The cost of the bailout for Cyprus has jumped sharply, less than a month after international financial experts thought they had figured out the extent of the Mediterranean island's financial woes.
Cyprus initially thought it would have to contribute about $9 billion to secure a $13 billion rescue package from its international lenders. But a deeper analysis disclosed Thursday shows that the economic fortunes of the offshore tax haven are worse than first thought.
That will force Nicosia to boost its share by nearly another $8 billion, to $17 billion.
The bailout deal Cyprus patched together with international lenders last month called for it to shut down the island's second largest bank, Laiki, and confiscate 60 percent of the deposits of the biggest account holders, many of them wealthy Russians.
Now, to raise the additional money, the island will be forced to sell about three-fourths of its gold reserves for about $524 million, levy additional taxes, sell state assets and renegotiate terms of a loan with Russia.
One financial analyst, Capital Economics, said the increase in the size of Cyprus' share of the rescue "underlines the depth of the problems facing the country," but also might have implications for the shape of future European bailouts.
Cyprus is the fifth of the 17 nations in the erurozone to need a bailout. But it is the first time that other European countries, the European Central Bank and the International Monetary Fund forced large bank depositors to pay part of the cost, not just taxpayers in the currency union.
European officials say the Cyprus plan was unique and will not be repeated. But the wealthier, northern countries in the eurozone have become weary about the string of bailouts they have had to finance for the bloc's debt-ridden countries.
Cyprus initially thought it would have to contribute about $9 billion to secure a $13 billion rescue package from its international lenders. But a deeper analysis disclosed Thursday shows that the economic fortunes of the offshore tax haven are worse than first thought.
That will force Nicosia to boost its share by nearly another $8 billion, to $17 billion.
Cyprus Bailout
Cyprus Bailout- Agreed to on March 25
- Worth $13 billion
- Keeps Cyprus in the eurozone
- Closes the island nation's second largest bank - Laiki Bank
- Laiki accounts larger than $130,000 will be moved to a "bad bank" and used to raise bailout money
- Laiki accounts with less than $130,000 euros will be moved to Bank of Cyprus
- Bank of Cyprus will be restructured
Now, to raise the additional money, the island will be forced to sell about three-fourths of its gold reserves for about $524 million, levy additional taxes, sell state assets and renegotiate terms of a loan with Russia.
One financial analyst, Capital Economics, said the increase in the size of Cyprus' share of the rescue "underlines the depth of the problems facing the country," but also might have implications for the shape of future European bailouts.
Cyprus is the fifth of the 17 nations in the erurozone to need a bailout. But it is the first time that other European countries, the European Central Bank and the International Monetary Fund forced large bank depositors to pay part of the cost, not just taxpayers in the currency union.
European officials say the Cyprus plan was unique and will not be repeated. But the wealthier, northern countries in the eurozone have become weary about the string of bailouts they have had to finance for the bloc's debt-ridden countries.
Some information for this report was provided by AP, AFP and Reuters.
