Cyprus wishes it was Iceland with its own currency

Cyprus Its Not Over Yet

This was not a good weekend for Russian billionaires. First, Boris Berezovsky was found dead at his English country estate. Now, all the uninsured depositors (read: Russian plutocrats) at Cyprus’s two largest banks are going to be hit much, much harder than they feared they might be when the Cyprus crisis first erupted last week.

Back then — a long, long week ago — Cypriot president Nicos Anastasiades stood firm: there was no way he would allow uninsured depositors to lose more than 10% of their money. What a difference a week makes: now, if your uninsured deposits are at the Bank of Cyprus, you’re probably going to lose about 40% And if they’re at Laiki, you’re going to lose everything.
The agreement between the Cypriot government and the Troika of the EU, IMF, and ECB is a bold and brutal geopolitical power-play. There might be language in the official communiqué about how “The Eurogroup looks forward to an agreement between Cyprus and the Russian Federation on a financial contribution”, but given the billions of euros that Russians are being forced to contribute unwillingly, the chances that they’ll happily throw a bit more money into the pot have to be tiny.

Why the crisis in Cyprus matters to the rest of us    

When tiny Iceland faced bankruptcy, the world yawned. But tiny Cyprus’ problems endanger the euro, and through it, the world economy.

The crisis in Cyprus is about more than just Cyprus. It is about Europe as a whole and through Europe, the world economy.

More specifically, it is about the euro, the common currency of 17 nations including Cyprus.

Like Cyprus, Iceland is a small island country. Like Cyprus it deliberately set out in the ’90s to become a super-sized, international banking centre.

In fact, with liabilities 10 times bigger than the country’s entire economy, the Icelandic financial sector was even more bloated than that of Cyprus.
In the end, Iceland, like Cyprus, wasn’t strong enough to survive the meltdown. Icelandic banks were victims of dodgy U.S. mortgages. Cypriot banks took their hit when the Greek government bonds they held were suddenly and dramatically devalued

 Like Cyprus, Iceland let banks collapse, imposed strict capital controls and refused to guarantee the savings of large foreign depositors.
Government spending was cut and taxes raised.
But unlike Cyprus, Iceland had its own currency, the krona. By allowing that currency to devalue by an astonishing 50 per cent, Iceland managed to make its exports competitive and kick-start economic growth.
More to the point, the krona kept the Icelandic crisis — with some exceptions — contained to Iceland.
Europe’s leaders pray the Cypriot crisis will be similarly contained. If Cyprus didn’t use the same currency as Italy, Spain, France and 13 other nations, this prayer might well be answered. But Cyprus does use the euro. Its problems are Europe’s problems. Europe’s problems are the world’s.
Europe even managed to annoy Russia, by failing to include it in talks over Cyprus, even though wealthy Russian depositors in Cypriot banks were going to be shellacked in any deal. Annoying Russia almost never ends well.


The Tap Blog is a collective of like-minded researchers and writers who’ve joined forces to distribute information and voice opinions avoided by the world’s media.

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