The Eurogroup reached an agreement with the Cypriot authorities in the early hours of this morning on the key elements necessary for a future macroeconomic adjustment programme. The Europgroup said that this agreement is supported by all euro area Member States as well as the three institutions. The Eurogroup said that it fully supports the Cypriot people in these difficult circumstances.

The ECB had given Cyprus until today, Monday, to secure a deal with the EU, or face the threat of the withdrawal of liquidity into the banks in Cyprus.

In the deal it was agreed that Laiki Bank, which is the country’s second largest bank is to be wound down. Eventually the “good” assets from the bank will be merged into the Bank of Cyprus

Those with deposits of over €100,000, will face big losses after the Cyprus Government committment on the EU deal.

The banks will remain closed today as it is a Pupblic Holiday in Cyprus. Withdrawals from ATM machines have been restricted to €100 per day.

The programme will address the exceptional challenges that Cyprus is facing and restore the viability of the financial sector, with the view of restoring sustainable growth and sound public finances over the coming years.

The Eurogroup said it welcomes the plans for restructuring the financial sector as specified in the annex. These measures will form the basis for restoring the viability of the financial sector. In particular, they safeguard all deposits below EUR 100.000 in accordance with EU principles.

The programme will contain a decisive approach to addressing financial sector imbalances. There will be an appropriate downsizing of the financial sector, with the domestic banking sector reaching the EU average by 2018. “In addition, the Cypriot authorities have reaffirmed their commitment to step up efforts in the areas of fiscal consolidation, structural reforms and privatisation,” the statement said.

The Eurogroup said it also welcomes the Terms of Reference for an independent evaluation of the implementation of the anti-money laundering framework in Cypriot financial institutions, involving Moneyval alongside a private international audit firm, and is reassured that the launch of the audit is imminent. In the event of problems in the implementation of the framework, problems will be corrected as part of the programme conditionality.

The statement went on to say that it further welcomes the Cypriot authorities’ commitment to take further measures. These measures include the increase of the withholding tax on capital income and of the statutory corporate income tax rate. The Eurogroup looks forward to an agreement between Cyprus and the Russian Federation on a financial contribution.

The Eurogroup urges the “immediate implementation of the agreement between Cyprus and Greece on the Greek branches of the Cypriot banks, which protects the stability of both the Greek and Cypriot banking systems.”

It also has requested that the Cypriot authorities and the Commission, in liaison with the ECB, and the IMF to finalise the MoU at staff level in early April.

The Group “notes the intention of the Cypriot authorities to compensate potential individual victims of fraudulent practices, in line with established legal and judicial procedures, outside the programme.”

“The Eurogroup takes note of the authorities’ decision to introduce administrative measures, appropriate in view of the present unique and exceptional situation of Cyprus’ financial sector and to allow for a swift reopening of the banks. The Eurogroup stresses that these administrative measures will be temporary, proportionate and non-discriminatory, and subject to strict monitoring in terms of scope and duration in line with the Treaty,” the statement said.

Against this background, the Eurogroup said that it reconfirms, as stated already on 16 March, that – in principle – financial assistance to Cyprus is warranted to safeguard financial stability in Cyprus and the euro area as a whole by providing financial assistance for an amount of up to EUR 10bn. “The Eurogroup would welcome a contribution by the IMF to the financing of the programme. Together with the decisions taken by Cyprus, this results in a fully financed programme which will allow Cyprus’ public debt to remain on a sustainable path.”

The Eurogroup concluded by saying that it expects that the ESM Board of Governors will be in a position to formally approve the proposal for a financial assistance facility agreement by the third week of April 2013 subject to the completion of national procedures.

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