A new deal has been reached and looks likely to pass:
Cyprus clinched a last-ditch deal with international lenders to shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for a 10 billion euro ($13 billion) bailout.
The agreement came hours before a deadline to avert a collapse of the banking system in fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund.
Without a deal, Cyprus’s banking system would have collapsed and the country could have become the first to crash out of the European single currency.
Swiftly backed by euro zone finance ministers, the plan will spare the Mediterranean island a financial meltdown by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a “good bank”.
Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki’s debts and recapitalize Bank of Cyprus through a deposit/equity conversion.
I’m not convinced there are any good options on Cyprus. As I said, the idea of taking money out of deposits gives me the screaming willies, even it is “just” uninsured accounts with over 100,000 euros. Long term, the economic effects on Cyprus could be terrible. Their banking system may never recover. The good side, however, is that countries are no longer just getting handouts from the EU. They’re expected to bring something to the table.
Europe is a big mess. Unemployment is still at 9-10% but that’s an average. In Spain, it’s in the 20’s. Among young Spanish people, over half are unemployed. I have no hope they will emerge from the wilderness any time soon without either breaking the union up or centralizing monetary and fiscal policy. But it’s clear that the current system can not be sustained much longer.