Late Sunday, Cyprus reached a deal with the Troika of
creditors made up of the EU, the ECB and the IMF. In the deal,
small deposits (mainly those of smaller, domestic savers) would
be protected and the nation's banking sector would be drastically
The draft proposal calls for Cyprus to wind down its
second-largest bank, Popular Bank of Cyprus, which is also known
as Laiki Bank, and shift the deposits below 100 thousand euros
from this bank to the largest bank, Bank of Cyprus, creating a
"good bank." Deposits greater than 100 thousand euros will be
frozen and used to resolve debts.
The key issues that took all day Sunday to hash out were how
Cyprus was going to raise the 5.8 billion euros from its banking
sector to fund the bailout and how to restructure the banks. Now,
as the Cypriot banks are set to sell Greek operations to Greek
banks, and along with the frozen assets which can be used as
collateral, Cyprus appears to have reached this target.
Over the weekend, Cypriot citizens lined up at ATMs to
withdraw cash as the Central Bank of Cyprus put in place capital
controls. As of Sunday, citizens could only withdraw 100 euros
per day and these capital controls will remain in place until the
bailout is implemented.
French Finance Minister Pierre Moscovici was harshly critical
of Cyprus in his comments after the leaders reached a deal. He
blamed the island's offshore business model for Cyprus' problems,
not the EU's dealings with Greece crippling its banking sector.
"To all those who say that we are strangling an entire people...
Cyprus is a casino economy that was on the brink of
A deal needed to be reached by Monday as the European Central
Bank announced that it would cut off emergency liquidity
provisions for Cyprus after the close of business the same day.
Thus, the banks surely would have collapsed and capital controls
would have failed, creating the nightmare scenario that many
feared in the U.S. in 2008 when the banking sector collapsed.
Many feared Cyprus was going to be the first nation to leave the
Interestingly, the Cypriot Parliament does not get to vote on
this agreement. This agreement was made by President Nicos
Anastasiades with the Troika of lenders and truly only faces the
approval of Eurozone finance ministers. Some are also reporting
that the deal may require the approval of the Bundestag, the
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