Monitor | Iceland's harsh cure would be a better medicine for Cyprus
Volcano island survives after its economy shrank thanks to capital controls and a devalued currency – but it wasn't a member of the euro
A week after the European Union's first disastrous attempt to solve Cyprus's debt crisis, a new rescue package emerged yesterday.
Unlike the initial bailout, the new deal honours the deposit guarantee offered to small-scale savers.
But, account-holders with more than €100,000 on deposit at the island's largest bank will be forced to take a painful haircut, likely to cost them around a third of their cash, while big depositors at the second largest bank could be wiped out altogether.
Described by International Monetary Fund boss Christine Lagarde as "a comprehensive and credible plan", the deal secures the €10 billion the Cypriot government needs to prevent the island crashing out of the euro.
As a result, the new package was hailed as a triumph by the European Union's financial elite for preserving the European single currency intact, at least for the time being.