There are many lessons to be learned from the Cyprus bailout, and plenty of implications for how things may develop in the future. We list 25 here, but there are more.
Lesson 1: Do not underestimate the ability of the eurozone to do the right thing – after all the alternatives are exhausted;
Lesson 2: Eleventh hour deals can often lead to mistakes and have unintended consequences. The decision to haircut depositors under EUR 100k was a pothole the Troika fell into. It questioned the integrity of the EUR 100k deposit guarantee;
Lesson 3: The disappearance of Mario Monti from the scene has reduced the influence the South has on decisions about the future of the euro; Continue reading “25 Lessons from CYPRUS”
There has been a lot of negative comment about the Cyprus deal. That is understandable: you can reasonably argue that it will produce crippling austerity; that it is ridden with moral hazard; that it will create a bank run across most of Southern Europe. But what you can’t argue is that it was unexpected.
Too understand the deal in-case If you are in Cyprus :
* You can put money into your bank, but you can’t get it out again. At least you can, through ATMs, but only in very small amounts.
* If you have money on deposit, you can’t take the money out and close the account. And if it’s a time deposit, when it reaches the end of its life, you can’t have the money to spend. You have to roll it over into a new deposit. Continue reading “Cyprus Reaction”
Lee C. Buchheit published a paper on walking back from Cyprus, found interesting to share some his thoughts:
Cyprus imposes losses –euphemistically dubbed a “solidarity levy” — on insured depositors with Cypriot banks as a condition to receiving EU/IMF bailout assistance.
They have 4 options on last Friday March 15th 2013:
(i) Give Cyprus a complete bailout (estimated to cost €18 billion).
(ii) Restructure the outstanding Cypriot bonds, €4.4 billion of which are governed by Cypriot law and €3.8 billion by English law.
(iii) Haircut excess deposits in the Cypriot banking system; that is, deposits in excess of the €100,000 minimum covered by the local deposit insurance scheme. These represent about half of the total deposit base. Continue reading “CYPRUS – Bailout and Alternatives”