EURO CRISIS: THE CYPRUS PLOT TWIST

And so, finally the financial system of Cyprus, has been secured. Or not? 

The current Eurogroup President, Mr Jeroen Dijsselbloem, who is also the Minister of Finance of the Netherlands, hailed the agreement between the government of Cyprus and the troika (EU-ECB-IMF) about the bank rescue as a template for bank restructurings:

 "The agreement reached tonight puts an end to the uncertainties of Cyprus and the euro zone, "said the President of the Eurogroup, who explained that" the agreement avoids the tax, and allows a thorough restructuring of the banking sector in Cyprus." 

 According to the understanding reached between the troika and prime minister Anastasiades, the Laiki Bank will be closed through a controlled process and its assets will fall into a "good bank" and a "bad bank." The good assets will end up in Bank of Cyprus, as well as emergency liquidity from the ECB, which must be returned. 

 The threshold of € 100000 has been defined as the amount of deposits in current accounts above which the planned measures will operate: they will be frozen and likely converted into government bonds. The events that are occurring in Cyprus represent another struggle for the existence of the Euro. But as any battle, it demands its victims. 

 Seemingly, because of the adopted threshold, the bailout plan would strike only the bigger account holders. The consideration that a large part of the deposits above € 100000 belongs to Russian citizens would have helped the adoption of this measure by the EU burocrats. A part from the fact that the idea of shifting the obligation for rescuing the banks to the customers, per se, is horrific, the action casts some doubts on the capacity of the Euro-zone leaders to looking beyond the present crisis. In one fell swoop, the likely consequences are:

1.      infringement of the principle of equality (the law grants the privilege in order to the cause of the credit. Inside each class, all creditors must be managed the same way, that's why it is talk about “par condicio creditorum”). This is extremely evident since the foreign (extra-EU) account holder have been discriminated. 

2.      For the people of Cyprus the future will not change in better conditions: for almost a couple of years to get a credit (or a job) from a bank will be practically impossible because the main sources of income in Cyprus are tourism - which requires credit - and to be employed in bank. That's way the rescue operation in Cyprus was successful, but the Cypriots will not really take advantage from it.

3.     There will soon be many activities and houses for sale in very, very few euro. The wealth of Cyprus risks to be depreciated.

4.     The myth of the single currency was tied to that of well-being. Without well-being, what does it remain of the myth of Europe?

5.     There are now many more countries to question the austerity policies as a way to achieve a balanced budget and in many to wonder whether it is worth paying such a high price for a single currency that benefits only four partners of seventeen, while ten others of EU countries do not participate.

Justification of the forced withdrawal from the bank accounts has been given by reporting that the banking system in Cyprus was someway involved in the money laundering which in large part could be of  russian origin. 

This statement sounds a bit discordant from the analysis of the Cyprus financial and economic system that was necessary for obtaining the accession to the Euro currency system. And the final decision dates from 2008 !! [here the Council Decision for Cyprus admission to the Euro zone]. Did Cyprus become a tax haven just after 2008 ? 

It appears the Cypriots (or more likely the European leaders) do not appreciate the extent to which Russia has propped up the local economy. 

In this kind of euro-drama we lack for nothing ! Here comes the plot twist... 

If the acessory purpose for striking the Cyprus financial system was simply to punish the "bad" Russian oligarchs who dared holdto hold huge deposits in the Cyprus' biggest banks, then there is the possibility that the measure will fail. A note from the Reuters' agency says:

While ordinary Cypriots queued at ATM machines to withdraw a few hundred euros as credit card transactions stopped, other depositors used an array of techniques to access thei money. 
No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniatrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors .

[see Reuters here]

History has teached that one can not joke with Russia. 
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