Cyprus dodged a disorderly default and unprecedented exit from the euro currency by bowing to demands to shrink its banking system in exchange for a 10 billion-euro ($13 billion) bailout.
Cypriot President Nicos Anastasiades agreed to shut the country’s second-largest bank under pressure from a German-led bloc of creditors in a night-time negotiating melodrama that threatened to rekindle the debt crisis and rattle markets. “It’s been yet another hard day’s night,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels early today. “There were no optimal solutions available, only hard choices.” It was the second time in nine days that Cyprus struck a deal with creditors and the International Monetary Fund , capping a tumultuous week that underscored the contradictions of the crisis management that has dominated European policymaking for more than three years. The first accord, reached March 16, fell apart three days later when the parliament in Nicosia rejected a key plank, a tax on all Cypriot bank accounts that aroused the indignation of smaller savers. Cyprus, the euro area’s third-smallest economy, is the fifth country to tap international aid since the crisis broke out in Greece in 2009. Markets React The euro strengthened initially on news of the agreement, climbing as high as 0.6 percent, before trading little changed at $1.2989 as of 9:09 a.m. in Frankfurt . Stocks gained, with the Stoxx Europe 600 Index rising 0.7 percent. Italian 10-year bonds erased their decline since last month’s inconclusive election. Hans Michelbach, […]