that the “biggest burden of the increase in the bailout will fall on depositors and bank bond-holders, whose combined contribution will rise from an expected 5.8 billion euros to 10.6 billion euros.”

Under bailout terms agreed in March, depositors with more than 100,000 euros in savings will bear part of the cost of the rescue.

The bank sector on which much of the Cypriot economy was dependent is shrinking, and thousands of jobs are being lost.

Laiki Bank is being wound up and its healthy assets transferred to the Bank of Cyprus.

Late on Thursday, Cyprus relaxed restrictions that were imposed last month on access to accounts in order to head off a run on banks.

The capital controls, the first that any eurozone country has applied, were put in place when banks reopened on March 28 after they were closed until a bailout agreement.

A new decree, which will remain in place for seven days, lifts all restrictions on transactions under 300,000 euros, a move aimed at helping cash-starved domestic businesses which had difficulty paying suppliers and employees.

Also, the daily limit on transactions outside of Cyprus not requiring prior approval is raised from 5,000 to 20,000 euros.

However, the daily cash withdrawal limit of 300 euros stays in place.

Meanwhile, eurozone officials at the meeting are also due to review Slovenia’s growing problems.

There will be no discussion at the meeting of finance ministers, and the country will not make an application for bailout funds.

But Slovenia’s finance minister, Uros Cufer, is expected to present to EU and European Central Bank officials his plan to shore up the country’s finances.

Slovenia, which adopted the euro single currency in 2007, has been forced to recapitalize its main banks and the economy is struggling.

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According to a draft document prepared by Cyprus’ creditors, the cost of the bailout for the country has increased to 23 billion euros ($30 billion).

The original cost of Cyprus bailout was put at 17.5 billion euros.

The new total, disclosed in a document seen by news agencies, means Cyprus will have to find 13 billion euros to secure 10 billion euros from the EU and the IMF.

Previously it was thought that Cyprus would have to raise 7.5 billion euros.

A draft document prepared by Cyprus' creditors shows that the country’s bailout cost has increased to 23 billion euros

A draft document prepared by Cyprus’ creditors shows that the country’s bailout cost has increased to 23 billion euros

Government spokesman Christos Stylianides said: “It’s a fact the memorandum of November talked about 17.5 billion [euros] in financing needs. And it has emerged this figure has become 23 billion.”

“Who is responsible for this? How did we get here? It was the fear of responsibility and indecision of the previous government,” he added.

Analysts are now questioning if Cyprus can raise such a sum.

The winding up of one Cypriot bank, Laiki (Popular), and the writing-off of a large portion of secured debt and uninsured deposits in the largest bank, Bank of Cyprus, should raise a total of 10.6 billion euros.

Cyprus is also set to sell off a large portion of its gold reserves, in a move that will raise another 400 million euros.

“The sheer size of the increase has underlined the extent of the enormous challenges facing Cyprus itself,” said Jonathan Loynes of Capital Economics in an analyst note.

The Cypriot economy is only worth about 18 billion euros and accounts for less than 0.2% of the eurozone total. Several analysts now think the Cypriot economy may shrink by more than 10% this year alone.

“If everything goes according to plan, the growth figures might at least be in a realistic range, if too optimistic,” said Christoph Weil of Germany’s Commerzbank.

“If there are any problems, and there are significant downside risks, then it could be much worse, and a combined contraction of 20% is within the range of the possible.”

Cyprus has decided to sell off much of its gold reserves to help finance part of its bailout.

An assessment by the European Commission says Cyprus must sell about 400 million euros worth of gold.

Cyprus has already been forced to wind down one of its largest banks in order to qualify for a 10 billion euro lifeline from international lenders.

Even with that bailout, it is predicted that the Cypriot economy will shrink by 8.7% this year.

Cyprus’s total bullion reserves stood at 13.9 tonnes at the end of February, according to data from the World Gold Council.

Cyprus has decided to sell off much of its gold reserves to help finance part of its bailout

Cyprus has decided to sell off much of its gold reserves to help finance part of its bailout

At current prices, 400 million euros’ worth of gold amounts to about 10.36 tonnes of metal.

The sale will be the biggest bullion sale by a eurozone central bank since France sold 17.4 tonnes in the first half of 2009.

European finance ministers meet in Dublin on Friday to discuss the Cyprus bailout.

Analysts say it is very unlikely that other EU states will become big sellers of the precious metal.

