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Cyprus bailout: How the tiny country got here

March 28, 2013|By Emily Alpert
  • A security guard, left, watches as customers line up Thursday outside a Bank of Cyprus branch in Nicosia ahead of opening for the first time in two weeks.
A security guard, left, watches as customers line up Thursday outside a… (Simon Dawson / Bloomberg )

As banks opened their doors Thursday for the first time in nearly two weeks in Cyprus, the odyssey over the nation's financial crisis and ensuing bailout took its newest turn. If you haven’t followed the economic drama in this Mediterranean island, here’s a recap of how Cyprus came to preoccupy the Eurozone.

June 25, 2012: Cyprus seeks a bailout after suffering heavy losses. Its banking sector was hit by the economic crisis in Greece; Cypriot banks had made loans to Greek borrowers that were worth 160% of the island's gross domestic product, according to the International Monetary Fund.

Nov. 23: The European Union reports progress toward a deal with Cyprus.

March 16, 2013: The EU and the IMF agree on a bailout for Cyprus, but hitch the deal to Cyprus raising billions of dollars of its own money by levying taxes on bank deposits -- a deeply controversial idea. Wealthy Russians who banked in Cyprus were among those infuriated by the plan. Banks are closed.

March 19: Cypriot lawmakers reject the bailout plan. Before the vote, the deal was revised to spare deposits under $26,000 from the tax, while imposing a onetime tax of 6.75% on savings of $26,000 to $130,000 and taxing higher savings at 9.9%. The idea still fails to sway opposition politicians.

March 20: Cypriot officials say the government has a new plan to raise the billions needed to get billions more in bailout money.

March 21: The European Central Bank warns Cyprus it has until Monday to come up with the money.

Sunday: Cyprus reprograms ATMs to limit daily withdrawals to $130 to try to stop people from pulling vast sums of money out of their accounts.

Monday: Cypriot officials hash out an eleventh-hour deal with the EU and international lenders for a roughly $13-billion bailout. Under the agreement, Cyprus must drum up $7.5 billion to get the funds. The country agrees to shift smaller, insured deposits -- those under $130,000 -- from its second largest bank to its biggest one. Doing so creates a “good bank” and leaves behind a “bad bank.”

Cyprus would then freeze deposits exceeding $130,000 and tap them to pay off debts for the “bad bank” and recapitalize the “good bank” before in effect closing that “bad bank.”

Wednesday: The Cypriot finance minister announces restrictions on how much cash people on Cyprus can withdraw when banks reopen Thursday and prohibits cashing checks. The measures are meant to stop people from emptying their accounts, the Cyprus News Agency reports. The government also places restrictions on transferring money to accounts abroad.

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Special correspondent Anthee Carassava in Athens and Times staff writer Carol J. Williams in Los Angeles contributed to this report.

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