Interpreting Middle East Economic News and Analyzing Market Trends

Cyprus Update: Bailout/Bail-in is a total failure

Cyprus Mail - How Much Worse Can it Get

It’s been a couple of months since we covered Cyprus so we decided to see how the March bailout/bail-in is going.  We knew it was going to be a failure, but we didn’t realize it would be a textbook case.  Business and economic students will be studying this for decades to come.

 

 

Here are some of the recent economic headlines coming out of Cyprus.  Click on the headline links to read the full stories.

 

 

On the progress of the bailout/bail-in itself:

 

 

Agreement close

 

 

The Finance Ministry and the Troika appeared to be converging on an agreement on the haircut of uninsured deposits over 100,000 euros in the Bank of Cyprus at 47.5%.

 

 

On bank deposits:

 

 

Cyprus Deposits Plunge At Fastest Rate In History

 

 

On unemployment:

 

 

Unemployment in Cyprus reaches 16.3% in May

 

 

On the local real estate market:

 

 

Acute property slump takes hold in bailed-out Cyprus: survey

 

 

On its vital tourism industry:

 

 

Tourist arrivals down in June

 

 

The economy has not yet reached bottom.  Expect unemployment to rise and match the record rate in Greece.  The real estate market has had a record drop recently but expect it to fall further.  Cypriot banks are bankrupt and deposits will continue to leak out.  Price controls implemented in March only made matters worse for banks.

What’s most concerning to us is how naive the rest of the EC citizens are on the Cyprus bail-in.  The headline above mentions a haircut of 47.%% on uninsured deposits.  However, negotiations are on-going and this rate will continue to rise until these depositor get nothing back but a few pieces of paper stating they have equity in a failed institution in return for their deposits.

 

The Cyprus bail-in was not a one-off deal and it will be used as a blueprint for other countries.  Cyprus will also need another bailout soon.  Look at Greece to see how well off it is after three bailouts… It has already spent 75% of its bailout cash.  What’s next?