Portugal holds 382.5 tonnes of gold, worth some 14.76 billion euros at current prices, in its reserves, while Spain’s holdings stand at 281.6 tonnes, worth 10.8 billion euros.

Italy is the world’s fourth-largest gold holder, with 2,451.8 tonnes, worth 94.6 billion euros.

Portugal’s PM Pedro Passos Coelho has said a court ruling striking down parts of his government’s budget means it will have to make other deep spending cuts.

Pedro Passos Coelho said social security, health, education and public enterprises would have to be cut.

This would allow the country to avoid a second eurozone bailout, he said.

The European Commission warned it not to depart from the bailout terms, and said carrying out the agreed programme was a precondition for further help.

Portugal's PM Pedro Passos Coelho has said a court ruling striking down parts of his government's budget means it will have to make other deep spending cuts

Portugal’s PM Pedro Passos Coelho has said a court ruling striking down parts of his government’s budget means it will have to make other deep spending cuts

“Any departure from the programme’s objectives, or their re-negotiation, would in fact neutralize the efforts already made and achieved by the Portuguese citizens,” it said in a statement.

The Portuguese Constitutional Court struck down more than 1 billion euros ($1.3 billion) of savings that the right-of-centre government had said were needed to meet the terms of its existing bailout.

In a statement to the nation on Sunday evening, Pedro Passos Coelho repeatedly used the phrase “national emergency” to describe Portugal’s situation.

He said the ruling striking down the budget’s suspension of holiday bonuses for public sector workers and pensioners – about 7% of their annual income – meant it must find alternative savings or seek a second bailout.

The government would, he said, do everything in its power to avoid having to ask its European partners for more aid.

Since tax increases were out of the question after the unprecedented increases already in the budget, he said, the only option was to cut back on other public services.

“Today, we are still not out of the financial emergency which placed us in this painful crisis,” he said.

“After this decision by the Constitutional Court, it’s not just the government’s life that will become more difficult, it is the life of the Portuguese that will become more difficult and make the success of our national economic recovery more problematic.”

Opposition leaders have accused Pedro Passos Coelho of using the court ruling as an excuse to press ahead with cuts to public services that he was planning anyway.

They say the government must resign, having lost credibility after two budgets in two years were ruled unconstitutional.

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Investigators have found that some key data about bond purchases by Bank of Cyprus is missing.

According to Cypriot media, the gaps were found in computer records studied by a financial consultancy, Alvarez and Marsal.

Bank of Cyprus – the country’s biggest bank – bought Greek bonds which turned into some 1.9 billion euros ($2.4 billion) of losses in the Greek debt crisis.

Depositors with more than 100,000 euros in Bank of Cyprus are now facing a big loss.

The “haircut” for such deposits in the bank is expected to be about 60%.

Investigators have found that some key data about bond purchases by Bank of Cyprus is missing

Investigators have found that some key data about bond purchases by Bank of Cyprus is missing

The money taken from those accounts, and from deposits above 100,000 euros at Laiki (Popular) Bank, will be used by the Cypriot government to contribute billions towards the bailout.

Strict capital controls – unprecedented for the eurozone – are in force in Cyprus, limiting cash withdrawals to prevent a run on the banks.

The “haircut” – hugely unpopular in Cyprus – is a condition for the EU and IMF to grant a 10 billion-euro bailout to rescue the country’s economy.

The Cyprus Mail website says information provided by Bank of Cyprus was incomplete and data-deleting software was found on some computers there.

There were significant gaps in computer records for the period 2007-2010. It is not yet clear whether the wiping of records was accidental or deliberate. There were signs of mass deletion of data.

The central bank says that Alvarez and Marsal are now investigating Laiki too – the island’s second largest bank, which is being wound up and folded into Bank of Cyprus.

“The investigation will continue and cover: the purchase of Greek government bonds by Laiki Bank; the expansion of Laiki Bank outside Cyprus; the role and responsibilities of all parties involved,” the Central Bank of Cyprus said on Friday.

The consultancy’s report on Bank of Cyprus has been leaked to local media, but not yet published.

Besides the Greek bond purchases, the consultancy also scrutinized Bank of Cyprus operations in Romania and Russia.

The consultancy’s findings have been handed over to the Cypriot parliament and the attorney-general, Petros Clerides.

The government has appointed a special judicial panel to clarify what happened in Cyprus’ financial crash and pinpoint any wrongdoing.

ECB President Mario Draghi has said the initial plan to make small savers pay for the Cyprus bailout was “not smart”.

Mario Draghi said a proposal to make “insured depositors” pay did not come from the European Central Bank, the European Commission or the IMF.

