There was an agreement for Cyprus at the Eurogroup
regarding the financing needed to bail out the financial – banking system in
the country. The amount of financing agreed between the EU and Cyprus is at 10
billion Euros but the details are still uncertain.
Laiki Popular Bank or Cyprus Popular Bank (CPB) will
be liquidated and broken into a good assets bank and a bad assets bank. Bank of
Cyprus is to take over all the liabilities of CPB. Deposits over 100,000 Euros
will be cut by at least 30 %( still unknown of specific amount), and still not
clear what will happen to depositors at Bank of Cyprus. There will be no other
levy tax on the remaining banks operating in Cyprus. The hair cut will also
affect shareholders of banks.
All deposits under 100,000 are guaranteed according to
the agreement. Also not clear as to when the banks will open in
Cyprus since due to liquidity problems they have been closed for over a week
since the banking crisis started. It is unfortunate though to transfer the
mistakes of the bankers to the people. Because this will increase the public
debt of Cyprus which will be paid by no other than the Cypriot people with cuts
in wages, insurance funds – pensions, recession, and unemployment. Many
employees in the banking sector are outraged by the crisis and are afraid they
will lose their jobs.
But how did Cyprus end up this way. The answer is by
the mistakes and stupid decision of the Central Bank of Cyprus, its governor,
and all banking executives of the remaining banks. They were indiscriminately giving out loans which now
cannot be paid, they did not follow basic investment risk averse decisions, or
diaspora of investments to minimize risk, and of course, they invested in Greek
bonds.
They knew that even though they were purchasing Greek
Government Bonds in discount at 0,80 cents on the euro, even with a haircut,
they still would come ahead with good yields. But the opposite happened. When
the German banks were selling Greek bonds having inside information of the
imminent haircuts, Cypriot banks were buying…
The Cypriot economy was dependent
all these years on its financial system with 40% of its economy. In order to
attract investors in its banking safe heaven system, it gave out interest on
deposits of 5%, a low corporate tax rate of 10%, and many offshore companies
were operating on the Island.
Russians billionaires started operations in Cyprus and
moved large sum of capital into their banking system. One Russian billionaire
with net worth over 9 billion owns 10% of the Bank of Cyprus. The estimated
amount of capital by Russians in Cypriot Banks is estimated at 10 billion
Euros.
Since Cyprus entered the euro and became a member of
the EU, in 2009 over 100,000 companies opened operations in Cyprus. Banks have
placed a limit of the amount of withdrawals from ATM’s to 100 Euros daily, and
capital outflow limitations to prevent Bank run.
It is known that Cyprus has oil deposits and in the
middle of a financial crisis we have to look at the geopolitical games played
on the back of Cyprus because of these reserves, and who is trying to take advantage,
or set foot: Russians or the United States? The state department said last week
that Cyprus is not in a position to manage it by themselves..Despite this,
Cypriots knew well about a year ago of the problem since they were negotiating
with the EU for a memorandum bailout, but took no measures which would at least
alleviate more painful ones, like in Greece.
