“We are in the process of analysing what can be done, what should be done and it should be comprehensive,” Lagarde told Bloomberg. “What is needed for Cyprus is a sustainable solution that addresses the issue of debt sustainability, that addresses the issue of return to the market, that addresses the recovery of growth in that country."

Lagarde had been asked if it would be okay for depositors in Cypriot banks to part with some of their money as part of the island’s bailout.

Citing a confidential memo, the Financial Times reported last week that a proposal had been made to 'bail-in' investors and depositors of Cypriot banks, a move that would reduce the amount of financial assistance required by Cyprus and make its debt sustainable.

Cyprus said it would never accept such an action, as experts warned that it would have knock-on effects on other eurozone countries.

Moody’s credit agency warned that imposing losses on depositors, as part of Cyprus’ bailout, would affect the ratings of European banks in general.

“If European authorities pursue such burden-sharing, it would be a material shift in public policy on bank bailouts and would be credit negative for European banks,” Moody’s said. “While we consider enactment of this reported proposal unlikely, the media coverage surrounding it heightens the risk of deposit withdrawals from Cypriot banks and has broader credit negative implications for Cypriot and euro area banks if European authorities pursue it.”

Source: Cyprus Mail