He said the proposal only arose in talks with the Cypriot authorities, and was “swiftly corrected”.

Mario Draghi was speaking after the ECB held eurozone interest rates at 0.75% again.

It was the ninth month in a row that the interest rates had been kept unchanged, but Mario Draghi indicated that the ECB was ready to act, if necessary.

He also suggested that the problems seen for some time in smaller, weaker economies such as Spain, were spreading to stronger economies.

Cyprus eventually agreed a 10 billion-euro ($12.8 billion) international bailout, which will see depositors with more than 100,000 euros lose some of their savings.

Accounts which have less than 100,000 euros in them will not be affected, but would have been under the original bailout proposals.

ECB President Mario Draghi has said the initial plan to make small savers pay for the Cyprus bailout was not smart

ECB President Mario Draghi has said the initial plan to make small savers pay for the Cyprus bailout was not smart

Speaking about the bailout, Mario Draghi said that the initial plan to impose a levy on all depositors “was not smart to say the least”.

He said the ECB did not envisage savers covered by a guarantee – that is, those with up to 100,000 euros in savings – being forced to contribute towards the country’s rescue plan.

“You have a pecking order, and here the insured depositors should be the very last category to be touched,” he said.

“The [European] Commission draft directive foresees exactly this.”

Mario Draghi also told a news conference that the Cyprus bailout was not a blueprint for what would happen in further bailouts.

“Cyprus is no template,” he said.

Mario Draghi was asked whether it would have been better for Cyprus to leave the euro.

“What was wrong with Cyprus’s economy doesn’t stop being wrong if they are outside the euro,” he said.

“So, the fiscal budget stabilization, consolidation, the restructuring of the banking system would be needed anyway, whether you are in or out. To be out doesn’t preserve the country from the need for action.”

Leaving the euro would entail a big risk for Cyprus, and that an exit from the currency could find the country having to pursue reforms “in a much more difficult environment”, he added.

Mario Draghi also said that the recent crisis in Cyprus had “reinforced the Governing Council’s determination to support the euro”.

Despite continuing signs of economic weakness across the eurozone, the ECB president said rates were on hold “for the time being” by consensus.

He said he expected to see a gradual economic recovery in the second part of 2013.

However, Mario draghi said that growth was “subject to downside risks”. Risks included slow implementation of structural reforms by governments, or weak domestic demand.

“These factors have the potential to dampen the improvement in confidence and thereby delay the recovery,” he added.

After his comments the euro fell to its lowest level in more than four months against the dollar, to $1.2745 – the weakest since mid-November – before recovering its losses.

However, Mario Draghi said that inflation would be contained in the medium term, but the bank would act if necessary.

“Our monetary policy stance will remain accommodative for as long as needed,” he said.

“In the coming weeks, we will monitor very closely all the incoming information on economic and monetary developments, and assess the impact on the outlook for price stability.”

Mario Draghi also reiterated that the ECB could not step into the gap left by a lack of action by eurozone governments to solve the region’s debt crisis,

“We cannot replace lack of capital in the banking system or the lack of actions by governments. The most stimulative measures is to pay the arrears.”

The latest indication of the state of the eurozone economy came on Thursday from financial information service Markit, which said the region’s economic contraction had worsened last month.

Its closely-watched composite purchasing managers’ index (PMI), which tracks both the services and manufacturing sectors, also suggested that the German economy slowed to “near stagnation” last month, while France’s recorded its biggest contraction for four years.

Cyprus has officially agreed to a set of measures that will release a 10 billion-euro ($12.8 billion) IMF-EU bailout.

The IMF, which is contributing 1 billion euros, says they are “challenging” and will require “great efforts” from its population.

The measures will consist of doubling taxes on interest income to 30% and raising corporation tax from 10% to 12.5%.

The plan, designed to stabilize Cyprus banking system and government finances, was agreed in principle last week.

Cyprus has agreed to a set of measures that will release a 10 bn-euro IMF-EU bailout

Cyprus has agreed to a set of measures that will release a 10 bn-euro IMF-EU bailout

Cyprus’s new finance minister Harris Georgiades, speaking on his first day in the post, said he was determined to honor the country’s commitments: “The responsibility is great, and the expectations of our citizens greater. Our promise is that we will make every effort for what is best for the nation. Under your guidance I am sure we will succeed.”

Harris Georgiades appointment followed the resignation of Michalis Sarris on Tuesday.

