Few winners in Cyprus deal

 
Protester casts a shadow onto a Cypriot flag in Nicosia on 24/3/13 Uncertainty lies ahead in Cyprus as the implications of the deal become clearer

After 12 hours of negotiations, a deal was done in Brussels which protects Cyprus from bankruptcy.

It will stay in the eurozone and will receive a 10bn euro bailout.

Its rescue comes with a heavy price.

The battle to protect its business model as an offshore financial sector has been lost.

The German government in particular had opposed a model which attracted foreign investors with high interest rates and low regulation.

Afterwards, German Finance Minister Wolfgang Schaeuble said: "It was the result the German government always stood for."

In order to qualify for a rescue, Cyprus had to raise 5.8bn euros. It has done that by closing the Laiki (Popular) Bank. Further funds will be raised from tax increases and privatisations.

With the closing of Laiki Bank, thousands of bank workers will be without a job.

Bondholders and those with deposits of more than 100,000 euros ($130,000; £85,000) face significant losses; perhaps 40% or more. Their accounts will be frozen immediately and used to pay off the bank's debts.

Large depositors at the Bank of Cyprus - the island's largest bank - will face very severe losses. The details have yet to be worked out. This is where most of the Russian funds are.

All bank accounts with under 100,000 euros in them have been protected from any levy or one-off tax.

Tarnished reputation

As with other eurozone bailouts, the rescue is likely to deepen the recession and increase job losses. It combines austerity with the severe pruning of one of the country's key industries.

Start Quote

To all those who say we are strangling an entire people... Cyprus is a casino economy that was on the brink of bankruptcy”

End Quote Pierre Moscovici French finance minister

The EU's Economics Commissioner, Olli Rehn, said "the near future will be very difficult for the country and its people".

Days of uncertainty lie ahead.

It is not clear whether the banks will reopen on Tuesday. Neither is it known when restrictions on cash withdrawals will be lifted or what capital controls will be left in place.

There will be big, and innocent, losers.

What happens to the person who parked more than 100,000 euros in an account before buying a property or before paying foreign suppliers?

There will be much confusion, much argument, as the detail emerges and is argued over. The rescue, certainly in the short-term, will hit the Cypriot economy hard.

Cyprus has been saved but at what price?

Certainly in the country itself it is widely believed they have been treated unfairly.

French Finance Minister Pierre Moscovici said: "To all those who say we are strangling an entire people... Cyprus is a casino economy that was on the brink of bankruptcy."

The deal has left the eurozone's reputation tarnished.

It was prepared initially to tax small depositors, despite guarantees of protection; there is the perceived bullying of the European Central Bank and Germany; there are renewed doubts that such disparate countries can be held together in a monetary and economic union.

In Cyprus itself, it is very easy to find people who want to leave the eurozone when the time is right.

But for the EU, the risk of a country leaving the eurozone has gone away and with it the risk of contagion.

For Brussels that is a prize enough.

 
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  • rate this
    -2

    Comment number 15.

    12 MH - The EU governments HAVE put tax payers money at risk. There is no certainty this will work. It's a stop gap at best. I agree that greed got them where thay are.Cyprus should have gone bust! Most regular savers would be protected. Other investors would have learnt that "investments can go down as well as up"

  • rate this
    -16

    Comment number 14.

    Every "solution" to the Euro crisis is really a trade war - Germany always tends to have good start in their wars but we all know what usually happens in the end.

  • rate this
    +1

    Comment number 13.

    The problem wasn't that Cyprus was overbanked: other countries like Luxembourg and Switzerland are overbanked too. It was that the Cypriot banks foolishly laid off their deposits in Greece and then got shafted with a 70% haircut. So the people of Cyprus and its depositors are to be impoverished because Greece, not Cyprus, joined the Euro.

  • rate this
    +18

    Comment number 12.

    What is all this talk of bullying, totalitarianism, straggle hold etc? Cyprus took itself to the brink, driven by selfish and excessive greed. At the edge, Cyprus had several options, one of which was an EU / IMF bailout. Did the readers of this website really want EU governments to put their taxes at risk for the benefit of Cypriots (and Russians)? Better Cyprus goes over the edge into oblivion.

  • rate this
    -5

    Comment number 11.

    The biggest worry for me is that one of the conditions is that the Cypriot Parliment will not be allowed a vote. No say for the elected representatives = no say for the people. This is overt centralised dictatorship. And please, no comments on the people not knowing what's best. WE the people have a right to decide OUR fate, good or bad!

  • rate this
    -5

    Comment number 10.

    According to the BBC's main article, one key element of the deposit tax, demanded by the IMF, is that it should not require approval by the Cyprus parliament.
    Just one further example of how the EU subverts democracy. If they don't vote how you like then keep asking them to vote again until they get it "right" (eg Ireland) or, in this case, don't give the people's representatives any vote at all.

  • rate this
    -1

    Comment number 9.

    Yes, a casino economy. But shame on the EU officials and others who admitted Cyprus to the Euro in the first place - they should have known how rickety it was. And the Greek haircut solved nothing - just passed the poisoned chalice to the Cypriots - and now it is passed on to private investors. What a mess!

  • rate this
    -2

    Comment number 8.

    okok

  • rate this
    -7

    Comment number 7.

    "Its rescue comes with a heavy price"

    Yes, the whole of the world will see that EU governments, antidemocratic Brussels autocrats and the IMF are so morally and financially corrupt they will bend whatever rules they like to help themselves to citizens hard earned assets in order to to keep their ruinous policies going.

    This is governance versus the people not on behalf of the people

  • rate this
    +27

    Comment number 6.

    "It was prepared initially to tax small depositors.. there is the perceived bullying"

    It was the Cypriot government's plan to tax small account holders. "Bullying" was about shifting the burden from the lesser well of.

    "In Cyprus itself, it is very easy to find people who want to leave the eurozone when the time is right."

    To do what? Restart a tax haven, what an ambition!

  • rate this
    -19

    Comment number 5.

    Just more and more European Union Totalitarianism!

  • rate this
    +3

    Comment number 4.

    I find it difficult to have any sympathy for those who will lose money in this deal. In this financial climate, anybody who has more than 100k in any one institution is simply incompetent. I realize some innocent people will get burned, but that's life in modern times.

  • rate this
    +18

    Comment number 3.

    To treat cyprus fairly we shouldnt have bailed them out at all and left them to the consequences of their own choices. They placed bets on the prosperity of other Euro nations who at least had some semblance of a responsible fiscal policy and that makes me furious. The ECB is not an ATM where southern nations can go and collect money when they screw up their economies!

  • rate this
    -8

    Comment number 2.

    The Euro fools will stop at nothing to save their failed project. However, all they have done is kick the can down the road again. Cyprus wasn't a financial problem for the EU, it was a political problem. Just wait until one of the big ones needs a bailout. Italy next?

  • rate this
    -8

    Comment number 1.

    This is Euro madness. Do they really expect investors to accept a 40% hit. I can tell you that anyone that is an investor in Europe with funds spread across the Euro is going to be looking to move their funds out as fast as possible.This is simply state nationalisation of private funds. Is it even legal. The jackboot of the EU and IMF has been stamped on Cyprus.God save the Euro, nothing else will

 

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