Cyprus Bailout Deal Wins Eurozone Approval

Deposits above 100,000 euros (£85,000) in the Bank of Cyprus will be hit with a levy of "around 30%" under the EU bailout deal, a government official has confirmed.

Spokesman Christos Stylianides told state radio that the charge would be paid as the second largest Greek Cypriot lender is destined to be wound up.

The island's last-minute deal to secure a 10bn euro (£8.5bn) EU and International Monetary Fund (IMF) approved bailout by eurozone ministers, saved the country from a banking system bankruptcy and eurozone departure.

However Russia, which is the source of many large uninsured Cypriot accounts worth up to 20bn euros (£17bn), reacted angrily on Monday to the levy news.

"The stealing of what has already been stolen continues," Russian Prime Minister Dmitry Medvedev was quoted by news agencies as telling a meeting of government officials.

Key markets across Europe, excluding Italy because of a budget deficit issues, reacted positively in midday trading.

The second-largest bank, Popular Bank of Cyprus - known as Laiki - will effectively be shut down and split into a "good bank" and a "bad bank".

Sub-100,000-euro deposits in Laiki will be safeguarded and transferred to the Bank of Cyprus, the so-called "good bank", while those above the 100,000-euro limit, which under EU law are not insured, will be frozen and hit with the levy to resolve the debt crisis.

The move will yield some 4.2bn euros (£3.6bn) overall - the bulk of the 5.8bn euros (£4.9bn) Cyprus needed to raise as part of the bailout conditions.

But it is unclear to say when the bailout and bank restructuring will return Cyprus to growth, European Commission president Jose Manuel Barroso admitted afterwards.

"I am confident that the programme will work, but let's be honest. At this moment, we cannot say exactly what the impact is going to be," Mr Barroso said.

"It will depend on the level of implementation and the commitment of Cyprus itself."

The British arm of the so-called bad bank, Laiki Bank UK, said customers could continue to withdraw their cash but warned that large deposits may be at risk.

Laiki Bank UK operates as a branch of its parent and gave clearer guidance on its website on Monday telling customers they are protected up to 100,000 euros by the Cyprus Deposit Protection Scheme and not the UK's compensation scheme.

"This means that if our bank is unable to meet its financial obligations, your eligible deposits are protected up to a total of 100,000 euros per depositor," the notice said.

The bailout deal followed fraught negotiations between Cypriot President Nicos Anastasiades and the troika of creditors - the IMF, European Commission and European Central Bank.

"We've put an end to the uncertainty that has affected Cyprus and the euro area over the past week," Jeroen Dijsselbloem, who chairs the meetings of the 17-nation eurozone's finance ministers, said.

"We believe that this will form a lasting, durable and fully financed solution," IMF chief Christine Lagarde said.

President of the European Council, Herman Van Rompuy, added: "I welcome the agreement reached by the Eurogroup and the Cypriot authorities early this morning.

"The agreement is essential to ensure a sustainable future for Cyprus in the euro area. This is first and foremost true for its people, who are living through times of great uncertainty."

After the eurozone's finance ministers' approval, several national parliaments, such as Germany's, must also approve the bailout deal, which might take another few weeks. EU officials said they expect the whole programme to be approved by mid-April.

Cyprus' outsized banking sector was crippled by exposure to crisis-hit Greece and has been used as a haven for foreign funds.

In a vote on Tuesday, the country's 56-seat parliament dismissed a levy on depositors as "bank robbery".

The country's finance minister Michael Sarris then spent three fruitless days in Moscow trying to win help from Russia. The two countries share historic religious ties.

Cypriots were outraged by the original proposal and have been queuing at cash machines ever since the government ordered banks to close last weekend.