Cyprus: Banks Will Remain Closed Until Tuesday

March 21st, 2013
in econ_news, syndication

russianrouletteEconintersect:  There is no surprise that the Cyprus bank holiday has been extended and will now cover a full week.  When the Cyprus parliament produced a unanimous vote rejection of the EC (European Commission) plan to tax Cyprus bank deposits it was clear that there was little chance banks could open this week.  The plan had been backed by the IMF (International Monetary Fund).  Alternatives have not emerged and it appears that there is a possibility that the Cyprus banking sector could collapse, forcing the country out of the Eurozone.

Follow up:

One of the proposals reported by the Financial Times would reorganize the two largest banks in Cyprus into a good bank, containing all deposits of €100,000 and less, and a bad bank with all larger deposits.  From the FT:

However, officials said Nicos Anastasiades, the Cypriot president, continued to resist the merger plan, known among negotiators as the “Icelandic solution”, since it would put large uninsured deposits into the bad bank, effectively wiping them out.

Mr Anastasiades’ continued refusal to accept any losses on large deposits, many of which are held by Russian nationals, has befuddled European negotiators, who see such “haircuts” as central to any compromise solution.

“The Cypriots are still rejecting any bank resolution that involves locking up the uninsured deposits and imposing losses on them,” said a senior official involved in the negotiations.

Ian Traynor says in The Guardian that the crisis has come to a head because of six main actors with irreconcilable demands.  He names Germany, Russia, the IMF, the European Commission, the ECB (European Central Bank) and Cyprus as the six involved.  He points out that Russia is a central character in this play and has not been allowed on stage.  Traynor suggests that will change and Russia will become more directly involved in Eurozone politics and finance for the first time.

Notwithstanding Traynor's observations, Econintersect would point out that this is a trivial problem for the ECB to resolve.  The missing €6 billion that the EC proposed to obtain by confiscation of bank deposits is 0.4% (that is 4/10 of one percent) of the €1.5 trillion Mario Draghi has pledged to preserve the Eurozone.


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