The European Central Bank has threatened to cut off funds propping up Cypriot banks on Monday, precipitating the island's exit from the euro if agreement was not reached on Sunday night at the emergency meeting between eurozone finance ministers, the president of Cyprus Nicos Anastasiades, and the bailout troika of the IMF, European Commission and the ECB.
The Europeans, with the Germans and the IMF taking a particularly hard line, demanded the winding up of Cyprus Popular Bank, the country's second biggest, and the restructuring of Bank of Cyprus, the biggest financial institution.
The parties considered new proposals that had emerged over the weekend with European officials speaking of a levy of up to 25% on Bank of Cyprus depositors with accounts holding more than €100,000, plus a further levy of up to 5% on similar deposits in other banks.
"The numbers have not changed. If anything they've got worse," said Wolfgang Schäuble , Germany's finance minister. He said that last week's agreement to raise €5.8bn had to be achieved. This time, however, savers with less than €100,000 would be spared, meaning the burden would fall much more heavily on the wealthy than the 9.9% levy proposed for their accounts last week.
◼ UPDATE: Cyprus clinches last-ditch bailout deal - NBC
Cyprus clinched a last-ditch deal with international lenders on Monday for a 10 billion euro ($13 billion) bailout that will shut down its second largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians.
The agreement emerged after fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund - hours before a deadline to avert a collapse of the banking system.
The plan, swiftly endorsed by euro zone finance ministers, will spare the east Mediterranean island a financial meltdown by winding down 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, which under EU law are not guaranteed, will be frozen and used to resolve debts, and Laiki will effectively be shuttered, with thousands of job losses.
An EU spokesman said no levy would be imposed on any deposits in Cypriot banks. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits.
◼ Few winners in Cyprus deal - BBC
Days of uncertainty lie ahead.◼ EU and Cyprus agree to take big depositors’ money without calling it a “tax” - Le-gal In-sur-rec-tion
It is not clear whether the banks will reopen on Tuesday. Neither is it known when restrictions on cash withdrawals will be lifted or what capital controls will be left in place.
There will be big, and innocent, losers.
What happens to the person who parked more than 100,000 euros in an account before buying a property or before paying foreign suppliers?
So the EU has reached a deal to bail out Cyprus, but unlike the prior proposal, there will be no tax levied on anyone.
Insured deposits under 100,000 Euros will be safe and transferred to a new “good” bank, but the losses will be concentrated on the larger depositors who will be stuck at the “bad” bank. And in a move eerily reminiscent of the maneuvering to get Obamacare passed, the deal is structured to avoid calling it a tax (which would require parliamentary approval).
◼ Zero Hedge summarizes what it means: - Zerohedge
… In other words, a deal far worse then the original one proposed by the Eurogroup last week – when the banks still existed. The key appears to be the ‘saving’ of the insured depositors (crucial to avoid a pan-European bank run) and the crushing of the ‘whale’ depositors….
UPDATE: It appears the ‘deal’ to default/restructure the banks has been designed to bypass the need for parliamentary votes, since it is theoretically not a tax.
◼ The Next Phase of the Financial Meltdown in Cyprus: an "Unimaginable" and Vicious Policy is Being Considered - Doug Ross
...Just a week ago the entire financial world shuddered when Cypriot banks were to "tax" (i.e., steal) 12 to 15 percent of deposits.
Now the act of total confiscation of these accounts is on the table.
This is lawlessness. And Statist cheerleaders like Henry Blodget and Paul Krugman support the policies that will bring Cyprus to our shores.
