Euro Zone

Ethical economy: Banker-think in welcome retreat

27 Mar 2013

For once, investors got it right. They yawned through a crisis in Cyprus, a country too small and special to matter. But bankers and people who think like them keep on fearing the worst. They should get used to a world where politics - and justice - take precedence over finance.

Banking confidence tricks revealed by Cyprus

26 Mar 2013

Modern banking rests on two core beliefs: depositors can always access their money, and governments will step in if banks can’t. The botched bailout of Cyprus has exposed both as hoaxes. Restoring faith in the system will be hard. But a more stable alternative is elusive.

Europe picks risky moment for uncomfortable truth

25 Mar 2013

Jeroen Dijsselbloem, who speaks for euro zone finance ministers, says Cyprus is a template: shareholders, bondholders and even uninsured depositors are expected to contribute to bank recapitalisations. Investors took fright. They should get used to a less cosseted world.

ECB’s street-cred faces another hit over Cyprus

25 Mar 2013

The European Central Bank has pledged to fund the Bank of Cyprus if deposits flee. The Cyprus lender can probably comply with existing rules; capital controls look unnecessary. The bad news? Yet again, the ECB would be granting “exceptional” funding for longer than it should.

Bond market calm ignores Cypriot lessons

25 Mar 2013

Bank bondholders don’t seem to have noticed, but Cyprus has changed their world. They are finally bearing the cost of failure. Terrifying scenarios, from capital controls to a partial breakup, are no longer taboo. And politicians can change the rules of the game overnight.

Clock ticking on next Cyprus bank bailout

25 Mar 2013

Bank of Cyprus survives, and gets some deposits off its dismembered rival Laiki. But Cyprus’ biggest lender is saddled with likely spiralling bad debts as the local economy tanks, and the real danger of a run when it reopens. Don’t bet against future rescue operations.

Hugo Dixon: Cyprus deal best of a very bad job

25 Mar 2013

It is good that there is no haircut for insured deposits, while uninsured creditors rather than taxpayers pay for bailing out banks. But there are two lingering doubts. Will capital controls be imposed? And is Cyprus’ debt sustainable given the economy will be clobbered?

Hugo Dixon: Cyprus must avoid capital controls

24 Mar 2013

Imposing them wouldn’t just be terrible for Cyprus. It would be a historic error that could even spell the beginning of the end of the single currency. The ECB must instead stand ready to supply banks with unlimited liquidity and fund a run, provided Nicosia cuts a bailout deal.

Greece finally does something helpful for Cyprus

22 Mar 2013

Piraeus has snapped up the Greek branches of Cypriot banks. Athens’ default last year is one of the reasons why Nicosia’s banks are in trouble. Greece has proved more accommodating with the island’s departing banks than it was last year with French lenders.

Cyprus plan B targets more deserving victims

22 Mar 2013

The stricken state’s politicians are to vote on a new rescue plan. Stuffing some large depositors into a bad bank is fairer than taxing small savers. But a Cypriot plan to set up a multi-billion euro sovereign fund looks rickety and isn’t impressing the country’s euro partners.

Cyprus will struggle to make gas math work

22 Mar 2013

The struggling island is thinking about bundling future gas revenues into a fund to stave off financial collapse. But Breakingviews calculations suggest the recent discoveries off the country’s south coast won’t be enough to plug a 5.8 billion euro funding gap.

Hugo Dixon: Cyprus will pay dearly for its sins

22 Mar 2013

The Mediterranean island has committed many follies over the years - and is still making mistakes. The troika compounded Cyprus’ errors by going along with the crass deposit tax. But Nicosia is the prime culprit. Every day it delays getting real, the cost of the crisis will rise.

Italy illustrates reward, and cost, of austerity

21 Mar 2013

Rome raised its deficit target for the next two years. It’s a belated realisation of austerity-induced recession, and a reward from Brussels for towing the line. A country with no government and rising debt might spook markets, but Mario Draghi has sedated the bond vigilantes.

Cyprus exit risk is real – and manageable

21 Mar 2013

The European Central Bank has threatened to cut off Cyprus’ banks if Nicosia doesn’t take a bailout, potentially triggering a euro exit. The ECB has been pragmatic before, and will want the euro to stay intact. But an exit is manageable, and better than having the ECB buckle.

Hugo Dixon: All Cyprus plan Bs look dreadful

20 Mar 2013

Unless Germany bends over backwards and gives a big grant to Cyprus, the tiny island has three main options: sell its soul to Russia; default and possibly quit the euro; or patch together a new deal with the euro zone. The last option is the least bad for all.

Cyprus must accept a less Russian future

19 Mar 2013

Nicosia is negotiating with Moscow on how to tax Cypriot bank account holders. If insured funds are spared, the island’s Russian depositors would end up paying 60 pct of its bailout bill. Beyond that, de-russification is the price Cyprus has to pay for staying in the euro zone.

Ethical economy: Cyprus and the danger of promises

19 Mar 2013

Under the current plan, Cypriot savers’ deposit guarantees will not be truly honoured. Countries with negative real interest rates already violate the spirit of their commitments to savers. Rather than hold governments to impossible promises, it would be better not to make them.

Cyprus depositor share swap looks like a raw deal

18 Mar 2013

Account holders will lose 7 to 10 pct on their supposedly safe deposits. Receiving bank shares in return would provide some solace if Cypriot lenders looked like buys. But following their multibillion-euro bailout, they will be even more exposed to a stalling domestic economy.

… Meanwhile, Cyprus’ real bailout remains fuzzy

18 Mar 2013

Euro zone finance ministers approved a 10 billion-euro bailout for Cyprus after it agreed to the deposit levy, which will raise 5.8 billion euros. Beyond that, many questions remain about how the burden will be split among Europe, the IMF, Cypriots and the banks.

Hugo Dixon: Cyprus deposit grab sets bad precedent

18 Mar 2013

Money had to be found to prevent its financial system collapsing. But imposing a 6.75 percent tax on insured deposits is a type of legalised robbery. Cyprus should instead impose a bigger tax of about 15 percent on uninsured deposits and not touch smaller savers.