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By MATINA STEVIS, GABRIELE STEINHAUSER and COSTAS PARIS

BRUSSELS—Depositors in Cypriot banks will be hit with a one-off tax on their 
savings, as part of a €10 billion ($12.96 billion) bailout for the 
Mediterranean island from the euro zone and the International Monetary Fund.

The deal, announced early Saturday, marks the first time in the euro zone's 
five-year-old financial crisis that depositors in bloc's banks will lose money. 
Accounts with more than €100,000 will be taxed at 9.9%, those with less at 
6.75%, raising an expected €5.8 billion for the near-bankrupt nation.

Enlarge Image

Reuters
EU economic-affairs commissioner Olli Rehn and Cypriot Finance Minister 
Michalis Sarris at Friday's meeting in Brussels

"This decision should not be compared to the ideal, but to the very real 
possibility that much more money could have been lost in bankruptcy of the 
banking system or indeed of the country," Cypriot Finance Minister Michalis 
Sarris told reporters, looking strained after 10 hours of often-fraught 
negotiations.

Mr. Sarris said the Cypriot Parliament would adopt the taxes over the weekend 
and the money would be extracted from accounts before banks take up business 
Tuesday. Monday is a public holiday.

"We have taken immediate measures so that electronic transfers cannot take 
effect before banks reopen on Tuesday," said the minister, who took office just 
two weeks ago.

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Jörg Asmussen, a member of the executive board of the European Central Bank, 
stressed that amounts in excess of the levy will remain fully available. 
Accounts held in Greek offshoots of Cypriot banks will also be spared.

Cyprus, which first applied for help last summer, has proved a major headache 
for the euro zone, mostly because of an outsized banking sector, which has 
swelled to eight times the size of the island's economy and was hit hard by a 
restructuring of Greek government debt last year. Allegations of money 
laundering and a general election in February also hampered bailout talks.

An initial assessment of Cyprus's finances in January concluded it needed more 
than €17 billion, including €10 billion just to stabilize its banks. That 
would have been an unmanageable burden for the island, whose annual economic 
output is less than €18 billion and shrinking.

Enlarge Image

Agence France-Presse/Getty Images
IMF Managing Director Christine Lagarde and Mr. Sarris before Friday's meeting, 
which ended with a deal to tax depositors in Cypriot banks

As they struggled to bring down the rescue costs, euro-zone finance ministers 
and the troika of the European Commission, the ECB and the IMF chose to go 
ahead with the deposit tax despite warnings it could unsettle savers and 
investors in other weak European countries.

"This is a special situation, with a very specific banking sector, with a very 
specific structure and size, which calls for this specific package," said 
Jeroen Dijsselbloem, the Dutch finance minister who chaired the discussions. He 
said similar measures weren't being considered for other countries that have 
received bailouts.

Officials hoped that the contribution of depositors will make it easier to pass 
the rescue package through parliaments in rich countries like Germany, the 
Netherlands and Finland. Lawmakers there have balked at bailing out foreign 
depositors, many of them Russians, whom they suspected of taking advantage of 
Cyprus's lax banking laws.

Nicosia will also raise its corporate-tax rate to 12.5% from 10%, among the 
euro zone's lowest, impose a levy on interest income and undergo a review of 
its anti-money-laundering legislation.

The IMF, which had been the strongest advocate for having the bailout burden 
fall partly on depositors, will contribute to the rescue, said the fund's 
Managing Director Christine Lagarde. Two officials said the IMF is expected to 
chip in €1 billion of the overall €10 billion needed.

Olli Rehn, the European Union's economic affairs commissioner, said Russia had 
indicated it was willing to give Cyprus more time to repay a €2.5 billion 
rescue loan from 2011, and may also lower the interest it charges. Mr. Sarris 
is expected to travel to Moscow on Wednesday to nail down the final terms.

The struggle to agree on a bailout for tiny Cyprus, which accounts for just 
0.2% of the euro zone's economy, once again underlines how vulnerable the 
currency union remains to economic shocks in any member nation.

"Cyprus is of systemic relevance to the euro area," said Mr. Rehn. "Not to 
provide assistance to Cyprus would have posed a risk of undoing the progress 
that has been painstakingly made over the past year."

Ministers also agreed to give Portugal and Ireland more time to repay their 
bailout loans, but didn't provide any details.

—William Horobin and Maarten Van Tartwijk contributed to this article.
Write to Matina Stevis at matina.stevis@dowjones.com, Gabriele Steinhauser at 
gabriele.steinhauser@wsj.com and Costas Paris at costas.paris@dowjones.com

Corrections & Amplifications 
By assets, Cyprus's banking sector is eight times the size of the country's 
economy. An earlier version of this story incorrectly said bank deposits were 
eight times the size of the economy.

Original issue reported on code.google.com by alexsams...@gmail.com on 17 Mar 2013 at 5:20

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