The latest news from Cyprus is that Plan B was
rejected by the European Union according to the Cypriot Interior Minister who
spoke a few hours ago on a Greek television news show. The minister said that
it is very likely that two of the three banks in Cyprus will not open. They are
Cyprus Bank and Laiki Popular. This practically sets the deposits at these
banks in danger and the possibility that Cyprus may default.
Plan B was revealed by the minister of transportation
who said that Cyprus presented the plan to the European Union and the European
Central Bank. This included a creation of an Investment fund which would have
included a modest raise in taxes, cuts in wages, the contribution of foreign banks
operating in Cyprus(the banks had accepted this), the involvement of Russia in
purchasing one of the three banks, and the contribution of the private
insurance and pension funds.
These funds have assets of net worth 5.5 billion Euros
in bank accounts and the plan was to use this money to finance the needs of Cyprus
needed to recapitalize the Cypriot Banks.
Cyprus needs 5.8 billion Euros in financing and its
total deposits are at 15 billion Euros. The imminent danger is for an immediate
bank run when and if banks open in Cyprus. Also the small country is facing the
imminent danger of exit from the Euro zone and the euro. This could have a
shocking effect, if not already, to the rest of Europe.
It is also interesting
to mention that the German press and all over the world is criticizing the
German government for being responsible for this crisis. The reason is that
they did not calculate the imminent consequences in the banking system when
they announced to the Cypriot government, and demanded, a cut in bank deposits.
