NICOSIA, July 14 (Xinhua) -- Five years after the world's first bail-in, the recapitalization of Bank of Cyprus (BoC) by seizing uninsured deposits, the General Court of the European Union (EU) dismissed a challenge to the legality of the action and caused sights of relief among government officials in Nicosia.
"That was a really most important decision by the Court of the European Union. A different decision might have opened the way to claims for compensations that could even lead to another bail-out for Cyprus," a high-ranking government official said on Saturday on condition of anonymity.
He was commenting on decisions on applications by two different groups of depositors of BoC and the now defunct Cyprus Popular Bank for losses they suffered as a result of the 2013 resolution of the banking system, which was part of the 10-billion-euro bailout of Cyprus.
BoC depositors lost close to half of their deposits over 100,000 euros to recapitalize the lender, and Popular Bank was wound down and folded into BoC, resulting in the wiping out of uninsured deposits and bonds and the value of equity.
The EU General Court decided on Friday that the action was necessary for the stabilization of the banking system of Cyprus and dismissed a claim for disproportionate measures that affected the applicants, according to the transcripts of the Court's decisions obtained by Xinhua.
The two groups of plaintiffs, individuals and companies, said they suffered considerable losses as a result of illegal actions by the EU and its Council, the European Commission, the European Central Bank and the Eurogroup.
"The Court concludes that the individuals and companies which initiated the actions have not succeeded in demonstrating an infringement of the right to property, of the principle of protection of legitimate expectations, or of the principle of equal treatment," the decision said.
The Court also dismissed claims of unequal treatment based on the facts that insured depositors did not suffer losses, depositors in branches of Cypriot banks in Greece were not impaired and Cypriot banks were forced to sell off their operations in Greece.
The Court acknowledged that the demise of the Cypriot banking system was the result of the reduction of the value of Greek bonds by about 75 percent in 2012, as it led to the loss of over 4 billion euros for Cypriot banks, or about 25 percent of Cyprus's GDP.
However, it decided that the differentiation between depositors in Cyprus and depositors of Cypriot bank branches in Greece, as well as the sale of Greek branches, was necessary to avoid contagion between the Cypriot and Greek banking and financial systems and to maintain financial stability.
Though the applicants have a right to appeal the decisions in two months, the government official said that appeals can be made only on points of law and this significantly reduces the possibility to overturn the judgements.
"We are pretty sure that no other decisions are likely in the future which could upset either our economic planning of the stability of the economy and the banks," the official said.
He also said that he was pleased that the European Commission has given its blessing to the merging of two banks, expected to be completed in the coming days, and its view that the Cypriot banking system is firmly stable.
