Cyprus saved!

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Europe has released details of its new deal with Cyprus:

The Eurogroup has reached an agreement with the Cypriot authorities on the key elements necessary for a future macroeconomic adjustment programme. This agreement is supported by all euro area Member States as well as the three institutions. The Eurogroup fully supports the Cypriot people in these difficult circumstances.

The programme will address the exceptional challenges that Cyprus is facing and restore the viability of the financial sector, with the view of restoring sustainable growth and sound public finances over the coming years.

The Eurogroup welcomes the plans for restructuring the financial sector as specified in the annex.

These measures will form the basis for restoring the viability of the financial sector. In particular, they safeguard all deposits below EUR 100.000 in accordance with EU principles. The programme will contain a decisive approach to addressing financial sector imbalances. There will be an appropriate downsizing of the financial sector, with the domestic banking sector reaching the EU average by 2018. In addition, the Cypriot authorities have reaffirmed their commitment to step up efforts in the areas of fiscal consolidation, structural reforms and privatisation.

The Eurogroup welcomes the Terms of Reference for an independent evaluation of the implementation of the anti-money laundering framework in Cypriot financial institutions, involving Moneyval alongside a private international audit firm, and is reassured that the launch of the audit is imminent. In the event of problems in the implementation of the framework, problems will be corrected as part of the programme conditionality.

The Eurogroup further welcomes the Cypriot authorities’ commitment to take further measures. These measures include the increase of the withholding tax on capital income and of the statutory corporate income tax rate. The Eurogroup looks forward to an agreement between Cyprus and the Russian Federation on a financial contribution.

The Eurogroup urges the immediate implementation of the agreement between Cyprus and Greece on the Greek branches of the Cypriot banks, which protects the stability of both the Greek and Cypriot banking systems. The Eurogroup requests the Cypriot authorities and the Commission, in liaison with the ECB, and the IMF to finalise the MoU at staff level in early April.

The Eurogroup notes the intention of the Cypriot authorities to compensate potential individual victims of fraudulent practices, in line with established legal and judicial procedures, outside the programme.

The Eurogroup takes note of the authorities’ decision to introduce administrative measures, appropriate in view of the present unique and exceptional situation of Cyprus’ financial sector and to allow for a swift reopening of the banks. The Eurogroup stresses that these administrative measures will be temporary, proportionate and non-discriminatory, and subject to strict monitoring in terms
of scope and duration in line with the Treaty.

Against this background, the Eurogroup reconfirms, as stated already on 16 March, that – in principle – financial assistance to Cyprus is warranted to safeguard financial stability in Cyprus and the euro area as a whole by providing financial assistance for an amount of up to EUR 10bn. The Eurogroup would welcome a contribution by the IMF to the financing of the programme. Together with the decisions taken by Cyprus, this results in a fully financed programme which will allow Cyprus’ public debt to remain on a sustainable path.

The Eurogroup expects that the ESM Board of Governors will be in a position to formally approve the proposal for a financial assistance facility agreement by the third week of April 2013 subject to the completion of national procedures.

So, little Cyprus has forced has forced the Eurozone to back down on its deposit levy, at least fos small depositors. In return, the small island nation will close Laiki Bank, which is the second biggest in Cyprus:

 “Laiki will be resolved immediately – with full contribution of equity shareholders, bond holders and uninsured depositors”

The under 100k insured deposits go to the bank of Cyprus , everyone else takes the hit.

The restructure is enough for the IMF to agree to release a 10 billion euro bailout, which will do nothing whatsoever to address Cypriot public debt sustainability or the economy (other than hurt both).

We must now wait and see if the ECB will support “restructured” Cypriot banks.

You might rightly ask why went through this at all.

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Comments

      • Giordano Bruno

        The right wing member for England in the EP just unleashed a tirade declaring everyone needs to withdraw their money from Spanish banks immediately.

        Russians could take a massive haircut on this deal and if they do there will be a response.

        This is getting pathetic.

        • So if you were holding capital in Spain, Greece, Italy, Portugal, France or Ireland you wouldn’t have any worries?

          http://www.youtube.com/watch?v=fOyGy9uN-1A

          This man is the only MEP with any balls.

          If only we had someone with his fortitude in this country.

          Instead all we get is the Katter splatter, the man who can hardly speak in Parliament without filling up and going off on some obscure ramble. I listen to ABC radio and have never know anyone to pump out drivel to his level.

          It wouldn’t hurt him to remember we have a secular government and drop the God fearing position as if that’s some kind of glowing endorsement.

    • MsSolarFelineAU

      Ohhh, and our Great Oztrayleeian Banks are like um solid? 😆

      I remember reading a comment on one of the SMH-articles, where a reader had posted she owned bank shares and had her funds in a Credit Union..

      Hmmm.

