Cyprus Bailout Cost Rises to €23bn

The financial crisis in Cyprus has deepened after the cost of
last month’s bail-out
rose from €17.5bn to €23bn and country was told that it must contribute a further €6bn from its own resources.

The government in Nicosia has agreed to sell gold reserves to raise around €400m to help finance its part of its own bail-out. It marks the first such sale by a country seeking international assistance since the Asian financial crisis in 1997-98, when South Korea asked the public to donate jewellery to the central bank for the good of the nation.

The cost of the increased demands on Cyprus emerged in a draft document prepared by the country’s creditors. The island must now raise €13bn to secure €10bn from the European Union (EU) and the International Monetary Fund (IMF) against a previous estimate of only €7.5bn.

“It’s a fact the memorandum of November talked about €17.5bn in financing needs and it has emerged this figure has become €23bn,” said government spokesman Christos Stylianides.

It initially appeared that as part of Cyprus’s revenue-raising needs, customers with deposits of more than €100,000 at Bank of Cyprus could lose up to 60% of those holdings but this percentage could now be even higher. Those with failed lender Laiki Bank, which is being wound up and its healthy assets transferred to Bank of Cyprus, will have to wait years to see any of their money over €100,000.

It was also announced that the threshold on bank transactions domestically has been raised to €30,000 and travellers can now take €2,000 abroad, an increase of €1,000. The threshold for company payments abroad has been raised to €20,000 from €5,000.

The preliminary terms of the bail-out agreed last month also require Cyprus to sharply reduce the size of its banking sector, raise taxes, downsize the public sector workforce and privatise some state-owned firms.

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