Cyprus has reached an agreement with the EU, the European Central Bank (ECB) and the International Monetary Fund (IMF) on the terms of a bailout for the country. After all night talks in Brussels, news broke this morning (March 25 ) that a deal had been made.

Under the terms agreed, holders of uninsured deposits over EUR 100,000 in the two “problem” banks stand to suffer considerable losses. One of the banks, the Laiki Bank, will be closed down. In return, Cyprus will get a EUR 10 billion bailout, which will stop the banks collapsing and keep the tiny island state in the eurozone. The agreement came right before the ECB deadline, which threatened to stop funding the Cypriot banks today (March 25 ) if a deal had not been made.

“The plan focuses on dealing with the two problem banks and fully protecting insured deposits in all banks. It addresses upfront the core problem of the banking system through a clear strategy that ensures debt sustainability and does not excessively burden the Cypriot taxpayer,” said IMF managing director Christine Lagarde (in picture). She went on to say that the deal will tackle underlying problems in Cyprus and put the country “on a sustainable path to recovery.” Teams from all involved parties are currently in Cyprus working out the technical details of the deal and Christine Lagarde said she expects to be able to make a recommendation to the IMF’s Executive Board for financial support for Cyprus.

The agreement will keep Cyprus in the eurozone, but at considerable cost. Analysts predict years of recession as the country is essentially forced to scrap its primary industry – offshore banking. “It’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone,” said Cypriot Finance Minister Michalis Sarris at a press conference after the deal was struck.

The new agreement came after the Cypriot Government tried to pass a law enforcing a tax on all bank deposits, but the new law was not approved by the Parliament.

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