Cyprus Reaches Banking Deal, Should Be Safe For At Least a Few Hours

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.


To the surprise of no one, Cyprus reached a deal at the very last second to bail out its banking system. The Financial Times has the basics:

Under the outlines of the deal, depositors with accounts worth less than €100,000 would not be touched. But those above those levels in Laiki Bank, the second largest and most troubled financial institution, would be severely cut, the officials said. The losses on large deposits in Bank of Cyprus, which will survive as a much smaller entity, have yet to be decided, but could be as high as 40 per cent.

….While the deal spares Cyprus of the sweeping levy on all deposits that caused outrage earlier in the week, it could end up being far more painful for large depositors, including Russian account holders, in both banks. Bank of Cyprus is particularly heavily laden with Russian deposits.

Strict capital controls will remain in place to prevent wealthy Russians from withdrawing all the rest of their money the instant that banks reopen, which is pretty much what anyone with any sense would do if they were allowed to. No matter how emphatically the great and good of Europe insist that Cyprus’s problems are now solved for all time, the EU’s recent history suggests taking their assurances with a great big shaker of salt.

And it turns out that this isn’t all. AP reports that even haircuts this colossal will raise only €4.2 billion. The remaining €1.6 billion demanded by the EU will come from “tax increases and privatizations.” The Wall Street Journal reports on the likely result:

“The [deposit] haircuts will have a calamitous impact on Cypriot output, leading to a decline in gross domestic product of 10% this year and 8% in 2014,” said Gabriel Sterne at Exotix, a hedge-fund advisory. “We think the peak-to-trough decline in annual real GDP will be in the order of 23%, similar to Greece, but we see risks more on the downside than the upside.”

As with the rest of Southern Europe, Cyprus faces crippling job losses, rising business bankruptcies and slumping tax collections, said economists.

That could imperil the country’s ability to meet budget targets, something that in turn could call forth even harsher measures and once again stoke fears about the island’s long-term future inside the euro zone.

As for possible revenge from the Russian government, there’s no word on that yet. Stay tuned.

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

payment methods

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate