Eurogroup Head: Cyprus Economy to Recover 'in Short Period'

Eurogroup chief Jeroen Dijsselbloem said Monday he was confident that Cyprus's bailed out economy will recover in a "short period of time" despite the harsh "haircut" slapped on savings.

The Dutch finance minister was visiting the eurozone member one year after a controversial bailout deal which saw an unprecedented haircut on deposits over 100,000 euros ($138,000) to secure emergency funding to save a bankrupt economy.

"The economy of Cyprus has shown ... dynamic and flexible therefore I'm optimistic Cyprus will recover in a short period of time," said Dijsselbloem, who heads the eurozone's finance ministers.

"The Cyprus government is fulfilling all its commitments so the trust will come back," he added.

Tough austerity measures have also seen unemployment sky-rocket to record levels above 17 percent, while recession-hit Cypriots have endured tax hikes and pay cuts.

"We fully realize the effects the measures have had on the short-term economy and the lives of the people," Dijsselbloem told reporters after meeting his Cypriot counterpart Haris Georgiades.

"These are difficult times, difficult, yet inevitable measures ... but there is a new perspective for the economy and people of Cyprus," he added.

Cyprus agreed the 10 billion euro rescue package in March 2013 with the European Commission, European Central Bank and International Monetary Fund to bail out its troubled economy and bloated banking system.

The deal included a restructuring of the banks, with the island's second-largest lender, Laiki, wound up and its good assets folded in to the largest lender, Bank of Cyprus (BoC).

Deposits above 100,000 euros in both banks were subjected to so-called "bail-ins".

Those amounts from Laiki were converted into BoC shares, and 47.5 percent of deposits already held in BoC were also converted.

On the haircut, Dijsselbloem said: "I think that it was very harsh. I fully realize that, but it was also inevitable in view of the specific situation of the banking system in Cyprus."

He said over the past year the eurozone had "worked hard" on a banking union to ensure the same kind of "unsustainable banking sector situation will not arise in the future".

Georgiades said the island's government was determined to meet its bailout targets because the economy badly needed reform.

"The Cyprus government and Cypriot people are ready, willing, committed and able to do everything that is necessary to fix the Cyprus economy."

International lenders forecast GDP to decline by another 4.8 percent this year before posting one percent growth in 2015.

A booming tourism industry has helped Cyprus avoid deeper recession but there have been concerns that the Crimea crisis could hurt the influx of Russian tourists - the island's second biggest market.

Georgiades dismissed fears that Russian investment and tourism would go elsewhere.

"We are not particularly concerned the Cyprus economy will be negatively impacted by developments" in Crimea, the minister said.