Draghi’s Horses: Banking Union, Cyprus Solution

Consistent with our tweet:

The final Eurogroup decision on Cyprus ended up restoring deposit insurance and imposing a resolution of only the two money-center banks in Cyprus, leaving the rest of the banking system initially untouched. However, the message that it was the political intention of the Eurogroup to liquidate Cyprus’ “business model” make a run on the remains of the Cypriot banking system a near certainty, and indeed the Cypriot parliament legislated stringent capital controls. But the Cypriot capital controls not only ringfence the Country to avoid a capital flight: they also completely tear up the modern payment system that used to exist in Cyprus. For ordinary people there will be restrictions on cash withdrawals, on check cashing, on payment orders, and on the use of payment cards. But the capital control bill passes by the Cypriot parliament also allows the monetary authorities to limit interbank lending. In order to save the Euro, and in order to save Cyprus from a crippling capital outflow, the entire payment and clearing system is Cyprus has been destroyed. The fact that not only the Eurogroup but the European Commission and the central banks involved are going along with this with only a meek statement that the capital controls should be lifted “as soon as possible”. Eurointelligence – All of Draghi’s horses – thoughts on banking union and the Cyprus ‘solution’.

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