  1. ”Laiki will be resolved immediately – with full contribution of equity shareholders, bond holders and uninsured depositors”

    So, evrything above $100K in Laiki is lost? Is that what this means?

    • Probably anyone above the 100k threshold will swap their debt for equity.It might be worth a fortune in the years ahead!

  2. Did anyone here actually think this was not always going to be the outcome (i.e. 11th hour save)?

    All politics, Cyprus had no other choice but to go along, just needed to be seen fighting for its people. Germany and The Netherlands needed to be seen not simply handing out taxpayers’ money.

    • Its almost as if the elites want to give us all crisis fatigue so we dont react to future events.

    • tsport100MEMBER

      The original bail-out requested (just 1 week ago) was over 50B, they’ve only provided 20% of that…. it’s not over yet! This is all PR whitewash. They still haven’t made the laundry list of capital restrictions public yet!

  3. 100K Euro is not very much – anyone one that saves, other than those with a day to day transactional account is going to be hit.

    Saved indeed!

  4. This seems like the same deal as before. The only difference is this time losses all go to the uninsured deposits.

  5. Where has all the MB rhetoric gone about government being stupid for bailing out banks, moral hazards etc?

    The consistency on this site is nowhere to be found.

    Finance = risk. Banking system 5x as large as GDP is plain unsustainable and stupid.

    People need to get over the whole EU are thieves thing. The EU is providing a shitload in bailouts and people get to keep most of their money because of it. They can choose to not accept but that will mean loosing all of their money.

    • Ronin8317MEMBER

      When a bank fails, the usual order of debt seniority should be :

      Depositor >> Bond holder/secured creditors >> unsecured creditors >> shareholders.

      In the first bailout plan, the order of debt seniority is rearranged to be

      Everyone else >> depositors

      Which is why there is such a stink. The revised plan is a bit better :

      Small Depositor >> Everyone else >> large depositors (mostly Russian)

      I don’t think Cyprus will be receiving foreign money inflow for a long, long time after this.

      • Spot on Ronin.

        Come on Macrobusiness, where is the outrage? This is clear and simple THEFT and you haven’t once given serious criticism to the normal chain of seniority when you are dealing with insolvent institutions as pointed out above.

        Let’s see, the real reason those Eurozone, unelected chumps are stealing billions from deposit holders instead of wiping out equity holders and bond holders first (as would normally be the case) seems to be:

        a) the ECB is holding a shit load of collateral which would be marked down in the event of Cyprus banks folding

        b) the unelected powers that be want a test run to see how much money can be STOLEN IN PLAIN DAYLIGHT from a minor EU player as a test run for future confiscation when the other banks inevitably put up their hand for a ‘temporary levy’ etc in Spain, Italy, France etc.

        We know the pattern is bailout after bailout, ‘temporary’ intervention after ‘temporary’ intervention, so no end is in sight.

        Anybody holding electronic digits in any of the EU banks needs their head read right now and they should be withdrawing all funds forthwith.

        Expect future capital controls EU wide if it all goes to shit. You never know, you may be one of the lucky deposit holders who gets to make a involuntary donation to EU solidarity! Woo hoo!

      • The order for banks ought be the same as for all other entities and you need to distinguish between secured and unsecured creditors (including different classes of bondholders).

        The question then is who pays out the losses of the insured creditors?

        It seems that it is the government, rather than the insured depositors being secured creditors and diluting the recovery of other unsecured creditors.

        An alternative would be the government being insurer but holding a supreme first fixed and floating charge over all assets & undertaking over the holding company and all subsidiaries in support of the guarantee, but that would really spook unsecured lenders who weren’t insured and whose recoveries would be heavily diluted by the government exercising its security.

        My preference is for all banks to issue no security ever to anyone, and to be sufficiently well capitalised that large creditors would never expect a loss, but with the government insuring the small depositors.

        • Ronin8317MEMBER

          The point of the exercise is to push the European lenders (secure or non-secured) to the ‘top of the queue’, and push the Russian depositors to the bottom. It is immoral, but it is not illegal when it’s the government who is doing it.

  6. Headline should be “Cyprus Saved “.

    They are stuffed because of the austerity and consequent unemployment they will now face.

    The large depositors of Laki are stuffed and this will likely include many highly risk averse retirees who got out of the stock market and into banks for safety.

    It is hard to understand why large depositors in some banks escape through a rescue and those in Laki take huge losses when it seems both/many banks were insolvent.

  7. This is the ultimate f.u. to Russia who looked set to pick up the assets following the destruction of Cyprus by the zionist bankers.

  8. Can we also remove the above spam from ubulord? This is not the first time I’ve seen the same post asking people to google a set of terms.

    Now, regarding Russian/EU relations, there’s been a tweet doing the rounds:

    “KREMLIN TO “FREEZE ASSETS” OF GERMAN COMPANIES IN RUSSIA AS ANSWER TO EU ON CYPRUS – NEKRASSOV”