Ni­cosia calls for changes to its bailout terms

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Cypriot Pres­i­dent Ni­cos Anas­tasi­ades said cred­i­tors must ur­gently pro­vide a long-term so­lu­tion to restore Cyprus’s big­gest bank to health so that cap­i­tal con­trols can be lifted and “dev­as­tat­ing” ef­fects to the econ­omy averted. In a let­ter to Euro­pean Com­mis­sion Pres­i­dent Jose Manuel Bar­roso dated June 6, Anas­tasi­ades said that a fi­nan­cial res­cue pack­age from the euro area and the In­ter­na­tional Mone­tary Fund im­posed losses on bank de­pos­i­tors “with­out care­ful prepa­ra­tion,” cre­at­ing “press­ing is­sues that need to be ad­dressed.” A sig­nif­i­cant num­ber of Cypriot firms have lost their work­ing cap­i­tal, he said in the let­ter posted on web­site and con­firmed by the pres­i­dent’s of­fice. Cyprus agreed on March 25 to a 10-bil­lion-euro bailout in re­turn for mea­sures in­clud­ing a tax on bank de­posits of more than 100,000 eu­ros. Those con­ces­sions were de- manded by cred­i­tors in a bid to shrink the coun­try’s bank­ing sec­tor, and led to Cyprus im­pos­ing cap­i­tal con­trols as it re­solved its sec­ond-big­gest lender, Cyprus Pop­u­lar Bank Pcl. “Ar­ti­fi­cial mea­sures such as cap­i­tal re­stric­tions may seem to pre­vent a bank run in the short term but will only ag­gra­vate the de­pos­i­tors the longer they per­sist,” Anas­tasi­ades said. “Rather than cre­at­ing con­fi­dence in the bank­ing sys­tem they are erod­ing it by the day. Main­tain­ing cap­i­tal re­stric­tions for a long pe­riod will in­evitably have dev­as­tat­ing ef­fects on the lo­cal econ­omy.”

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