In a dramatic
development in the Parliament of Cyprus the representatives voted no
overwhelmingly with 19 abstains.
No one can predict
the consequences from this outcome. Cyprus sought financing help from the EU in
order to protect its banks from defaulting. In return the EU and mainly the
German government sought to cut deposits in the three banks operating in Cyprus
regardless of amounts: above 100,000 with a 10% cut, and below that amount
6.5%.
Cyprus has a
government typical to that of the United States: it is a presidential system of
government with no majority in Parliament and with distinctions, or separation
of powers. This means that even if the President, who is the head of
government, seeks votes to pass a bill, there is no majority taking for granted
that it will pass. This is what happened tonight. The ministers are not at the
same time members of Parliament.
This practically
means that Cyprus will not receive any financing from the European Union, EU.
The European Central Bank will not be financing Cypriot Banks with seed capital
needed. As depositors is concerned, if they seek their money it looks that they
will not be able to get it as banks will shut off liquidity.
This may lead
Cyprus to bankruptcy and the only way out is if Cyprus goes ahead to issue its
own currency, a possible exodus from the euro zone and problems with imports.
Meantime the finance minister is in Russia and it seems that the discussions
will be focused on Cyprus seeking financing, and perhaps the purchase of one
Cypriot Bank by Russia.
