Cyrpus Bailout Debacle

by oracleofreason

Cyprus’s parliament has rejected a plan to payback a bailout of the Island’s banks. This coming on the heels of a bank run due to a proposal for Cyprus to pay back a loan given to it by the EU with a special tax levied on people’s savings. Cypriots are not out of the woods yet. Due to the lack of a bailout it could still spell trouble for Cyprus banks. Without monetary backing the result could be many (if not all) of the country’s banks would go bankrupt resulting in a bank run worse than what was seen on Saturday when Cypriots rushed to withdraw their money. Cypriots and even Spaniards are starting to dump the Euro and seek alternate means to protect their money. For example, the value of online-based currency Bitcoin has jumped quite a bit in the past few months since Europe’s banks started to sour.

Cyprus politicians are now in discussions with Russia in which the island is home to a number of wealthy Russians many of whom used to work for the KGB or have connections with Russia’s government. Cyprus has a number of natural gas deposits, and if Russia bails out Cyprus banks I have no doubt one of the conditions for giving money will be for Russia to have access to island ports including being able to tap Cyprus’s natural gas deposits. Since the bailout terms for Cyprus to get money from the EU involved taxing bank deposits, the EU just gave the Russians a prime opportunity to sweep up Cyprus right up from under them. The EU has complained about Gazprom’s natural gas prices in which the Russian monopoly supplies the continent’s natural gas. Cyprus would have given the EU a chance to get out from under Gazprom until Cyprus’ banks went belly up and island politicians went begging for help.

The entire EU and United States would do well to learn from Iceland in which the country faced a banking crisis like Europe is going through not too long ago. Rather than a bail out, Icelanders rejected subsidies for banks in a national referendum. Shortly after the vote, Icelandic banks then filed for bankruptcy in which the country’s banks ended up coming out of the financial mess stronger and in better shape.