Merkel praises Cyprus bailout

German chancellor says deal puts nation on ‘new path’

A man catches up on the news at a cafe in Nicosia, Cyprus, on Monday. Cypriot President Nicos Anastasiades agreed early Monday morning to shut Cyprus Popular Bank and tax deposits of more than $130,000 in Cypriot banks in a plan to secure emergency funds from the European Central Bank and the International Monetary Fund.
A man catches up on the news at a cafe in Nicosia, Cyprus, on Monday. Cypriot President Nicos Anastasiades agreed early Monday morning to shut Cyprus Popular Bank and tax deposits of more than $130,000 in Cypriot banks in a plan to secure emergency funds from the European Central Bank and the International Monetary Fund.

LANGENFELD, Germany - German Chancellor Angela Merkel on Monday lauded the bailout agreement for Cyprus as lawmakers in her coalition embraced the package.

“I am very satisfied that it was possible to reach a solution last night, that is to avoid the country’s insolvency,” Merkel said in a speech in the Bavarian town of Langenfeld. The deal places Cyprus on a “new path” and the 17-member eurozone will show its solidarity “in the years ahead.”

Cypriot President Nicos Anastasiades agreed early Monday morning to shut the country’s second-largest bank - Cyprus Popular Bank - and tax deposits of more than $130,000, after a week of negotiations that saw the parliament in Nicosia reject an earlier version of the agreement. The European Central Bank had threatened to veto emergency funds if a deal that promised fresh capital and ensured the solvency of the Mediterranean island’s banks wasn’t signed by Monday.

The agreement goes a “long way” toward satisfying the demands of German parliamentarians, though it must be examined in detail, Christian Democratic lawmaker Norbert Barthle said Monday.

“The result of the negotiations correspond for the greater part with our original proposals for a bail-in,” or imposed losses, said Barthle, a Merkel ally and budget expert in her Christian Democratic Union party.

“The solution appears acceptable as it doesn’t increase the contribution of the euro group and is a partial bail-in that treats small savers differently from bank owners and bond creditors,” Otto Fricke, a lawmaker for Merkel’s Free Democratic coalition partner, said in an interview.

Germany’s opposition Social Democrats also embraced the agreement, Deutsche Presse-Agentur cited Social Democratic Party caucus leader Frank-Walter Steinmeier as saying.

The burden of rescuing banks shouldn’t fall to taxpayers, “but rather the banks to save themselves,” said Merkel, who’s seeking a third term in national elections Sept. 22.

The single currency must hold together, she said. “That is the nature of our European rescue policy of holding together.”

Russian President Vladimir Putin signaled acceptance of the accord, a week after berating an earlier rescue plan as “unfair, unprofessional and dangerous.”

Putin ordered the government to start talks with Cypriot authorities on restructuring a $3.2 billion loan granted by Russia in December 2011, said the president’s spokesman, Dmitry Peskov. Terms sought by Cyprus would amount to a 10 percent write down of the loan, Finance Minister Anton Siluanov said Monday.

“Considering the decisions taken by the eurogroup, President Vladimir Putin deems it possible to back efforts by the Cypriot president, as well as the European Commission, aimed at overcoming the crisis in the island nation’s economy and system of finance and banking,” Peskov said.

Cyprus’ Anastasiades said the central bank will impose some limits on bank transactions when the country’s financial institutions reopen. All banks will remain closed at least until Thursday, the nation’s finance minister announced Monday.

The president did not specify what limitations would be imposed on transactions.

He said it was a “very temporary measure, which will gradually be relaxed.”

The European Central Bank said Monday it won’t stop the Cypriot central bank from providing the island’s banking sector with emergency funding

“The Governing Council decided not to object to the request for provision of Emergency Liquidity Assistance by the Central Bank of Cyprus, in accordance with the prevailing rules,” the Frankfurt based central bank said in a statement. “It will continue to monitor the situation closely.”

The Governing Council also noted the agreement reached on restoring the viability of the Cypriot financial system in order to finance the Cypriot economy, the central bank said. “Now steadfast implementation is key for Cyprus to regain access to financial markets and return to growth as soon as possible.”

The Brussels deal means the viable assets of Cyprus Popular Bank will be taken over by Bank of Cyprus PLC, the island nation’s biggest lender.

Information for this article was contributed by Tony Czuczka, Patrick Donahue, Scott Rose and Ilya Arkhipov of Bloomberg News and by Elena Becatoros, Menelaos Hadjicostis and Jeff Black of The Associated Press.

Business, Pages 23 on 03/26/2013

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