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Cyprus Bailout Means 40% Hit On $130K Savings

From a cheering Associated Press:

Cyprus secures bailout, avoids bankruptcy

Cyprus secures international bailout, avoids bankruptcy, but large bank depositors face losses

By Juergen Baetz and Don Melvin | March 25, 2013

BRUSSELS (AP) — Cyprus secured a 10 billion euro ($13 billion) package of rescue loans in tense, last-ditch negotiations early Monday, saving the country from a banking system collapse and bankruptcy that could have destabilized the entire euro area

"We’ve put an end to the uncertainty that has affected Cyprus and the euro area over the past week," said Jeroen Dijsselbloem, who chairs the meetings of the 17-nation eurozone’s finance ministers.

In return for the bailout, Cyprus must drastically shrink its outsized banking sector, cut its budget, implement structural reforms and privatize state assets, he said.

Imagine, cutting government spending and privatizing. What kind of a crazy solution is that?

The country’s second-largest bank will be shut down immediately, with all bond holders and people with more than 100,000 euros in their bank accounts there facing significant losses.

And by "significant losses," we later learn the AP means that savers with more than $130,000 are going to have their accounts taxed at a rate of 40%.

The measures are likely to deepen the recession in Cyprus and lead to more job losses…

We thought taxing the rich was great for the economy and job market?

The eurozone finance ministers accepted the plan, reached after more than 10 hours of negotiations in Brussels between Cypriot officials and the so-called troika of creditors — the International Monetary Fund, the European Commission and the ECB.

"We believe that this will form a lasting, durable and fully financed solution," said IMF chief Christine Lagarde…

Under the plan, Cyprus’ second-largest bank, Laiki, will be restructured and holders of bank deposits of more than 100,000 euros there will have to take losses, Dijsselbloem said, adding that it was not yet clear how severe the losses would be.

"This will have to be worked out in the coming weeks," he added, noting that it is expected to yield 4.2 billion euros overall. Analysts have estimated investors might lose up to 40 percent of their money.

Even though last week the Cypriot parliament just voted unanimously against taxing those ‘rich peoples’ accounts by a far more modest 12 to 15%.

Savers’ deposits with all Cypriot banks of up to 100,000 euros will be guaranteed by the state in accordance with the EU’s deposit insurance guarantee, Dijsselbloem said.

But over that magical number, all bets are off. And the money is free for the government to steal.

Laiki will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation’s biggest lender, Bank of Cyprus.

Large deposits with Bank of Cyprus above the insured level will be frozen until it becomes clear whether or to what extent they will also be forced to take losses, the Eurogroup of finance ministers said in a statement.

Dijsselbloem defended the creditors’ approach of making deposit holders take heavy losses, saying the measures "will be concentrated where the problems are, in the large banks."…

And, after all, they are just stealing from ‘the rich.’ There’s nothing wrong with that.

Amid fears of a banking collapse, Cyprus’ central bank on Sunday imposed a daily withdrawal limit of 100 euros ($130) from ATMs of the country’s two largest banks to prevent a bank run by depositors worried about their savings…

The Cypriot government also approved a set of laws over the past week to introduce capital controls, in order to avoid a huge depositor flight once banks reopen…

You were sucker enough to believe Cyprus’ promises, and put your money in their banks. Now you have to suffer the consequences.

Still, wouldn’t you like to have the mattress concession in Cyprus right now?

This article was posted by Steve on Monday, March 25th, 2013. Comments are currently closed.

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