The announced bailout terms of Cyprus’s bank bailout appear highly problematic. The following is how Frances Coppola, Coppola Comment sees it:
…deposit insurance everywhere in the EU has now been undermined. The precedent has been set for insured depositors to suffer losses in order to protect Russian oligarchs and reckless banks. If the Eurogroup can impose this on Cyprus, it can do so elsewhere too. Yes, Olli Rehn says they have no current plans to do so, and insists that the Cyprus bailout is unique. But haven’t we heard this before? Wasn’t the Greek bailout “unique”, and the Irish bailout, and the Portuguese bailout, and the Spanish bailout? It is only “unique” until the next domino falls. I would not be surprised now to see bank runs across the entire Eurozone periphery, and perhaps in other EU countries too.
This from Neil Irwin, The Washington Post:
Early Saturday, the nation reached an agreement with international lenders for bailout help. Part of the agreement: Bank depositors with more than 100,000 euros ($131,000) in their accounts will take a 9.9 percent haircut. Even those with less in savings will see their accounts reduced by 6.75 percent. That’s right: Anyone with money in a Cypriot bank will have significantly less money when the banks open for business Tuesday than they did on Friday. Cypriots have reacted with this perfectly rational reaction: lining up at ATM machines to try to get as much money out in the form of cash before the money they have in their accounts is reduced.
The European Central Bank will now be on high alert, monitoring activity in Greece, Spain and beyond for evidence that the Cyprus precedent will result in new runs on those nations’ banks. Why today’s Cyprus bailout could be the start of the next financial crisis
Then there’s this from Yanis Varoufakis:
They called it a ‘stability levy’, when they meant a tax on Cypriot depositors (including the savings of poor widows and small children) so that they spare holders of Cypriot government bonds (including hedge funds who are now having a party in Mayfair and New York) as well as minimise potential long-term losses by the European taxpayers. Cyprus’ Stability Levy: Another sad euphemism