Mintball wrote:
And 9.9% is the upper one, IIRC.
From something I read, it seems that neither Schäuble nor the IMF particularly wanted to impose this on private savers, but the Nicosia government was determined. There's vast amounts going around about half the accounts in Cypriot banks being Russian – and at least some of that money being laundered – while the government in Nicosia apparently wants the Russians to give them some cash.
From the scant amount I know, it seems as though this solution is deliberately intended to be the one that upsets the Russians least.
I think the way it ended up where it did is more to do with Germany than what the Nicosia government wanted.
The Cypriot banks lost a shed load of cash having to take a "haircut" on the Greek debt they held. So they needed bailing out.
The Germans take the view there is a lot of Russian money in the Cypriot banks much of which was laundered so there was no way they were going to allow a normal bail out using funds that would mostly be coming from German tax payers. They would be using German money to protect Russian criminals.
Without money coming in from a central (mainly German funded) bail out fund the Cypriot government had little choice but to do as it did.
The reason the IMF and others don't like it is this rips up two fundamental tenets of post Greek crisis banking. It's supposed to be bond holders who lend to banks who take the hit if the proverbial hits the fan and the deposit protection scheme is supposed to protect the ordinary person from banks getting in a mess. The logic is sophisticated financial institutions are in a position to assess the risk of lending to banks whereas it is unreasonable to expect ordinal people to do the same. So bank bond holders are supposed to be exposed to risk and ordinary people aren't.
What has happened is the exact opposite. The bond holders are not affected and the ordinary people are. And all this is to keep the German electorate happy so they aren't protecting deposits of laundered Russian money and it is a direct consequence of the terms they were instrumental in imposing on Greece that shafted the Cypriot banks in the process.
Doing this has basically undermined the new rules put in place designed to reassure people if a bailout is on the cards their money is safe, it will be bond holding institutions that take the hit not them and there is no need for a run on the banks deposits as we saw with Northern Rock.
It's quite amazing the Germans have been so short sighted because anyone in say Spain or Italy thinking their bank is about go belly up now has every reason for get their cash out. Exactly the opposite of how its all supposed to work.
