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To add some context to this situation, Cyprus is a country of 1.1 Million people and it's banks have 68 Billion Euros in its accounts (of which 38 Billion is in

To add some context to this situation, Cyprus is a country of 1.1 Million people and it's banks have 68 Billion Euros in its accounts (of which 38 Billion is in accounts over 100k Euros) and as highlighted by their own GDP, its an amount of money which couldn’t be sustained or created on its own. Germany and France have argued that, Cyprus's offshore-haven business model wasn’t sustainable with, Bank of France Governor, Christian Noyer saying that "Cypriot banks have for years been taking the kinds of risks that are not allowed in France"[1] The reason why Cyprus are getting a deal like this is because of the accusations of Money Laundering - an accusation which has led to Cyprus opening an investigation into[2] which is mainly due to the fact that, a Russian accountant (Sergei Magnitsky) was killed in jail in 2009 after revealing “that $31 million of the tax money was moved out of Russia using five Cypriot banks: Alpha Bank, Cyprus Popular Bank, FBME Bank, Privatbank International and Komercbanka”[2] and because, Cyprus are still heavily exposed to Greece. In fact, “the exposure of domestic [Cypriot] banks to Greece amounted to €28 billion, or one-third of total assets and 170% of GDP. Of the €28 billion, government bonds amounted to €4.7 billion; the rest were loans to Greek residents”[3] The initial plans were to apply a levy on all accounts in Cyprus (up to 10% although, this was then rumoured to be 25% on everyone’s savings above 100k Euros) which was rejected. Then there was a suggestion to nationalize semi-state pension funds although, Germany amongst others were against this idea suggesting that this could be even more painful for ordinary Cypriots than a deposit levy. The plan now appears to be involving nationalizing state pensions and split failing lenders into good and bad banks which is highlighted by the article, with Laiki (Cyprus’s number 2 bank becoming a ‘bad’ bank). It’s an interesting scenario from an economical standpoint although, Cyprus should have received a bailout as part of the Greek bailout due to their significant exposure to the Greek economy, regardless if they are an offshore-haven or not. [1] http://www.ibtimes.co.uk/articles/449633/20130324/cyprus-seeks-11th-hour-deal-to-avert-financial-collapse.htm http://www.ibtimes.co.uk/articles/449633/20130324/cyprus-see... [2] http://euobserver.com/magnitsky/118524 http://euobserver.com/magnitsky/118524 [3] http://www.iif.com/emr/resources+2662.php http://www.iif.com/emr/resources+2662.php

marshray 14y ago
1.1 Million people and it's banks have 68 Billion Euros in its accounts So 62k Euro per captia? That doesn't sound like an insane amount. an amount of money which couldn’t be sustained or created on its own ... "Cypriot banks have for years been taking the kinds of risks that are not allowed in France" Since when has taking cash deposits been risky? This reasoning sounds completely backwards to me. Why would a country with 68B Euros on deposit be begging for a 10B Euro bailout? All I can figure is the US, Germany, and France don't like Cyprus taking less taxes and asking fewer questions and they don't want it to be a reliable place to shift your revenue or deposit your money.
- itsprofitbaron 14y ago
  Cyprus's GDP per capita is $28k[1] and the reason Cyprus needs a bailout for 10B Euros is because its economy is worth 17.5B Euros which (until last week anyway) was expected to fall 3.5% this year. Likewise, Cyprus has a large banking system in relation to the size of the economy - as I mentioned in the previous comment - which means that if the government needs to bail out its banks (as it does now) then the economic hardship of doing so is going to be immense. Cyprus established itself as an offshore-haven through double tax treaties although this has been under-threat due to the EU wanting to harmonize this AND due to the potential levy because of their economic crisis, Russia have threatened to rip up its double-taxation treaty with Cyprus (which attracted Russian Billions in the first place). Russia is extremely important to the Cypriot economy as almost 30 Billion of the 68 Billion is from Russia which is larger than Cyprus's entire GDP. Moreover, the risks aren't really to do with the deposits but rather to do with what is being done with the money as I mentioned earlier, Cyprus are "highly exposed to the Greek risk (40% of the loan portfolio), is a systemic risk because of its size, with a balance sheet equal to seven times GDP and a high inter mediation raising the level of credit up to 280% of GDP. At the beginning of 2012, the portfolio of loans to Greek households and companies amounted to 120% of GDP."[2] [1] http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weorept.aspx?pr.x=39&pr.y=3&sy=2009&ey=2012&scsm=1&ssd=1&sort=country&ds=.&br=1&c=423&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a= http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weor... [2] http://globaledge.msu.edu/countries/cyprus/risk/ http://globaledge.msu.edu/countries/cyprus/risk/
- 14y ago

marshray 14y ago

1.1 Million people and it's banks have 68 Billion Euros in its accounts So 62k Euro per captia? That doesn't sound like an insane amount. an amount of money which couldn’t be sustained or created on its own ... "Cypriot banks have for years been taking the kinds of risks that are not allowed in France" Since when has taking cash deposits been risky? This reasoning sounds completely backwards to me. Why would a country with 68B Euros on deposit be begging for a 10B Euro bailout? All I can figure is the US, Germany, and France don't like Cyprus taking less taxes and asking fewer questions and they don't want it to be a reliable place to shift your revenue or deposit your money.

itsprofitbaron 14y ago
Cyprus's GDP per capita is $28k[1] and the reason Cyprus needs a bailout for 10B Euros is because its economy is worth 17.5B Euros which (until last week anyway) was expected to fall 3.5% this year. Likewise, Cyprus has a large banking system in relation to the size of the economy - as I mentioned in the previous comment - which means that if the government needs to bail out its banks (as it does now) then the economic hardship of doing so is going to be immense. Cyprus established itself as an offshore-haven through double tax treaties although this has been under-threat due to the EU wanting to harmonize this AND due to the potential levy because of their economic crisis, Russia have threatened to rip up its double-taxation treaty with Cyprus (which attracted Russian Billions in the first place). Russia is extremely important to the Cypriot economy as almost 30 Billion of the 68 Billion is from Russia which is larger than Cyprus's entire GDP. Moreover, the risks aren't really to do with the deposits but rather to do with what is being done with the money as I mentioned earlier, Cyprus are "highly exposed to the Greek risk (40% of the loan portfolio), is a systemic risk because of its size, with a balance sheet equal to seven times GDP and a high inter mediation raising the level of credit up to 280% of GDP. At the beginning of 2012, the portfolio of loans to Greek households and companies amounted to 120% of GDP."[2] [1] http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weorept.aspx?pr.x=39&pr.y=3&sy=2009&ey=2012&scsm=1&ssd=1&sort=country&ds=.&br=1&c=423&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a= http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weor... [2] http://globaledge.msu.edu/countries/cyprus/risk/ http://globaledge.msu.edu/countries/cyprus/risk/
14y ago