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Cyprus (9): Apple’s Silicon Valley In S/E Mediterranean..?

As banks in Cyprus are to remain closed today and the island’s  Central Banker declares that he is not going to resign, it is becoming clear that the March 25th bailout deal with the EU,  was mainly a financial and political compromise by also setting a new bailin precedent for the Euro Zone:

The Cyprus bailout: A better deal, but still painful | The Economist

IT WAS an appalling way to reach a decision, but in the end the euro zone’s €10 billion ($13 billion) bail-out package for Cyprus, agreed in the early hours of March 25th, was something approaching a reasonable compromise. At any rate, it dealt with the most egregious errors of the previous all-night deal. It keeps Cyprus in the euro zone. And it restores the promise to protect bank deposits covered by the EU-mandated €100,000 deposit guarantee. Cyprus is the fourth euro-zone country to receive a full bail-out after Greece, Ireland and Portugal (or the fifth, if one counts the partial bail-out for Spain’s banks). But unlike previous rescues, the package for Cyprus left a large part of the island’s financing needing to be found from its outsized banking sector—in particular from depositors, many of them Russian businessmen. On March 16th Cyprus’s president, Nicos Anastasiades, desperate to protect Cyprus’s status as an offshore banking model for Russians, had decided to save the two biggest banks and thus to spread the pain thinly. He would have applied a hefty tax to all depositors: 9.9% for those too big to be covered by the EU-mandated €100,000 deposit guarantee, and 6.75% for the smaller depositors.

Cyprus apple 1

More importantly, the possibility of confiscating bank accounts to other Euro Zone countries, if a need persists remains open just after the tragic shock in the Cypriot banking sector:

Fallout from the Cyprus bailout – The Guardian

The EU, after spending hundreds of billions on the European banking crisis, has decided that for less than €20bn they will force a member state to confiscate depositors’ money (Report, 26 March). For €20bn they have brought the possibility of bank runs in larger countries the next time trouble hits. The EU negotiators warned the Cypriots they were playing with fire. Well, they are playing with much bigger fire. Penny wise and pound foolish.

Additionally, many analysts believe that the situation in Cyprus, although a small European economy, can trigger wide-reaching historical, political and financial consequences, given the interconnections of our globalized economy today:

Krauthammer compares Cyprus bailout to assassination that led to World War I … – Daily Caller

On Dennis Miller’s radio show on Tuesday, Washington Post columnist Charles Krauthammer warned that while the Cyprus bailout may appear to involve a “trivial” amount of money, it could set the stage for wide-reaching consequences. Krauthammer compared the Cyprus situation to the 1914 assassination of Austrian Archduke Franz Ferdinand, which began the dramatic spiral towards World War I. “The first thing that strikes me is how tiny this whole thing is,” Krauthammer said. “I mean, it could have ripple effects the way, you know, Sarajevo did in 1914. Little things can develop into big things. But the bailout is $13 billion. I think I read the other day that Apple has about $50 [billion] cash on hand. … That means Apple could take a quarter of its current holdings, purchase the island and turn it into, you know, a Silicon campus. So the sums here – from an American perspective, from a European perspective — are huge. It’s sort of hugely disproportionate from anything you’d expect. So it’s a very easily soluble problem.”

On the other hand, many questions are waiting answers with a given focus on the Cypriot-Russian relations and a missed opportunity for Moscow to secure a valuable future stake in Cyprus’s hydrocarbon deposits:

Cyprus bailout: Russia misses chance for natural gas – Christian Science Monitor

Negotiations for Cyprus’ bailout, which has hinged largely on its hydrocarbons future, have ended with Russia missing the chance to swap aid for offshore exploration licenses and the Greek Cypriots agreeing to an EU bailout package that hits at the Russian oligarchy by shutting down the island’s second-largest bank.  Over the course of last week, Greek Cypriots were shuffling back and forth to Moscow in an attempt to lure Russia into a bailout package that would have given it a stake in the island’s estimated 60 trillion cubic feet of natural gas offshore—but it wasn’t a big enough stake to tempt the Kremlin. Earlier in the week, Cypriot officials had rejected an EU bailout package that would have seen anyone with a bank account over 20,000 euros paying a 3-15% levy on deposits in return for future gas shares.  Cyprus then hit up Russia to raise the stakes in this geopolitical game for control of Mediterranean hydrocarbons. The trick was to raise the specter of a Russian grab for Cypriot gas reserves in order to force a kinder bailout offer from the EU.  Russia held out for more from Cyprus, but the possibility of a deal with Moscow was enough to put steps in motion for a new plan. To wit, the new EU bailout package accepted by Cyprus shuts down the island’s second-largest bank, Laiki, which will mean heavy losses for uninsured account-holders, many of whom are Russian oligarchs. In return, Cyprus gets a €10 billion ($13 billion) bailout and avoids the total collapse of its banking system. Only depositors with over €100,000 will be hit, while smaller depositors will be protected.

More importantly, banks in Cyprus are closed for a second week, and decisions and moves the last 24 hours proved a serious cooperation rift and disagreements between President Anastasiades and the Central Banker, Demetriades:

Cyprus Bank Shutdown Enters Second Week, Hammering Businesses Unable … – Huffington Post

Cypriot businesses were under increasing strain to keep running on Tuesday after financial authorities stretched the country’s bank closure into a second week in a harried attempt to stop depositors from rushing to drain their accounts. Cyprus’s Central Bank governor, Panicos Demetriades, said “superhuman efforts are being made” to open banks on Thursday. ”Temporary” restrictions will be imposed on financial transactions once the banks do open, he said, but he would not specify what they would be or how long they would be in place. ”We have to restore the public’s trust in banks,” he said. Finance Minister Michalis Sarris told The Associated Press the restrictions would help stem any mass deposit withdrawal that is “bound to happen” and that they would be removed in a “relatively short period of time.”

Finally, it is becoming clear that Nicosia is in great need for organizing a strategic plan of action focused on short-term and long-term goals. The decision to live together with troika is not an easy thing to do, as the island’s international lenders use strategies and tactics for putting new demands on the table, all the time. Look at what is happening in Greece.

On the other hand, it is certain that the island has a strategic geopolitical position. Cyprus can be an innovative finance, technology and energy center.



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