'Thieves': Russia savages EU after Cyprus gets £8.5billion bailout deal which could see richest investors losing 40% of savings



EU finance chiefs in last-minute agreement after 10 hours of negotiations

IMF chief: 'It will form a lasting, durable and fully financed solution'



Savers with more than £85,000 will lose up to 40 per cent of their money

Uninsured funds to be frozen and used to pay off debts in bank restructure



Cyprus will not to need to vote on deal because bank law already in place

But Germany may have to hold vote before agreement can take effect



More than 60,000 British expats live on the island, so many face losses



Russian PM: 'The stealing of what has already been stolen continues'

Moscow today accused the European Union of theft after it emerged the bailout of Cyprus would result in heavy losses for foreign depositors, many of whom are Russian.



The cash-strapped island nation needs a 10billion euro (£8.5billion) rescue package to recapitalise its ailing lenders and keep the government afloat.

But savers with more than £85,000 in its banks will lose up to 40 per cent of their cash as one of several draconian measures imposed by Brussels to stop the country going bust.

The deal will wind down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shift deposits below 100,000 euros to the Bank of Cyprus to create a 'good bank'.



Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalise Bank of Cyprus through a deposit/equity conversion.

Scroll down for video



Deal done: French Finance Minister Pierre Moscovici (centre) gestures during the emergency meeting in Brussels. A last-minute rescue package for Cyprus was thrashed out after hours of negotiations Details revealed: President of the Eurogroup Council, Jeroen Dijsselbloem (centre), announces the deal with IMF chief Christine Lagarde (left) and EU Commissioner for Economic and Monetary Affairs, Olli Rehn (right) Country in turmoil: A worker restores a damaged door of a branch of a Bank of Cyprus in the early hours of Monday after a bomb attack at Polemidia, a suburb of the southern port city of Limassol Furious: Russia's Prime Minister Dmitry Medvedev has accused the European Union of theft over its bailout of Cyprus which will impose heavy losses on his foreign investors Relief: Cypriot Prime Minister Nicos Anastasiades gives his reaction to the deal on Twitter Eurozone banking shares rallied as much as 2.4 per cent at one point to lead a rally on global stock markets that reached as far as Australia. The FTSE 100 Index closed today, however, 14.4 points lower at 6378.4, having been up by as much as 65 points amid earlier relief over the Cyprus rescue plan, which ensured the country will get the 10 billion euros needed to shore up its banking system.

Jeroen Dijsselbloem, who chairs the Eurogroup of 17 eurozone finance ministers, spooked global markets when he said the move in Cyprus to inflict losses on banks' shareholders, bondholders and large-scale savers should become Europe's default approach for dealing with ailing lenders. The Dax in Frankfurt and the Cac 40 in Paris were both up by nearly 1.5 per cent at one stage but closed sharply lower, while the euro also reversed gains. At 1.18, the pound was back at a level last seen against the euro in mid- February, although it was marginally lower against the US dollar at 1.517. Banking stocks endured a volatile session as a result of the attention on Cyprus, with Barclays eventually 3 per cent or 9.9p lower at 282.1p and Royal Bank of Scotland down 6.1p at 287.2p. Lloyds Banking Group slipped 0.8p to 47.8p.

Eurozone leaders maintain the country's business model of attracting foreign investors, many of them Russians, with low taxes and lax financial regulation has backfired and must be reformed. Russian investors have around 20billion euros in Cyprus, and would be particularly hard hit, prompting speculation they could pull out their money. Saying their prayers: Cypriots attend a Sunday service at Saint-Mamas Orthodox church in Nicosia 'In my view, the stealing of what has already been stolen continues,' furious Russian Prime Minister Dmitry Medvedev was quoted by news agencies as telling a meeting of government officials. The Kremlin warned it could retaliate by ‘punishing’ European businesses if the EU imposes a bank levy. Andrew Nekrassov, a former government adviser, added: ‘There are a number of large German companies operating in Russia. You could look at freezing assets.’ Russia turned down desperate appeals for financial aid last week from the Cypriot government and the final bailout was likely to be more painful for its depositors than an initial rescue plan rejected by the Cypriot parliament. RELATED ARTICLES Previous

1

Next Biggest rise in house prices for three years: Overseas... Share this article Share A spokesman for Russian President Vladimir Putin says the president has asked the government to restructure a 2.5 billion euro ($3.2 billion) loan to the country. Cyprus secured the package of rescue loans after after tense negotiations ended last night, saving the country from a banking system collapse and bankruptcy. Cyprus government spokesman Christos Stylianides said: 'We averted a disorderly bankruptcy which would have led to an exit of Cyprus from the euro zone with unforeseeable consequences.'

