War on Cypriot Savers A Warning For Depositors In Greece, Italy & World As Russian Oligarchs Bailed Out

The Cyprus bailout is different than other international aid packages, as it forces depositors to cough up some dough. Euro partners and the IMF have set the new tone, as Communist President of Cyprus admits this is a “painful” step. The Cyprus bailout will likely lead not only to deposits being taken out in Cyprus, even though the nation’s government has already taken measure to ensure everyone pays their fair share, but also in other troubled economies like Italy and Greece.

People in Cyprus with less than 100,000 euros in their accounts will have to pay a one-time tax of 6.75%, while those with greater sums will lose 9.9%. But, don’t worry, as the BBC clears everything over: “Depositors will be compensated with the equivalent amount in shares in their bank where their deposits are made.” The levy takes place Tuesday, after a Monday holiday, but already electronic money transfers are being controlled. Banks took a holiday Saturday after people lined up to withdraw money.

Cyprus accounts for a mere 0.2% of the eurozone’s overall output, however it was last night announced that the Eurozone finance ministers have agreed to a ten billion euro bailout package for Cyprus. The Eurozone economy is 16.5 trillion.  The deal was reached after talks in Brussels so as to save Cyprus from bankruptcy. The Discussion was between ministers and the IMF.

Of course, Cyprus will adhere to the same sorts of austerity measures – “economic medicine” or “structural readjustment”—as have so many countries at the mercy of the IMF and World Bank. Taxes will go up, local banking will go down hard, and the deficit will be trimmed via devaluation of assets otherwise known as a firesale. Ultimately, Cyprus exposure to Greece resulted in this bailout, the roundabout third of Greece. Negotiations went on and on for ten hours, approximately, although surely the degree of disagreement was managed by international banking institutions.

“We don’t want a band-aid. We want something that lasts, that is durable and sustainable,” IMF Chief Christine Lagarde said.

The deal ensures a levy on bank deposits. This way investors in the nation will pay their “fair share” for “the greater good.” An ECB official said authorities in Cyprus had already prepared for the levy “to ensure that the levy can be collected.” In other words, mass withdrawals were anticipated and obviated.

Russia could be on the hook for a 2.5 billion euro loan already made. Meetings are to be held in Moscow on Monday.

In January, the New York Times wrote about the “potential 17 billion euro, or $22.2billion, rescue package for Cyprus.” The paper notes that the banking system in Cyprus has assets eight times the size of the nation’s economic output and that it would cost $13 billion alone to bail the banks out. And, that seems to be what euro-zone managers are most concerned with – the banks – for the end bailout comes out to approx. that same number.

Demetris Christofias, the President of Cyprus, is a Communist. His education was received in Russia, and Russia recently provided Cyprus with $3.3 billion in emergency financing last year. The largest individual shareholder in the Bank of Cyprus is Dmitry Rybovlev, a billionaire Russian businessman.

In 2010, a $14.4 billion spike of deposits in Cyprus included about $7+ billion from Russia. Effectively, Europe is bailing out Russian depositors.  “If it is just the official sector that does this, then what you end up doing is bailing out Russian oligarchs,” said Alessandro Leipold, chief economist of the Lisbon Council, a research organization in Brussels, and a former top executive at the International Monetary Fund.

• Depositors with under 100,000 euros deposited must pay 6.75%
• Those with more than 100,000 in their accounts must pay 9.9%
• Depositors will be compensated with the equivalent amount in shares in their banks
• The levy is a one-off measure

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