Troika reaches bailout deal with Cyprus government

The “Troika” (European Commission, ECB and IMF) and the Cypriot government have reached an agreement on a new bailout deal for Cyprus (one that conveniently doesn’t require Cypriot parliamentary approval, as it’s not deemed a “tax”). Depositors with savings of under €100,000 at the Bank of Cyprus will be spared, but those with amounts above this will see loses of up to 40%. The Laiki bank will be wound down, with insured depositors there moved to the Bank of Cyprus. ZeroHedge is reporting comments from EU officials, stating that uninsured depositors at another bank, Cyprus Popular, will “largely be wiped out”.

As a result, Berezovsky might not be the last Russian suicide. Indeed, Russian prime minister Dmitry Medvedev has reacted furiously to the deal, stating: “in my view, the stealing of what has already been stolen continues.” President Vladmir Putin is said to be considering restructuring Russia’s existing €2.5bn to the Cypriot government, which is due to expire in 2016.

As Robert Wenzel notes, a lot of Cypriot savers will be caught up by this confiscation. There is no significant stock market in the country, which means that ordinary Cypriots only really have two easily accessible options as far as savings and investments are concerned: banks and real estate. This means that they tend to have larger deposits than Americans and other Europeans. This is also why Cypriot banks rely more on deposits for funding, rather than equity issuance or bonds.

Wenzel’s source is expecting bank problems in Slovenia next. Italian and Spanish banks also remain very weak. Who on Earth would feel comfortable holding large bank deposits in these countries now?