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Cyprus (7): Why The “Lamb” Didn’t Become A “Lion..?”

Cyprus has accepted the Popular Bank sacrifice for rescuing the rest of its banking system by concluding a last-moment deal with its international lenders:

Cyprus Reaches Bailout Deal With International Lenders – Huffington Post

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.

Cyprus Flag 1

It seems that Cypriot President Nikos Anastasiades had difficult times in Brussels last night, as questions about the Cypriot side’s negotiation strategy and geopolitical alternatives in the broader S/E Mediterranean remain open to be answered

Last-minute Cyprus deal to close bank, force losses – Reuters

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. Swiftly endorsed by euro zone finance ministers, the plan 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 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. The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros, Eurogroup chairman Jeroen Dijssebloem said.

The European Central Bank’s deadline:

Cyprus bailout: Deal reached in Eurogroup talks – BBC News

Eurozone finance ministers have agreed a deal on a 10bn-euro bailout for Cyprus to prevent its banking system collapsing and keep the country in the eurozone. Laiki (Popular) Bank – the country’s second-biggest – will be wound down and holders of deposits of more than 100,000 euros will face big losses. However, all deposits under 100,000 euros will be “fully guaranteed”. The European Central Bank had set a deadline of Monday for a deal. Laiki will be split into “good” and “bad” banks, with its good assets eventually merged into Bank of Cyprus. The president of the Eurogroup of eurozone finance ministers, Jeroen Dijsselbloem, told a press conference in Brussels the deal had “put an end to the uncertainty” around Cyprus’s economy. He added he was “convinced” the new deal was better for the Cypriot people than the broader measure rejected by the Cypriot parliament last week, as it focused on two problem banks rather than the entire sector.

Finally, it is for sure that Cyprus is to have difficult times ahead (look at Greece).

-But as Cypriots worked hard to overcome the tragic invasion reality in 1974, the same have to do today, by identifying the competitive advantages of their economy and build up a new finance-services economy based on that evaluation.

-The other important thing for Nicosia is to reaccess and protect its frame of political, diplomatic and financial relations with Russia. Moscow declared that it is going to react angrily in case that the island accept the levy on Russian deposits. Russia’s support to the UN’s resolutions about the Cyprus Problem was diplomatically invaluable in the near future.

-A Russian military base on the island maybe was the best alternative offering for Nicosia in its diplomatic effort to secure Moscow’s multi-dimensional support during the last 15 days of the euro crisis in Cyprus.

-Last week we noticed a series of geopolitical changes in the broader Middle East area, with a given emphasis on the rapprochment between Israel and Turkey, after Barack Obama’s persuasion role. Natural gas is the point of energy and geopolitical interest and it is for sure that Turkey is going to take diplomatic advantage of the banking melt-down situation in the island right now.

-German Chancellor Merkel has a serious political interest for keeping Turks living in Germany happy aiming to win their votes in September’s elections. Politically, she may want to also keep Turkish Prime Minister Erdogan happy, by continuing her bitter stance against Cyprus.

-In negotiations, there is the axiom of the “Lamb and the Lion.” It simply means that negotiation power doesn’t necessary relate to political, economic and military power, but to innovative strategy in limited time: Cyprus?

 

 



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