Monday, March 25, 2013

Cyprus bail out terms agreed

Cyprus, the European Union and the IMF agreed to terms of a bail out.

In summary, share and bond holders of the 2 largest Cyprus banks are paying for Cyprus' share of the bail out package.  Depositors with accounts over 100,000 euros will also be paying, but their contribution has not yet been determined.  The Popular Bank of Cyprus know as Laiki will be shut down.  Accounts with under 100,000 euros will be transferred to the Bank of Cyprus (BoC).  Accounts with over 100,000 euros at Laiki and BoC will be frozen and used to resolve the banks debts.  The amount necessary to resolve the banks debts is not yet clear.  Some analysts have estimated 30% and Reuters quoted a couple EU finance ministers as saying it would be no more than 40%.

This is incredible!  The EU and Cypriot government decided that depositors at 2 specific banks should lose about 30% of their DEPOSITS to help fund a bail out of the country and its banking system.  The EU does not insure deposits over 100,000 euro and it seems they have asserted the power to appropriate large accounts for whatever purpose they determine.  Why would anyone keep over 100,000 euro in a EU bank account?

These measures are what the European Central Bank required in order to loan Cyprus about 10B euro.  So the bail out is not a reset or a write-off it.  It is a loan.  A loan that must be paid back.  So this bail out has kicked the can down a Cyprus alley, but not fixed the entire situation.  How is Cyprus going to pay back this loan and previous loans especially now that its banking services industry has just been sunk?  The economy and people of Cyprus are stuck in servitude to the ECB and the IMF for decades now.

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