The plans for the two largest banks, Bank of Cyprus and Laiki, are especially controversial, as they will involve heavy losses for depositors with large balances in their accounts.

The IMF, which is providing 10% of the bailout money, said 95% of account holders would be protected.

The majority of accounts have less than 100,000 euros in them, which will not be affected.

However, depositors with more than 100,000 euros will lose some of their savings. Although the exact amount has still not been decided, reports have said they could lose up to 60%.

Cyprus agreed last week to shut down Laiki and transfer deposits of under 100,000 euros to Bank of Cyprus.

The IMF’s managing director, Christine Lagarde, said Cyprus would need to pull together: “This is a challenging programme that will require great efforts from the Cypriot population.”

Christine Lagarde added that its aim was to spread the pain, and “seek to distribute the burden of the adjustment fairly among the various segments of the population and to protect the most vulnerable groups”.

Cyprus is in recession, with unemployment at around 15% and gross domestic product (GDP) down by 3.5% this year.

The country is already planning to introduce austerity measures equivalent to 5% of GDP between 2013 and 2015 through tax rises and spending cuts, but Christine Lagarde said further measures were needed.

The IMF chief said the corporation tax increase and raising of the tax on interest rates to 30% would help bring in another 2% of GDP.

In order to tackle its debt, additional cuts worth 4.5% of GDP would also be needed over the medium term to reach the target of a budget surplus of 4% of GDP by 2018, the IMF said.

Cypriot President Nicos Anastasiades warned there would be “difficult days ahead” that demanded a collective effort.

The IMF said the reform programme would also lead to changes in banking supervision and transparency.

Cyprus’s banking system has been seen by some as a haven for firms, particularly Russian businesses, who wish to avoid close scrutiny of their affairs.

The IMF said that the international rescue effort, which also involves the EU and the European Central Bank (ECB), would be “well paced”.

The IMF’s contribution will need to be ratified by its board in the coming weeks.

The Central Bank of Cyprus has decided to ease some of the restrictions imposed as the country’s banks reopened, following the bailout deal.

Debit and credit cards can be used normally for domestic payments.

Cyprus’ central bank said it would review the curbs on a daily basis and try to “refine or relax” them when possible.

A 5,000-euro monthly limit per person remains in place for card purchases abroad, to stop the flight of capital from the country.

The Central Bank of Cyprus has decided to ease some of the restrictions imposed as the country's banks reopened

The Central Bank of Cyprus has decided to ease some of the restrictions imposed as the country’s banks reopened

The central bank said in a statement on Friday: “Each day, we will measure and look to refine or relax these controls with the overriding goal of safeguarding and stabilizing the Cypriot financial system.”

The move appears to be an attempt to make life as easy as possible for the domestic economy, while preventing the outflow of funds from the island, correspondents say.

Cyprus needs to raise 5.8 billion euros ($7.4 billion) to qualify for the bailout, and has become the first eurozone member country to bring in capital controls to prevent a torrent of money leaving the island and credit institutions collapsing.

As well as a daily withdrawal limit of 300 euros, Cypriots may not cash cheques and those leaving the country will only be allowed to take 1,000 euros with them.

Depositors with more than 100,000 euros will see some of their savings exchanged for bank shares.

Foreign Minister Ioannis Kasoulides said on Thursday that such controls could gradually be lifted over the course of the month. But many economists predict the controls could be in place for much longer.

Earlier on Friday, President Nicos Anastasiade said Cyprus had “averted the risk of bankruptcy” following the 10bn-euro bailout deal with the EU and IMF.

“The situation, despite the tragedy of it all, is contained,” the president said.

He accused other members of the eurozone of making “unprecedented demands that forced Cyprus to become an experiment”.

Also on Friday, Greek media published a list of Cypriot politicians who allegedly had loans written off by banks at the heart of the island’s financial crisis.

The Bank of Cyprus, Laiki and Hellenic Bank apparently forgave loans of millions of euros to companies, local authorities, and politicians from some of the island’s biggest parties.

The list has been handed to the ethics committee of the Cypriot parliament and an investigation is said to be under way.

Banks opened on Thursday for the first time in nearly two weeks amid severe new rules imposed as part of the bailout deal.

Queues formed of people trying to access their money, but the mood was generally calm.

By Friday, banks had returned to their normal working hours and there were no longer reports of big queues.

Cyprus President Nicos Anastasiades says his country has no intention of the leaving the European single currency.

Nicos Anastasiades said: “In no way will we experiment with the future of our country.”

