Cyprus Depositors Freak, Europe Quails

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Update: E-zone leaders managed to plug another hole in the dike in what is becoming a rerun of a Keystone Cops movie. No parliamentary vote was taken since no new tax was involved, but Cyprus Popular Bank is a victim of the crisis. It will be closed, and its good assets transferred to the Bank of Cyprus. Deposits below €100,000 are protected. Deposits above that amount will be frozen and used to resolve debt. There are a lot angry, rich Russians living on Cyprus right now because the deal is essentially a confiscation of their money. Prime Minister Medvedev made Russia's dim view clear when he said, "The stealing of what already has been stolen continues." "Forced losses" are expected to raise €4.2 billion of the €5.8 billion Cyprus is required to contribute to the EU's €10 billion bailout. What is even more alarming than the confiscation is the announcement by the head of the E-zone finance ministers council that the Cyprus deal should serve as template for the rest of EU. Except for the two banks being merged, its business as usual for the rest of banks on the island beginning Thursday. Although small depositors are protected under the new terms, officials acknowledge that the bailout will push Cyprus into a deep recession and it will take years to recover.

{19.03.13}Cypriots started a run on the island's banks forcing the government to shut them down until Thursday. The reaction is to a proposal that Cypriot bank depositors pay a 6.75% tax on deposits under €100,000 and 9.9% tax over that amount in return for a $13 billion bank bailout by the EU. The nation's banks are suffering from exposure to Greece's economic meltdown. On the weekend, Cypriots rushed to ATMs to withdraw as much of their money as possible. They believe, correctly, they are being forced to pay for the sins of bankers. As one incensed Cypriot said, "I'd rather put my money in a mattress." Symptomatic of how frail Europe's financial structure is, it takes only a tiny island of people to simply say "No" to cause a drop in worldwide stock prices. This is the first time in the string of European bailouts for Greece, Portugal and Ireland that depositors anywhere in the EU are being asked to pay for one. The plan is making the rest of Europe nervous and Cyprus's president Nicos Anastasiades called the EU's tactics to get him to agree to it, "blackmail"; a term used before to describe EU austerity demands in Greece. The EU and the IMF are demanding Cyprus raise €5.8 billion. Negative reaction was so strong that 17 EU finance ministers who approved the bailout plan held an emergency conference on Monday in which they agreed to consider a better deal for small depositors. However, the tiny Cyprus parliament overwhelmingly rejected the bailout plan today. The Cypriot finance minister headed to Moscow earlier to seek financial aid, and discuss the possibility that a Russian bank buy Cyprus Popular Bank, the biggest failing lender. Russians have serious exposure in Cyprus ($60 billion according to Zero Hedge which provides popular offshore financial services. (translation: tax avoidance and money laundering) Some EU critics say Cyprus has become Russia's "Trojan donkey" since become an EU member in 2004. But without some form of aid, it is feared Cypriot banks will fail and possibly cause panic to spread throughout Europe, the dreaded "contagion".