Cyprus’ president is asking EU leaders to completely alter the country’s $13 billion bailout. Peter Spiegel of The Financial Times is reporting on a letter Cyprus President Anastasiades has sent to the Troika asking to restructure its bailout. The letter was actually in the news last week and the main point covers problems at the Bank of Cyprus which is finding it difficult to raise cash for day-to-day operations. Although the letter does not request it explicitly, Mr. Anastasiades is in effect asking for further Eurozone loans on top of the existing €10bn sovereign bailout, the FT says.
Unless Cyprus implements some controls that truly work, at this pace its entire banking system will be completely deposit-free in under one year. And it will need to sell much more than all its gold to continue keeping the Troika happy and in compliance with all the future (because there will be many more) bailouts. In other words, anyone who has been paying attention to the facts on the ground, in this case represented by the record April collapse in deposits (during a capital-controlled month!), would be well aware of the inevitability of this happening; and that in a continent in which the link between the banking sector and the sovereign is stronger than an umbilical cord. It was only a matter of weeks or at most months before Cyprus pulled an Oliver Twist once again, said Tyler Durden, contributor to The Economist.
Key aspects mentioned in the letter by Cyprus President Anastasiades:
- The Cypriot economy is adapting to major shocks
- Application of bail-in was implemented without careful preparation
- Cyprus was forced to pay the cost to ring-fence Greece but no reciprocity has been granted
- Imposition of Laiki’s ELA liability to Bank of Cyprus
- Urgent need for Troika to provide a long-term sustainable and viable solutions to the liquidity issues Bank of Cyprus is facing as a result of the Eurogroup decisions
A senior official reported to the FT that failure to prepare for the bailout—which forced the closure of its second-largest bank, restructured its largest bank, and took a haircut from depositors—was partially the fault of the Cypriot government.