Congregation: Cypriots attend Sunday service at Ayios Ioannis (St John's) Orthodox Cathedral in Nicosia

Religious observance: Cypriots light candles during a service at Saint-Mamas Orthodox church in Nicosia AT A GLANCE: DETAILS OF THE DEAL

Cyprus had to come up with 5.8bn euros to secure bail-out

Depositors in the country's second-largest bank, Laiki, with accounts of more than 100,000 euros will lose an unspecified amount of their money, possibly up to 40%

The move is expected to yield 4.2bn euros overall



The remainder of the money will come from tax increases and privatisations

Cyprus also had to agree to restructure its banking sector, which is unusually large for the size of its economy



Laiki will be dissolved at once and split into a 'good bank' and a 'bad bank'

The 'good bank' portion of Laiki will be folded into the largest bank, the Bank of Cyprus

The 'bad bank' will include its uninsured deposits and toxic assets Asked about the level of losses on uninsured depositors in Bank of Cyprus, he told state radio: 'The assessment is that it will be under or around 30 per cent.' However, some reports suggest that figure could be as a high as 60 per cent.

The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros, Eurogroup chairman Jeroen Dijssebloem said. Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution. An EU spokesman said no across-the-board levy or tax would be imposed on deposits in Cypriot banks, although the hit on large account holders in the two biggest banks is likely to be far greater than initially planned. The chairman of the Cypriot parliament's finance committee, Nicholas Papadopolous, said the agreement made 'no economic sense'. 'We are heading for a deep recession, high unemployment.

'They wanted to send a message that the Cypriot economy ought to be destroyed, and they've succeeded in a large part - they've destroyed our banking sector,' he told the BBC. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits. German Finance Minister Wolfgang Schaeuble said Cypriot lawmakers would not need to vote on the new scheme, since they had already enacted a law on procedures for bank resolution. 'The Commission informed us today that the necessary legislation to implement these points has already been passed,' he told reporters after euro zone finance ministers approved the deal. 'Additional legislation would only have been necessary if a levy on uninsured deposits would have been raised but (not) for restructuring of the banks in question.' Schaeuble said legally Germany's lower house of parliament would not need to vote on the bailout at this stage, but a vote could be held this week if legislators wanted it.

He was confident the deal would get a majority in Bundestag.

The island has at least 60,000 British expats and attracts investors from all over the world because of its low tax and light-touch financial regulations. There are also another 80,000 Cypriots who live in the UK but may have some of their cash invested there. Rage: Protestors shout slogans against the EU at protest in Nicosia, Cyprus

Panic buying: Crowds flock to supermarkets for fear of lack of products due to supply shortages in Nicosia Without a deal, the tiny Mediterranean island nation of about a million people would have faced the prospect of bankruptcy, which could force it to abandon the euro currency and spur turmoil in the eurozone. In return for the bailout, Cyprus must drastically shrink its outsized banking sector, cut its budget, implement structural reforms and privatise state assets.

The European Central Bank had threatened to cut crucial emergency assistance to the country's banks by Tuesday without an agreement.

'We believe that this will form a lasting, durable and fully financed solution,' said IMF chief Christine Lagarde. The finance ministers of the 17-nation eurozone accepted the plan reached in 10 hours of negotiations in Brussels between Cypriot officials and the so-called troika of creditors: the International Monetary Fund, the European Commission and the ECB.

Shoppers: Supermarket supplies were said to be running low in some areas of Cyprus after panic buying

Big day: Cypriot President Nicos Anastasiades pictured in his car after arriving at an airport in Brussels

'We've put an end to the uncertainty that has affected Cyprus and the euro area over the past week,' said Jeroen Dijsselbloem, who chairs the meetings of the 17-nation eurozone's finance ministers.

Under the plan, Cyprus' second-largest bank, Laiki, will be restructured and holders of bank deposits of more than 100,000 euro (£85,000) will have to take losses, Mr Dijsselbloem said, adding that it was not yet clear how severe they would be.

Analysts have estimated investors might lose up to 40 per cent of their money.

Getting cash out: People are pictured today withdrawing money from an ATM of the Bank of Cyprus in Nicosia

Demonstration: Thousands of bank employees protest outside the Ministry of Finance in Cyprus yesterday

Chants: On Saturday, some 1,500 protesters, many of them bank workers, marched on the presidency, holding banners that read, 'No to the bankruptcy off Cyprus' and 'Hands of workers' welfare funds' Savers' deposits with all Cypriot banks of up to 100,000 euro will be guaranteed by the state in accordance with the EU's deposit insurance guarantee, Mr Dijsselbloem said.

Laiki will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation's biggest lender, Bank of Cyprus.

Mr Dijsselbloem defended the creditors' approach to make deposit holders take heavy losses, saying the measures 'will be concentrated where the problems are, in the large banks'.

The international creditors, led by the IMF, were seeking a fundamental restructuring of the outsized financial system, which is worth up to eight times the country's gross domestic product of about 18 billion euro (£15.2 billion). For Cyprus, the drastic shrinking of its financial sector, the loss of confidence with the recent turmoil and the upcoming austerity measures means that the country is facing tough times.

'The near future will be very difficult for the country and its people,' acknowledged the Commission's top economic official Olli Rehn.

