Cypriots rushed to pull their money out of banks and ATMs before the tiny Mediterranean nation’s government could finalize a plan to seize depositors’ funds to satisfy austerity demands from euro zone leaders, sparking a run that prompted banks to be closed until at least Thursday.
The island nation’s leaders were huddling to come up with a way to soften the blow on average depositors, with one proposal targeting accounts with deposits above euro 100.000 (US$130,000). The plan elicited an angry response from Russian President Vladimir Putin, whose nation’s oligarchs may have as much as euro 15 billion (US$19 billion) secretly deposited in Cyprus banks.
The euro zone agreed on Saturday to give Cyprus a euro 10 billion (US$13 billion) bailout, but demanded levies that would take between 6.75 and 9.9 percent of bank deposits. Analysts believe the measure is designed to ensure that the bailout doesn’t go toward propping up Russian billionaires.
The euro 15 billion (US$19 billio) figure comes from Moody's, and would account for as much as half of all Cypriot deposits. Cyprus’ bank deposits dwarf by 8-to-1 the gross domestic product of the nation of 1 million, indicating a dangerously oversized banking system stuffed with foreign cash. And Cypriot banks are invested heavily in Greek government bonds, which were restructured last year at the EU’s demand, incurring big losses on bondholders.
News of the coming bank accounts seizure sent shockwaves rippling through Europe and beyond. Not only did it spook wealthy foreigners who have long parked money in the island nation’s banks, it was seen as possibly setting the stage for similar grabs in bigger nations within the troubled euro zone.
"If I were a saver, certainly in Spain or maybe Italy, I think I'd be looking askance at these measures and think this could yet happen to me," Peter Dixon, global financial economist at Commerzbank, told Reuters.
The Cypriot Parliament put off a vote on the measure until Tuesday in order to blunt the pain for small savers. But without the EU bailout, Cyprus would be headed for default, according to experts. If depositors – especially the foreigners who have made Cyprus the Cayman Islands of Eastern Europe, pull their money from banks, action by the European Central Bank may be all that can stop regional contagion. The Cypriot central bank announced all banks will remain closed until Thursday while talks on the savings seizure continue.
No need blaming the Russians or any foreign investor about this Cyprus fiasco - they just exploited the loopholes within a corrupt Cyprus Government and their weakly regulated financial industry. Unfortunately it shows once again how the unscrupulous banking and financial industry, which is mainly interested in making quick profits, needs to be regulated.
EU-Digest
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