Deal Reached in Cyprus

I largely held off on commenting on the rapidly-changing events in Cyprus. I felt that some sort of deal would be reached. I think these stories tend to be phony standoffs where everyone pretends to wait until the last minute until they decide to choose the only alternative left.

Here’s the New York Times:

Under the agreement, Laiki Bank, one of Cyprus’s largest, would be wound down and senior bondholders would take losses.

Depositors in the bank with accounts holding more than 100,000 euros would also be heavily penalized but the exact amount of those losses would need to be determined.

The plan to resolve Laiki Bank should allow the Bank of Cyprus, the country’s largest lender, to survive. But the Bank of Cyprus will take on some of Laiki’s liabilities in the form of emergency liquidity, which has been drip-fed to Laiki by the European Central Bank. That short-term financing, which the E.C.B. had threatened to cut off on Monday, is expected to continue.

Depositors in the Bank of Cyprus are likely to face forced losses rather than any form of tax. That plan, which set off outrage last week in Cyprus and as far away as Moscow, has now been dropped entirely.

Mr. Dijsselbloem said he was “convinced this is a much better deal” because under the revised agreement, the heaviest losses “will be concentrated where the problems are, in the large banks.”

My apologies to the good people of Cyprus, but what happens there doesn’t much affect us. The fear was that a bank deposit tax would lead to a continent-wide bank run. Alas, that’s not the case. The Cypriots got together with the Troika and decided to screw the Russians—and by Russians, I of course mean the uninsured depositors. The best part of this deal is that it doesn’t have to be approved by the Cypriot parliament.

The U.S. stock market jumped at the open, and the S&P 500 came near its all-time high close, but we’ve given it back already. That should tell you that the Cyprus deal isn’t such a big deal. The stock market is currently down just a bit.

Posted by on March 25th, 2013 at 11:18 am


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