A bailout deal in best interests of Cyprus, eurozone

A top European Central Bank official said Wednesday it is in the best interests of both Cyprus and the eurozone as a whole for Nicosia to reach agreement with international creditors on a bailout. "I remain convinced that an aid programme is in the best interests of Cyprus and all members of the eurozone," ECB executive board member Joerg Asmussen told the weekly Die Zeit in an interview. On Tuesday, Cyprus's parliament rejected a proposal to impose a levy on bank savings as part of a bailout deal agreed in return for a 10-billion-euro ($13-billion) rescue from the EU, ECB and International Monetary Fund. That means authorities must go back to the drawing board for an alternative plan, heightening the risk that the country's banks could default. Asmussen said that the solvency of Cyprus's banks would not be assured "if an assistance programme for Cyprus that guarantees a rapid recapitalisation of the banking sector is not agreed upon soon." And the ECB will not be able to come to the rescue of the banks because the central bank can only provide emergency liquidity assistance to solvent banks, he said. Asmussen said the ECB had always been open to shielding smaller depositors or not even taxing them at all, and hitting larger depositors with a heavier levy. "What was paramount for us was that Cyprus's own contribution be enough for the country to find a way to sustain its debt," he said. Under the terms of the bailout, bank bond investors would also be forced to face losses, but that alone would not be enough because Cypriot banks are largely funded by deposits, Asmussen said. Asmussen insisted that the situation in Cyprus was unique. "I see no other country in Europe where the banking sector is in anywhere so out of balance. That means, no other country would need such a programme," he told the newspaper.