The president said the financial situation was “contained” following the 10 billion euro bailout deal with the EU and IMF.

Cypriot banks opened on Thursday, March 28, for the first time in nearly two weeks amid severe new rules imposed as part of the bailout deal

Cypriot banks opened on Thursday, March 28, for the first time in nearly two weeks amid severe new rules imposed as part of the bailout deal

Cypriot banks opened on Thursday, March 28, for the first time in nearly two weeks amid severe new rules imposed as part of the bailout deal.

Queues formed of people trying to access their money, but the mood was generally calm.

By Friday, banks had returned to their normal working hours and there were no longer reports of big queues.

“We have averted the risk of bankruptcy,” Nicos Anastasiades said on Friday.

“The situation, despite the tragedy of it all, is contained.”

The president told a meeting of civil servants: “We have no intention of leaving the euro.”

However, Nicos Anastasiades accused other members of the eurozone of making “unprecedented demands that forced Cyprus to become an experiment”.

Cyprus needs to raise 5.8 billion euros ($7.4 billion) to qualify for the bailout, and has become the first eurozone member country to bring in capital controls to prevent a torrent of money leaving the island and credit institutions collapsing.

As well as a daily withdrawal limit of 300 euros, Cypriots may not cash cheques and those leaving the country will only be allowed to take 1,000 euros with them.

Payments and/or transfers outside Cyprus via debit and or credit cards are allowed up to 5,000 euros per person per month.

Depositors with more than 100,000 euros will see some of their savings exchanged for bank shares.

Foreign Minister Ioannis Kasoulides said on Thursday that such controls could gradually be lifted over the course of the month.

But many economists predict the controls could be in place for much longer.

Cyprus capital controls

  • Daily withdrawals limited to 300 euros
  • Cashing of cheques banned
  • Those travelling abroad can take no more than 1,000 euros out of the country
  • Payments and/or transfers outside Cyprus via debit and or credit cards permitted up to 5,000 euros per month
  • Businesses able to carry out transactions up to 5,000 euros per day
  • Special committee to review commercial transactions between 5,000 and 200,000 euros and approve all those over 200,000 euros on a case-by-case basis
  • No termination of fixed-term deposit accounts before maturity

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Cyprus banks are to reopen on Thursday at 12:00 p.m. local time, two weeks after they closed to prevent a bank run as a controversial bailout was negotiated.

Banks will open their doors between 12:00 and 18:00 local time, the Cypriot central bank said.

Customers will also be limited to withdrawing 300 euros ($383) a day, to prevent everyone fleeing with their savings.

“I am telling you that all banks are definitely going to open tomorrow,” the Cypriot central bank’s Aliki Stylianou said, which comes after several false announcements of when bank customers will be able to access their funds.

Capital controls are to be imposed as Cyprus seeks to raise 5.8 billion euros to qualify for a 10 billion-euro bailout from the EU, ECB and the IMF, the so-called troika.

Cyprus banks are to reopen on Thursday at noon, two weeks after they closed to prevent a bank run as a controversial bailout was negotiated

Cyprus banks are to reopen on Thursday at noon, two weeks after they closed to prevent a bank run as a controversial bailout was negotiated

Cyprus Finance Minister Michalis Sarris announced a long-awaited series of capital controls, including the 300-euro daily withdrawal, and no cheques can be cashed.

Michalis Sarris cited the “lack of substantial liquidity and significant risk of deposits outflow, with possible outcome the collapse of the credit institutions” as the reasons for the restrictions.

Depositors in Cypriot banks with more than 100,000 euros could see 40% of their funds converted into bank shares, while those with less than 100,000 euros will not lose any funds – but face limits on what funds they can access.

Speaking to the Financial Times, Michalis Sarris said that the controls would be reviewed after seven days, and that some banks could be exempted altogether.

Other controls will prohibit people from taking more than 1,000 euros in cash outside the island, with customs officers authorized to make checks at border crossings.

Money transfers outside Cyprus are prohibited, with a few very specific exceptions, and there is a limit of 5,000 euros a month in credit or debit card purchases while abroad.

The new measures mean that Cyprus is the first eurozone nation to impose capital controls – the absence of which is a fundamental reason behind the monetary union of the 17 members of the euro bloc – since the debt crisis began.

Concern about the ongoing situation in Cyprus has continued to weigh on the Athens stock market, with Greek shares ending down 4% on Wednesday.

Bank of Cyprus chief executive Yiannis Kypri confirmed he had been removed as head of the bank, which is the country’s largest commercial lender.

