Cypriot deal saves Euro…for now
0A deal on Cyprus has been reached.
The Cypriot support package will total €10bn. All Euroland members and the Troika have agreed to the package.
Laiki Bank will be wound down. Deposits under €100k will be guaranteed, but deposits above this amount will face losses, the full value of which is not yet known.
Senior bond holders of Laiki Bank will join equity and subordinated debt holders in the bail-in. This process is expected to generate €4.2bn.
Small deposits and good assets of Laiki Bank will be transferred to Bank of Cyprus.
In the case of Bank of Cyprus, equity holders, subordinated debt holders, and uninsured deposit holders will be bailed-in to facilitate recapitalization.
At the time of writing, it remains uncertain how long Cypriot banks will be closed and when they open what controls on deposit withdrawals will remain in place.
Implementation of the above does not require any new approvals from the Cypriot parliament.
The Cypriot government is expected to use tax increases and privatizations to generate additional funding.
So the Euro project is saved, at least for now, and the core have provided a clear warning to the periphery that there are no ‘blank cheques’.
James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccla
