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ECB To Face Cyprus Questions At Rate Meeting

By DAVID McHUGH

FRANKFURT, Germany (AP) â¿¿ European Central Bank President Mario Draghi will try Thursday to reassure markets that Cyprus's chaotic bail-out won't worsen the euro currency union's debt crisis â¿¿ in spite of the heavy losses for the country's savers and strict limits on taking out money from banks or the country.

Last month, Draghi memorably dismissed fears that the euro area would be plunged into turmoil by the political deadlock in Italy as "the angst of the week." Europe's markets and investors have been calmer since the ECB offered to help indebted countries by buying unlimited amounts of bonds. But any new political or financial turmoil raises the question of how long that calm will hold.

At Draghi's news conference Thursday, held after the ECB's monthly rate-setting meeting, attention will focus on the latest "angst" â¿¿ tiny Cyprus, which this month became the fifth member of the 17 European Union country group that uses the euro to need rescue loans.

Cyprus asked for a bailout after its oversized banking sector suffered huge losses on its investments in Greece and the country's government could not afford to rescue it on its own. In return for a 10 billion euro ($12.84 billion) loan, clinched after a week of turmoil that threatened Cyprus's membership of the euro, the government agreed to impose losses on savers and investors in the country's two biggest banks and overhaul its financial system.

As Cyprus's politicians struggled to reach agreement on the rescue, the ECB threatened to cut off emergency credit to banks unless a deal was cut. The threat helped bring about an agreement, and the ECB said the credits from the Cypriot central bank could continue â¿¿ for now.

To prevent savers rushing to empty their accounts, Cyprus's were closed for nearly two weeks while the deal was negotiated. When they reopened last week, bank accounts were under strict capital controls â¿¿ restrictions on how much money people can take out of their accounts and the country.

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