The Spectacle Blog

German Bailout, Russian Haircut

By on 3.25.13 | 10:31AM

Early Monday morning Cyprus' leaders reached a deal with the EU, the European Central Bank and the International Monetary Fund. Cypriot bank accounts exceeding €100,000 will be taxed (at around or less than 30 percent). In exchange for the move, Cyprus will receive €10 billion from the EU. And the island's second largest bank, Cyprus Popular Bank (also known as Laiki Bank), will be shut down. Investors with less than €100,000 are safe at this time. 

The funds skimmed off depositors' accounts (approximately €4.2 billion) will be used to pay Laiki's debts and recapitalize the bank. Russian Prime Minister Dmitry Medvedev reacted strongly over the measure which largely affects high-dollar Russian investors: "The stealing of what has already been stolen continues."

Tyler Cowen at Marginal Revolution makes a few sobering observations:

  • Cypriot output may decline by 25 percent, accompanied by a credit contraction, a deflationary shock, an "austerity shock," and an uncertainty shock.
  • Cyprus still needs to come up with another €1 billion.
  • No one voted on this deal.
  • How truthful are the banks' financial statements, anyway?
  • As of this morning, what is the price of a Cypriot euro compared to a German euro, 50 percent? In other words, did Cyprus effectively just exit the euro with some "face-saving."
  • Next up, Slovenia?

Tyler offers some more analysis, here.

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