Cyprus Bailout Disaster Puts European Union in Crisis

atm cyprus
In this image taken Saturday, March 16, 2013, people queue to use an ATM machine outside of Bank of Cyprus branch in southern port city of Limassol, Saturday, March 16, 2013. Many rushed to cooperative banks which are open Saturdays in Cyprus after learning that the terms of a bailout deal that the cash-strapped country hammered out with international lenders includes a one-time levy on bank deposits. The move, decided in an extraordinary meeting of the finance ministers of the 17-nation eurozone in the early hours Saturday, is a major departure from established policies. Analysts have warned that making depositors take a hit threatens to undermine investors’ confidence in other weaker eurozone economies and might possibly lead to bank runs. (AP /Pavlos Vrionides)

This weekend Cyprus President Nicos Anastasiades implemented a forced capital reallocation mandated by political elites under the guise of an “equity investment” in insolvent banks. The bailout is a mandatory wealth tax on savers. The euro zone agreement forced bank depositors in Cyprus to contribute towards a government bailout.

The Cyrpus bank bailout resulted in depositors racing to withdraw their cash from the banks.


Now there are concerns that the bailout may risk a new euro disaster.
CNBC reported:

Even as Cyprus’s President Nicos Anastasiades addressed the nation on Sunday night, saying savers would be compensated by shares in banks guaranteed by future natural gas revenues, he was said to be working to renegotiate terms of the highly criticized bailout deal.

Over the weekend, analysts warned the decision by the euro zone to force bank depositors in Cyprus to contribute towards a bailout—a first in the euro zone debt crisis—could hurt other peripheral nations, the euro and the global stock market rally.

That warning appeared to be coming true as the euro edged lower at 1.2934 against the dollar, in early trade on Monday morning local time in New Zealand, the first global market to start trading.

In his televised address, Anastasiades said he had to accept a tax on bank deposits in return for international aid, or else the island would have faced bankruptcy.

“The solution we concluded upon is not what we wanted, but is the least painful under the circumstances,” Anastasiades said.

In that speech, Anastasiades urged lawmakers to approve the tax in a vote Monday.

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