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March 19, 2013

'Cyprus Set to Reject Bailout'

This is from Francesco Saraceno, "an Italian born economist working in France": 
Cyprus. Been There, Seen That: A small country is on the verge of bankruptcy. It is so small that the amount of money needed to save it (17bn euros) amounts to less than 0.12 per cent of the eurozone GDP (no typos here. It is around 30 euros per European citizen).
Been there, seen that. Just three years ago in another small country, Greece. At the time, procrastination, self interest, ineptitude, unpreparedness, made the small problem become huge. And we are all still paying the bill. The Greek crisis management was so successful that our leaders are happily embarking in the same dynamics: improvised, dangerous, half-baked solutions, supposedly designed to avoid free riding (the protestant syndrome, once again) and in fact destabilizing the whole system.
There is no need for me to repeat what has been understood everywhere except, as usual, in Berlin, Frankfurt and Brussels...
Here I just want to cite a few paragraphs from an excellent piece by Nick Malkoutzis...
There is really very little to add to this. Except maybe that Nick Malkoutzis is even too nice to Germany. It is interesting to notice that most of the time, in battered countries, Germany’s banks are among the top creditors. In this particular case, the exposure of German banks is 5.8 billions, exactly the amount that the tax should levy. Certainly a coincidence, but still…
I remember, a few years back, Joe Stiglitz accusing the IMF and the American treasury of imposing unnecessary austerity to crisis countries, in Latin America and in East Asia, with the objective to buy time for their banks to minimize their losses (or often times to cash their profits). The resemblance with the current situation in Europe, is worrisome. Very.
The latest:
Cyprus Set to Reject Bailout, Citing Tax on Bank Deposits: Cyprus’s Parliament is likely to reject an international bailout package that involves taxing ordinary depositors to pay part of the bill, President Nicos Anastasiades said Tuesday, despite a revision that would remove some objections by exempting small bank accounts from the levies. ...
Should the measure fail in Parliament, Mr. Anastasiades and his E.U. partners would have to return to the negotiating table. Analysts have also raised the possibility of bank runs and a halt in liquidity to Cypriot banks from the European Central Bank if the measure did not pass.
The bailout plan, negotiated over the weekend, has aroused harsh criticism in many quarters for its unprecedented inclusion of ordinary bank depositors — including those with insured accounts — among those who would have to bear part of the cost. ...
The managing director of the International Monetary Fund, Christine Lagarde, said Tuesday she was in favor of modifying the agreement to put a lower burden on ordinary depositors. ... She urged leaders in Cyprus to quickly approve the plan... She complained that critics have not recognized how much the agreement will force Cyprus banks to restructure and become healthier. ...

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