BRUSSELS -- Cyprus secured a $13 billion package of rescue loans in tense, last-ditch negotiations early Monday, saving the country from a banking system collapse and bankruptcy that could have destabilized the entire euro area. "We've put an end to the uncertainty that has affected Cyprus and the euro area over the past week," said Jeroen Dijsselbloem, who leads the meetings of the 17-nation eurozone's finance ministers.
In return for the bailout, Cyprus must drastically shrink its outsized banking sector, cut its budget, implement structural reforms and privatize state assets, he said. The country's second-largest bank, Laiki, will be shut down immediately, with all its bond holders and depositors with more than 100,000 euros, or $130,000, facing significant losses. The measures are likely to deepen the recession in Cyprus and lead to more job losses.
The cash-strapped Mediterranean island nation has been shut out of international markets for almost two years. It first applied for a bailout to recapitalize its ailing lenders and keep the government afloat last June, but the political negotiations stalled. After a botched agreement last week, the European Central Bank threatened to cut off crucial emergency assistance to the country's banks by Tuesday if no deal was reached.
The eurozone finance ministers accepted the plan, reached after more than 10 hours of negotiations in Brussels between Cypriot officials and the so-called troika of creditors -- the International Monetary Fund, the European Commission and the ECB. Several eurozone countries such also must approve the bailout deal. EU officials said they expect the whole program to be approved by mid-April.
Without a bailout deal by Monday night, the nation of about 800,000 would have faced the prospect of bankruptcy, which could have forced it to become the first country to abandon the euro currency. That would have roiled markets and spurred turmoil even though Cyprus only makes up a minuscule part of the eurozone economy.
Cypriot banks, closed last week, are not due to reopen until Tuesday, and the nation's central bank Sunday imposed some ATM withdrawal limits.