Too soon for an epilogue, but it appears that the Cyprus bank situation is settling out. In summary:
- People who deposited big sums of money in uninsured accounts will take a big haircuts
- Insured deposits less than 100,000 Euros remain whole
- No bank run – perhaps due in part to limits on withdrawals
All things considered, it could have been a whole lot worse. (Beware false equivalences but, if Iceland is to be a model for Cyprus, four and a half years after their banking crisis Iceland seem to be on the road to recovery – see also here.)
Long story short: Cypriot lawmakers rejected the 10 billion euro bailout package which would have included either a 6.75% or 9% one-time tax on deposits. (IIRC, 6.75% on amounts up to 100,000 euros and 9% on funds in excess of that.) Cypriot banks remain closed and people in positions of authority are trying to come up with Plan B. (Banks closed? Did someone say “bank run”? Imagine that.)
Jared Bernstein is puzzled as to how Plan A came to be suggested in the first place. So is Dylan Matthews. As is Ezra Klein. I have no idea what Plan B will be but whatever it turns out to be I don’t imagine it will play well for the euro zone.
A banking crisis in Cyprus? No, I didn’t see that coming either. Apparently not many did. From the NY Times yesterday:
NICOSIA, Cyprus — Europe’s surprising decision early Saturday to force bank depositors in Cyprus to share in the cost of the latest euro zone bailout set off increasing outrage and turmoil in Cyprus on Sunday and fueled fears that the trouble will spread to countries like Spain and Italy…
In an address to the nation, [Cyprus President Nicos] Anastasiades painted an apocalyptic picture of what would happen if Cyprus did not approve the strict terms: a “complete collapse of the banking sector”; major losses for depositors and businesses; and a possible exit of Cyprus from the euro zone, the 17 countries that use the euro as their currency.
He said he was working to persuade European Union leaders to modify their demands for a 6.75 percent tax on deposits of up to 100,000 euros, a move that would hit ordinary savers.
Suffice it to say the one-time tax is not being well received. (There’s some speculation that a significant fraction of the large deposits are from Russian ‘businessmen’ who are using Cypriot banks launder money.) Continue reading