Reuters reported that Yiannis Kypri had issued a statement about his removal, which said: “The reason I was given was that, based on the resolution decree recently passed by parliament, and upon demands of the troika, an administrator had been appointed at the Bank.

“Until now I have not received a formal letter from the governor of the Central Bank on the matter.”

A European Commission spokesman denied that the troika had demanded Yiannis Kypri’s removal.

“These reports are not correct and decisions like this would in any case be the responsibility of the Bank of Cyprus,” he said.

An administrator has been appointed to Bank of Cyprus to restructure the bank. It is being merged with the “good” parts of the failed Laiki Bank, which will be closed down.

Bank of Cyprus chairman Andreas Artemis handed in his resignation on Tuesday, along with four other directors, but the bank’s board rejected the resignations.

Now Panicos Demetriades, the central bank governor, has sacked the entire board, according to the Cyprus News Agency.

Panicos Demetriades was widely criticized on Tuesday for suggesting that Bank of Cyprus was going to be wound up in the same way as is planned for Laiki Bank.

His comments led to demonstrations, calls for his resignation from Bank of Cyprus staff, and a hastily-drafted denial from Finance Minister Michalis Sarris.

Panicos Demetriades said “superhuman” efforts were being made to get the banks ready for reopening on Thursday.

“Indications are that banks will open tomorrow with some restrictions on capital,” said central bank spokeswoman Aliki Sylianou, speaking to the country’s state broadcaster on Wednesday.

The banks have been shut since March 15 while the controversial 10 billion-euro bailout was being negotiated.

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Cypriot Finance Minister Michalis Sarris has confirmed that the depositors with less than 100,000 euros in their accounts “will not be hit”.

People with more than 100,000 euros in their accounts could see about 40% of their deposits converted into bank shares, Michalis Sarris said.

“The exact percentage is not… yet decided but it is going to be significant,” he said.

The final figure will depend on how the government decides to protect pensions.

The finance minister confirmed that all Cypriot banks will remain closed until Thursday and that capital controls will be placed on the size and the amount of money people will be allowed to withdraw once they have reopened.

Cyprus bank deposits over 100,000 euros could be cut by 40 percent

Cyprus bank deposits over 100,000 euros could be cut by 40 percent

These restrictions would “probably be a bit stricter” on the country’s two largest banks, Bank of Cyprus and Laiki, and would remain in place until the banking system “stabilizes”, Michalis Sarris said.

The exact details of this “two tier system” would be hammered out with the banks later on Tuesday, he said.

Michalis Sarris is expecting “some bleeding, some outflow” of funds once the banks reopen, but believes that once EU bailout funds begin flowing “in a matter of weeks”, confidence will return.

Although the economy would be badly hit by the economic crisis, Michalis Sarris admitted, he maintained that it could benefit from “an energy boom”, referring to the exploratory Aphrodite gas fields off the southern coast of the island.

“Yes, there will be a problem but we will overcome it in a relatively short period of time,” he said. He also said his government had renegotiated more favorable loans terms with Russia.

The Cypriot authorities had said all but the biggest two banks would open on Tuesday.

Banks have not been open since March 15. Their reopening had been expected after Cyprus agreed a deal with the IMF and the EU that releases 10 billion euros in support.

It was conditional on Cyprus itself raising 5.8 billion euros, most of which looks likely to come from depositors with more than 100,000 euros in Bank of Cyprus and Laiki or Popular Bank.

The banks remained closed after the country’s first money-raising solution, which would have hit smaller deposit holders as well as larger holdings, was rejected by parliament.

The new deal for Cyprus, unlike previous agreements, does not require parliamentary approval. It will also include austerity measures and tax increases.

Laiki will be shut down, and deposits under 100,000 euros, which are guaranteed by the state under EU law, will move into the Bank of Cyprus to create a “good bank”.

Deposits above that insured amount will be frozen and used to pay Laiki’s debts and recapitalize the Bank of Cyprus, with depositor losses eventually converted into shares.

Major depositors, many of whom are wealthy Russians, will not be able to access accounts exceeding the 100,000-euro limit until the restructuring of the banks is complete.

Cyprus banks are to reopen on Tuesday, March 26, although the two at the centre of the crisis, Bank of Cyprus and Laiki, will remain shut until Thursday, March 28.

President Nicos Anastasiades has said temporary limits will be placed on financial transactions after a bailout deal imposing a tax on bank deposits.

