Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
I think the politicians were genuinely oblivious to the possibility of causing a bank run. (Yes, despite the European Commission telling them)

Also, it was the Cypriot President that insisted on no deposit haircuts above 10% (for deposits above €100k).

Here are the two most egregious elements of the deal: Schäuble not wanting to touch the senior bondholders, and the Cypriot President willing to renege on the deposit guarantee. Also the ECB saying "we're willing to let your banks fail which will put you on the hook for €30bn in deposit insurance".

So the calculus being presented to the depositors by the ECB is "either you give up €6bn or you lose €30bn", because Germany doesn't want to burn the bondholders and Cyprus doesn't want to burn the oligarchs.

The IMF wanted to leave deposit insurance intact and large losses for senior bonds and uninsured deposits. They also forced the issue because they wouldn't loan to Cyprus if the country's debt-to-GDP would end up above 140%.

Now, involving the IMF in loaning Euros to a Eurozone country is one of the most inexplicable things of this whole 3-year "crisis management" but such is life.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 05:47:24 AM EST
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