Eurozone approves problematic Cyprus bailout

Eurozone finance ministers formally approved Friday the terms of a problematic Cyprus debt rescue that will cost Nicosia far more than first thought. After the Cyprus crisis raised fresh worries over the future of the single currency, EU finance ministers agreed that bailed-out Ireland and Portugal be rewarded for making economic progress by being given more time to repay their debts. The two nations won an extra seven years to repay the aid they received to save them from collapse, pending legal guarantees from the Portuguese government that it will meet deficit targets in the future. Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of finance ministers from the euro nations, said they wanted to ease the pressure on both countries. The move was approved together with their 10 non-euro counterparts. Dijsselbloem also said ministers had formally approved a March 25 rescue accord between Cyprus and its international creditors -- the International Monetary Fund, European Commission and European Central Bank. It had appeared earlier Friday that Cyprus wanted additional aid after leaked documents indicated a sharp increase in the overall amount needed to 23 billion euros ($30 bn) from the 17 billion euros agreed last month. But the European Union's Economic Affairs Commissioner Olli Rehn said the lower figure was net and the higher, gross financing needs -- with "additional financial buffers ... to allow for unexpected fiscal developments and banking sector needs." "People have been comparing apples with pears and coming up with oranges," Rehn told a press conference following the agreement. Rehn said that regular EU structural funds, used to boost the economy and planned seven years at a time, could be brought forward and re-directed to help Cyprus. He warned that accurately forecasting the depth of the recession underway in Cyprus was impossible, saying the economy could shrink up to 15 percent this year alone. Under last month's bailout accord, Cyprus was to come up with 7.0 billion euros and its creditors, known as the Troika, 10 billion euros. Selling gold reserves was one option, said ECB head Mario Draghi, who attended the talks. The Cyprus bailout is proving a milestone in the eurozone crisis, with small bank depositors, who had thought themselves protected by an EU guarantee, at one point asked to cough up some of their savings to help fund the rescue. The move sparked an uproar, forcing officials to beat a retreat and spare those with less than 100,000 euros in deposits. Those with deposits above 100,000 euros will now likely pay even more, with the restructuring of the banking sector estimated to ultimately yield up to 10.6 billion euros. Tax hikes and the sale of gold reserves -- expected to bring in 400 million euros -- are also a part of the plan. In Nicosia, the Cypriot government spokesman said savers will not be hit by a "de facto new recapitalisation," or 'haircut' on deposits. The first aid payment to Cyprus should be possible in May, the ministers said. The agreement to extend maturities for Ireland and Portugal will be crucial for Lisbon, the recipient of a 78-billion-euro bailout in 2011 but whose Constitutional Court last week ruled that several measures in the 2013 budget were unlawful. That ruling will make it difficult for the government to reduce the public deficit to 5.5 percent of gross domestic product (GDP), which it pledged to do to remain eligible for funds under its EU-IMF bailout. Prime Minister Pedro Passos Coelho announced cuts scheduled for 2014 would be brought forward to try to plug the 1.3-billion-euro gap caused by the court ruling. Both Ireland and Portugal had been pushing for the extension on the grounds that they had stuck closely to the terms of their bailout programmes and had made most progress in being able to return to the financial markets to raise funds conventionally. More talks through Saturday were to centre on moves to clamp down on tax fraud across the EU that have isolated Austria. The EU's biggest states -- Germany, France, Britain, Italy, Spain and Poland -- are coordinating moves they hope will culminate in a deal at a May summit on automatic bank data sharing across borders.