He said “very temporary restrictions” would be put on capital flows, but gave no details.

Controls to prevent money leaving the country are already in place.

Certain limits on the size of cash withdrawals are expected to continue.

Cyprus banks are to reopen on March 26, although Bank of Cyprus and Laiki will remain shut until March 28

Cyprus banks are to reopen on March 26, although Bank of Cyprus and Laiki will remain shut until March 28

The banks’ reopening came after Cyprus agreed a deal with the IMF and the EU that releases 10 billion euros in support.

It was conditional on Cyprus itself raising billions of euros, which it will do by way of a tax on deposits of more than 100,000 euros.

The banks shut a week ago after the country’s first money-raising solution, which would have hit smaller deposit holders as well as larger holdings, was rejected.

On Monday morning, hopes that the deal would solve the crisis lifted shares.

But later, stock markets were rocked after Jeroen Dijsselbloem, head of the Eurogroup of eurozone finance ministers, suggested that the deal for Cyprus model could form a template in any future bailout.

Jeroen Dijsselbloem, the Dutch finance minister who as head of the Eurogroup played a key role in the Cyprus negotiations, said the deal represented a new template for resolving future eurozone banking problems.

“If there is a risk in a bank our first question should be <<OK, what are you in the bank going to do about that?>>,” he told Reuters and the Financial Times.

Jeroen Dijsselbloem later added a clarification, saying that Cyprus was “a specific case with exceptional challenges”.

He said the pattern for bank rescues should see shareholders take the first hit, then bondholders, who lend money through financial markets, and only then should depositors with large bank balances be tapped.

The Cyprus deal puts the burden for dealing with problem banks on their shareholders and creditors – in this particular case, customers with large bank balances – rather than the government and taxpayers, or bondholders, who lend through financial markets.

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European and US stock markets have fallen again after the head of Eurogroup suggested that the Cyprus model, which involves a tax on bank deposits, could form a template in any future bailout.

On Monday morning, hopes the deal would solve the crisis lifted shares.

By 15:30 GMT, all major European markets had fallen into negative territory, joined by US stocks.

Cyprus’ President Nicos Anastasiades, later addressed his country in a television broadcast.

The deal was “painful” but the best that could have been struck under the circumstances, he said.

Nicos Anastasiades said that controls limiting restricting the movement of capital would be temporary and he promised to protect the weak, saying that welfare payments would be met.

Earlier, markets in Europe and the US moved downwards when Jeroen Dijsselbloem, the Dutch Finance Minister who as head of the Eurogroup played a key role in the Cyprus negotiations, said the deal represented a new template for resolving future eurozone banking problems.

“If there is a risk in a bank our first question should be <<OK, what are you in the bank going to do about that?>>,” Jeroen Dijsselbloem told Reuters and the Financial Times.

Jeroen Dijsselbloem later added a clarification saying that Cyprus was “a specific case with exceptional challenges”.

The Cyprus deal puts the burden for dealing with problem banks on their shareholders and creditors – in this particular case, customers with large bank balances – rather than the government and taxpayers – and bondholders, who lend through financial markets.

European and US stock markets have fallen again after the head of Eurogroup suggested that the Cyprus model, which involves a tax on bank deposits, could form a template in any future bailout

European and US stock markets have fallen again after the head of Eurogroup suggested that the Cyprus model, which involves a tax on bank deposits, could form a template in any future bailout

Jeroen Dijsselbloem said the pattern for bank rescues should see shareholders take the first hit, then bond holders, who lend money through financial markets, and only then should depositors with large bank balances be tapped.

But his remarks raised fears that other European countries with struggling banks may face the same solution as Cyprus, which agreed to force those with cash on deposit above 100,000 euros, many of whom are Russian, to pay a substantial tax.

Cyprus will receive 10 billion euros ($13 billion) in bailout funds, but has agreed to a major restructuring of its banks.

Small savers will be protected but Cyprus’s second largest bank – Laiki Bank – will be wound up and split into “good” and “bad” banks, with its good assets eventually merged into the Bank of Cyprus, the country’s biggest bank.

The two banks will remain closed until Thursday, while all others will reopen on Tuesday after being closed for more than a week, Cyprus’s central bank says.

The Cypriot government suggested that account holders with deposits of more than 100,000 euros should expect to lose about 30% of their balances.

The UK’s FTSE 100 index ended the day down 0.2%, while Germany’s Dax gave up 0.5%, and France’s Cac lost 1.1%. In New York, the Dow Jones was 0.5% lower.

