Cyprus’ Four Options for Avoiding Collapse

The only thing worse than Cyprus accepting the rotten bailout program that European policy makers agreed on late last week was Cyprus rejecting it. Yesterday, the parliament voted decisively against the terms of the bailout, with 36 members opposing it, the ruling party abstaining and not a single vote in favor.

Policy makers will have to come up with a new plan, and they had better hope the European Central Bank buys them enough time to do so before Cyprus’s financial system melts down.

A bank holiday was declared at least until tomorrow to prevent panicked savers from withdrawing their deposits from banks when they learned over the weekend that a levy may be imposed on deposits as part of a bailout program.

If depositors were worried about losing their savings before, they should be even more worried now. Last week, the ECB threatened to cut off emergency liquidity assistance to Cyprus’s two main banks in the absence of a bailout program. This would result in the immediate collapse of both banks, and they would default on their debt and most, if not all, of the 30 billion euros ($39 billion) in deposits they hold.

Faced with a bank run and the collapse of its largest financial institutions, Cyprus would only be able to rescue its banks and its economy by printing money and leaving the euro.

Luckily, this needn’t happen.

To read the rest, please see the original piece posted on BloombergView.

2 Responses to Cyprus’ Four Options for Avoiding Collapse

  1. We, the citizens, refuse to allocate our own funds in any form to bailout the gambling debts incurred through the financial speculation of investment banks.

    Sign :

  2. Mark Allan says:

    Isn’t it ironic that only a few months ago there was talk of the euro crisis being solved!
    Those of us who read this blog can allow ourselves a wry smile. This situation is going to get a lot worse before it gets better.
    I believe the best thing Cyprus can do is do an Iceland and extricate themselves from the mess this way.
    Otherwise it’s the same old useless methods of cuts and austerity that demolish morale,create disenchantment and most of all severely curtail growth. Making the ability to pay back the loans nigh on impossible.
    It won’t happen,they’ll do as the troika tells them and so the misery perpetuates.

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