Cyprus president warns of 'difficult days ahead'

Cypriot President Nicos Anastasiades warned on Wednesday of "difficult days ahead" as he swore in a new finance minister for an island struggling to recover from a near financial meltdown and the need for a crippling eurozone bailout.

Anastasiades said this would entail "firstly, collectivity and, secondly, consistency and fiscal discipline and all those measures that will contribute to kick-starting the economy as soon as possible."

"I have no doubt that you will not only accomplish your task to the full, but in the best way possible that is worthy of your predecessor," Anastasiades told the new minister, Haris Georgiades, at the swearing-in ceremony.

Georgiades, a 40-year-old British-educated economist who became labour minister when Anastasiades was elected in February, took up his new post after Michalis Sarris stepped down on Tuesday.

Sarris had been chairman last year of failed Laiki Bank, whose collapse was a major contributor to the crisis. He said he was resigning to cooperate with a panel of judges appointed to investigate the causes of the crisis.

His departure came as the government wrapped up talks with the IMF, European Commission and European Central Bank that will open the way for Cyprus to receive a 10-billion-euro ($12.8 billion) bailout.

The deal, which must be ratified by eurozone finance ministers and national EU parliaments, will see Cyprus receiving the loan with an interest rate of between 2.5 and 2.7 per cent. It is repayable over 12 years after a grace period of a decade.

On Wednesday, International Monetary Fund managing director Christine Lagarde said the IMF's contribution to the package would be approximately one billion euros.

"This is a challenging programme that will require great efforts from the Cypriot population," Lagarde said in a statement, but it "provides a durable and fully financed solution to the underlying problems facing Cyprus and provides a sustainable path toward a recovery."

She added that the measures adopted "seek to distribute the burden of the adjustment fairly among the various segments of the population and to protect the most vulnerable groups."

Under the final deal, Cyprus won a two-year extension, from 2016 to 2018, to get its public finances in order. This will entail a raft of measures, including raising corporate income tax from 10 percent to 12.5 percent, downsizing the public sector workforce and privatising some state-owned firms.

Cyprus is already in recession, with unemployment at around 15 percent and is expected to grow sharply this year and next.

Forecasts before the deal was agreed saw GDP contracting by 3.5 percent this year.

On Tuesday, Sarris said "2013 will be a very difficult year, and the beginning of 2014 will also be difficult. Beyond this I believe the prospects are positive."

Also sworn in on Wednesday was Zeta Emilianidou, who becomes the first woman in the cabinet and replaces Georgiades at the labour ministry.

Anastasiades told her: "The ministry you are undertaking certainly requires great sensitivity. It is a ministry that deals with the government's social policy for vulnerable groups" and with industrial relations.

Under the bailout deal, those with savings larger than 100,000 euros in the country's largest lender, Bank of Cyprus, face losing up to 60 percent of their deposits over that amount.

Central bank official Yiangos Demetriou told state radio Tuesday that savers in the bank would, however, now be able to access 10 percent of their deposits over 100,000 euros.

Those in second lender Laiki will have to wait years to see any of their money over 100,000 euros as the bank is shuttered.

Banks have been operating under stringent capital controls since they reopened last Thursday, after a near two-week lockdown prompted by fears of a run on deposits.

The central bank has been progressively easing these restrictions, and has now raised the limit on business transactions from 5,000 euros to 25,000 and allowing people to write cheques of up to 9,000 euros.