'But (the measures) will be necessary for the Cypriot people to rebuild their economy on a new basis.' Christopher Pissarides, a Nobel prize-winning economist who is advising the Cypriot president, said his country had been treated 'far worse' than larger economies who have previously needed rescue packages.

'The Eurogroup has dealt with Cyprus as small country with no contagion, but they forget that the way we deal with this situation has implications for the rest of Europe' Nobel prize-winning economist Christopher Pissarides Speaking on BBC Radio 4's Today programme, he said: ‘The Eurogroup has dealt with Cyprus as small country with no contagion, but they forget that the way we deal with this situation has implications for the rest of Europe. ‘We have a German finance minister who comes and tells us Cypriots that “We don’t like your economic model, bankrupt your banks and you can sort it out on the way." ‘When Greece was in trouble, Cyprus stepped in. We have been treated far worse [than Greece]. ‘The euro has more to do with politics and relations with big countries like Russia and Germany than economy. ‘The difference with Cyprus is that it is small. Is Luxemburg is going to be next in line? Is Malta going to be next in line? Small members of the Eurozone beware.’ But Richard Corbett, an advisor to European Council president Herman Van Rompuy, said the Eurozone can’t make 'sweeping generalisations' for countries in economic disarray as Cyprus has a banking sector 'nearly eight times the size of its economy'.

In the stands: Cypriot football fans hold an anti-bailout banner during a World Cup 2014 qualifying match against Switzerland in Nicosia yesterday. The fans entered the stadium during the match to protest against the crisis

Concern: Without a deal, the European Central Bank said it would cut off emergency funds to Cypriot banks, spelling certain collapse and potentially pushing the country out of the euro zone To secure a rescue loan package, Nicosia had to find ways to raise several billion euro so it could qualify for the 10 billion euro bailout package.

The bulk of that money is now being raised by forcing losses on large deposit holders, with the remainder coming from tax increases and privatisations. The creditors had insisted that Cyprus could not receive more loans because that would make its debt burden unsustainably high.

A plan agreed to in marathon negotiations earlier this month called for a one-off levy on all bank depositors in Cypriot banks.

But the proposal sparked fierce anger among Cypriots because it also targeted small savers, and failed to win a single vote in the Cypriot Parliament.

In an illustration of the depth of the fear of a banking collapse, Cyprus' central bank yesterday imposed a daily withdrawal limit of 100 euro (£85) from ATMs of the country's two largest banks to prevent a bank run by depositors worried about their savings.

Cypriot banks have been closed for the past week while officials worked on a rescue plan, and they are not due to reopen until tomorrow. Cash has been available through ATMs, but long queues formed and many machines have quickly run dry.

After the eurozone's finance ministers' approval, several parliaments in eurozone countries such as Germany must also approve the bailout deal, which might take another few weeks.

EU officials said they expect the whole programme to be approved by mid-April.

Spare change: People buy goods from a vegetable market in central Nicosia. The EU's economic affairs chief said there were now 'only hard choices left' for the latest casualty of the euro zone crisis

Purchases: A woman buys goods from a vegetable market in Nicosia. A run on banks could be on the way

In Asia, Japan's Nikkei 225 index surged 1.9 per cent to 12,567.07, South Korea's Kospi jumped 1.4 per cent to 1,975.33 and Hong Kong's Hang Seng 0.7 per cent to 22,272.68, while Australia's S&P 500 added 0.5 per cent to 4,993.20.



Depending on the deal's details, 'the outcome will mean that the risks of Cyprus defaulting and leaving the euro zone will have significantly diminished,' said analysts at Credit Agricole CIB in Hong Kong in a market commentary.



Stocks in mainland China fell, although trading volume was somewhat thin.

Linus Yip, strategist at First Shanghai Securities in Hong Kong, said the market was being cautious ahead of the release of earnings from the Industrial and Commercial Bank of China, the Agricultural Bank of China and Bank of China this week.

'Chinese banking players will report, so the market is maybe taking a wait-and-see attitude,' he said.



Banking shares in other markets posted strong gains, evidence of relief amid the financial sector for the Cyprus bailout.

South Korea's Shinhan Financial Group jumped 5.3 per cent. Japan's Nomura Holdings advanced 1.9 per cent. Australia's Westpac Banking Corp. added 1.7 per cent.

The deal should bring a rally when U.S. stock markets open today, according to investment managers.

U.S. investors will not care too much about who takes losses in Cyprus, as long as there is a bailout that stops the run on banks and keeps the eurozone stable, said Karyn Cavanaugh, market strategist at ING Investment Management in New York.

'If this works out, regardless of the terms, this is going to be good for the market,' she said.



The move should be well received by U.S. investors because it's the third bailout deal in the eurozone, including Greece and Spain, and in each case the countries have agreed to austerity plans.

The Dow Jones industrial average dropped more than 90 points on Thursday in part on fears that the crisis in Cyprus would intensify, but it rebounded and erased the loss on Friday.



In related news, local media have reported an explosion outside of a Bank of Cyprus branch in Limassol.

Enikos.gr reports that the blast destroyed the window, creating a small fire, and the area has been cordoned off by the police.