Uncertain Cyprus Bailout Drags Euro Below $1.30

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Cypriot President Demetris Christofias addresses the media in Cyprus
Cypriot President Demetris Christofias addresses the media in Cyprus. The tiny island state, with a population of just over 1 million, followed Portugal, Spain, Ireland and Greece to become the fifth euro zone nation to ask for lifesaving funds to stay afloat.

The euro slid below $1.30 on Thursday morning ahead of the EU summit in Brussels on Friday. Eurozone leaders are expected to discuss the terms of Cyprus' bailout, something that has been hanging over the euro for weeks.

Ahead of the meeting, analysts expect the tiny island nation to request nearly 17 billion euros, a sum that matches its annual economic output. According to Reuters, officials said Cyprus could use a levy on deposits to raise money and reduce the size of its bailout sum.

Dutch Finance Minister Jeroen Dijsselbloem said the aid package would be closer to 10 billion euros, but even at that amount many doubt that Cyprus has the capacity to pay it back.

Eurozone leaders are expected to agree on the terms of the bailout package by the end of March, but have had difficulty agreeing on how to help Cyprus lower its public debt to a sustainable level. Also controversial among the bloc's leaders is the decision of whether or not to implement a “bail-in” and force depositors in Cypriot banks to shoulder the losses.

The “bail-in” plan is backed by the Netherlands, Finland and Germany; however countries like Spain, Italy and Cyprus have argued against it.

Cypriot officials say this plan would lead to the depositors, mostly British and Russian business people, quickly withdrawing funds from the country and in turn, making the situation worse.

 

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