In Madrid, the market slipped 2.5% while the Milan index was down 2.27%.

The euro was also driven lower, falling to a six-week low against the pound. The euro was down 0.6% to 84.74 pence.

The new deal for Cyprus, unlike previous agreements, does not require the approval of the Cypriot parliament.

The uncertainty over the future of Cyprus in the eurozone was sparked a week ago when its parliament rejected an earlier bailout deal, which also included a controversial bank levy.

Despite the Cypriot economy’s relatively small size, many analysts had been concerned that the crisis would spread to the wider eurozone, had Cyprus been forced to give up the single currency.

There were fears that the country’s possible exit from the euro would trigger a loss of confidence across the single currency bloc, and prompt investors to withdraw from other troubled economies, such as Greece.

However, while Cyprus is now likely to remain in the eurozone, the country still faces significant obstacles as it attempts to recover from the crisis.

The EU-IMF deal involves a massive restructuring of the Cypriot banking system, as well as austerity measures and tax increases.

There has also been significant public anger in Cyprus at the intervention of European authorities, and the credibility of the Cypriot government has been questioned.

Asian markets and the euro have risen after EU officials agreed a bailout deal for Cyprus, easing fears that the country’s banking system problems may spread.

Cyprus will now get a 10-billion euro ($13 billion) cash injection to keep its banking system running and prevent it from crashing out of the eurozone.

Investors had feared that its exit from the bloc may escalate the region’s debt crisis and derail a global recovery.

Shares in Japan, South Korea, Hong Kong and Australia rose on the news.

“The news was what markets were waiting for, some kind of an agreement,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.

Japan’s Nikkei 225 index rose 1.7%, South Korea’s Kospi gained 1.5%, Hong Kong’s Hang Seng added 0.6% and Australia’s ASX200 was up 0.5%.

A failure to reach a deal may have seen the European Central Bank (ECB) cut emergency funding to Cyprus’s two biggest banks, leading to an effective bankruptcy of Cyprus’s government.

The fears were that such a move may prompt the country’s exit from the bloc.

Many analysts had been concerned that Cyprus’s exit may cause a loss of confidence across the eurozone and prompt investors to withdraw from other troubled economies of the bloc, such as Greece.

These concerns had seen investors ditch the euro over the past few days in favor of other assets, such as the Japanese yen and US dollar, seen as comparatively safer.

Asian markets have risen after EU officials agreed a bailout deal for Cyprus

Asian markets have risen after EU officials agreed a bailout deal for Cyprus

However, news of the Cyprus deal boosted the euro.

The single currency gained 0.8% against the US dollar. It was trading at $1.3044 in early Asian trade.

It rose 1.3% against the Japanese yen to trade at 123.81 yen.

“This will likely limit the euro’s downside, with those who shorted the euro covering their positions, and improve general risk sentiment,” said Hiroshi Maeba, head of foreign exchange trading for UBS in Tokyo.

Ben le Brun, an analyst at OptionsXpress in Sydney, added that the deal was likely to have a positive impact on the oil markets as well.

“We should see some positive sentiment reverberate through energy markets overall for at least the next 24 to 48 hours,” he said.

Brent Crude rose 0.3% to $108.34 per barrel in Asian trade, while US Light Crude gained 0.4% to $94.1 per barrel.

Cyprus had agreed a bailout deal with the EU and the IMF last week.

However, the EU and IMF had asked Cyprus to raise 5.8 billion euros in order to secure the funds.

They had proposed that Cyprus impose a one-off levy on bank deposits in order to raise the cash, a move that triggered protests in Cyprus and resulted in savers rushing to ATM machines to withdraw their money – a move that brought fears of a run on the banks.

The Cyprus parliament rejected the proposal last week, delaying an agreement to secure the bailout funds.

According to the latest deal, all deposits under 100,000 euros will be “fully guaranteed”.

However, Laiki (Popular) Bank, the country’s second-biggest, will be wound down and holders of deposits of more than 100,000 euros will face big losses.

The levy on accounts in Laiki Bank could be as high as 40%, correspondents say.

Large deposits in the Bank of Cyprus, the country’s biggest bank, will also face a levy.

Jeroen Dijsselbloem, president of the Eurogroup of eurozone finance ministers, told a press conference in Brussels that the percentage to be levied on large deposits in the Bank of Cyprus will be decided in the coming weeks.

Analysts said that while the draft deal had helped ease market jitters, uncertainties surrounding its implementation were likely to hurt sentiment in the coming days.