Cypriot Legislators Are Rushing to Put Together a Bailout Plan

3328leonid mamchenkovwikicommons 553x400 Cypriot Legislators Are Rushing to Put Together a Bailout Plan

The Cypriot government has rejected the
European Union’s bailout deal
and has failed to secure aid from the
Russians.
A brief announcement
from the European Central Bank issued yesterday said that it would
stop providing emergency funds for the Central Bank of Cyprus on
March 25 unless the Cypriot government can reach a bailout deal
with the E.U. and the International Monetary Fund.
The Cypriot government rejected the E.U.’s bailout deal in part
because it required that those with deposits in Cypriot banks
contribute to a bank levy. This understandably made those with
Cypriot accounts concerned and some feared a run on the banks. The
move upset Russian Prime Minister Dmitri Medvedev, who said that
the move would be akin to something seen
under the
Bolsheviks. Today the Cypriot government is discussing plans
that include guaranteeing deposits of €100,000 ;in accounts
with Laiki, one of the largest banks in Cyprus. Those with more
than of €100,000 in an account with Laiki could potentially see
some of their money seized. From the
Associated Press:

As part of the package being discussed Friday, lawmakers were
considering restructuring the country’s second largest bank, Laiki,
which suffered big losses on investments in Greek debt.
A large part of deposits in Laiki above the €100,000 ($129,000)
per depositor that are insured could be confiscated. A banking
official, who spoke only on condition of anonymity because the
talks were ongoing, said seizures of 25% to 30% were being
discussed.

What is remarkable about the situation in Cyprus is that under
the plan originally put forward by the E.U. and the plan being
discussed by the Cypriot government those with savings in Cypriot
banks could see some of their money seized. If a plan is agreed
upon that allows for money to be seized directly from accounts it
will be a worrying precedent to set, despite the fact that taking
money directly from depositors accounts is just a more direct way
of taking money than inflation.
Member of the European Parliament Daniel Hannan has pointed out
that it might be worth remembering another small
island that ran into financial problems a few years ago.

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Cypriot Legislators Are Rushing to Put Together a Bailout Plan

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