Archive for March 22, 2013

Cyprian Financial Crisis 2: Electric Boogaloo

You’re welcome.

It’s time to praise your economic gods, after days of tension the EU and the IMF have finally reached a deal to help bail out Cyprus.  On late Sunday/early Monday (kind of depends on which timezone you’re in) the powers that be approved a 10 billion euro (about $13 billion in dollars) plan that’s going to temporarily bring some big changes to the country.  Cyprus will be shutting down its second largest bank Laiki, and will be putting deposits under 100,000 euros into the Bank of Cyprus in hopes of creating a less awful bank.

Curious about what will happen to the bank’s larger deposits?  Deposits that are over 100,000 euros from both the Bank of Laiki and the Bank of Cyprus will be temporarily frozen and used to take care of the nation’s debts and to recapitalize the Bank of Cyprus.  By tomorrow the nation’s banks should be fully functioning, but it’ll be an extremely regulated functioning.  Some people wonder if Cyprus’ crisis will be the straw that broke the euro camel’s back.  Others wonder if this bail out deal will be the model for other European bail outs.  It’s too early to tell what far reaching affect the bail out deal will have, but there is one thing that’s certain in these uncertain times: the citizens of Cyprus are still pretty much screwed.

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A Watered Down Explanation of the Cyprus Financial Crisis

Up until Monday if you asked the average person what they think about the situation in Cyprus, you’d probably get a confused glance and accusations that Cyprus isn’t a real country.  Today people know that the Republic of Cyprus does indeed exist because this small island nation is about to screw up the world economy.  This all happened kind of fast, so it’s okay if you aren’t exactly sure what’s going.  That’s why you have ROIZone to give you the basics of the situation.

It’s no secret that the European Union and the euro have been pretty much screwed since 2008.  Austerity didn’t work out as well as people had hoped it would, and some countries have gone a little crazy because of the financial stress.  You got people in Spain and Bulgaria self-immolating in front of banks, and Greece seems to be slowly morphing into the Fourth Reich.  Things are bad all over, but Cyprus is going through its own special financial hell right now.

In September 2011 Cyprus’ credit rating was downgraded by every major credit rating agency, and it had a ripple effect that nobody planned for.  Island nations are great for off-shore banking, and some of the world’s ruling class had their money safely tucked away in Cyprian bank accounts to protect it from their home government’s greedy hands.  It would be a gross exaggeration to say that all of Cyprus’ money was tied up in off shore accounts, but it was enough to cause some problems.  After the downgrade the wealthy couldn’t withdraw their money fast enough, and that combined with the massive debt banks held from Cyprus’ own citizens sent their banking industry into a downward spiral.

Cyprus would have gone under if it wasn’t for the kindness of the Russian government.  In January 2012 the Russian government loaned the nation 2.5 billion euros (about $3.236 billion) because they’re just cool like that.  It has a relatively low interest rate and its good for 4 ½ years, and Cyprus expected to be able to bounce back by the first quarter of this year.    Unfortunately in June 2012 Moody’s and Fitch downgraded their credit rating to complete crap, and that rating officially disqualified them for being accepted as collateral by the European Central Bank.

daaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaamn

Actual shot of Putin rushing to save Cyprus (daaaaaaaaaaaaamn baby)

Cyprus spent the last months of 2012 and 2013 freaking the hell out, but last week it seemed like their troubles would be over.  The European Union and the International Monetary Fund agreed to a 10 billion euro deal with the country, allowing it to join the other European deadbeat countries of Portugal, Greece, Ireland, and Spain.  This hail-mary deal did come with a small stipulation.  Every bank deposit under 100,000 euros would have a levy of 6.7% imposed on them, and deposits that exceed that amount will have a 9.9% levy.

The bailout wasn’t met with much acclaim.  The Russian government isn’t happy.  EU countries aren’t happy.  The people of Cyprus aren’t happy, and since the bailout deal came to the table financial conditions have gotten worse in the country.  Businesses are refusing credit card payments, and as of today citizens haven’t had working banks in 11 days.

The powers that be in Cyprus and the EU are currently trying to hammer out a deal, and if you want to see how that’s going The Guardian has a great livestream of updates.  Until then all we can do is sit back and watch the financial explosion.

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