Gold Magazine April - May 2013, Issue 25 | Seite 20

COVER STORY

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It was the Greek crisis, and all the mistakes
made there by the eurozone and the IMF,
that triggered the Cyprus banking crisis
Washington to restrict the size of bailouts,
particularly when the money is used to recapitalize banks.
One should remember that when Cyprus
was preparing to join the EU in 2003, European Commission reports did not find any
problems with its banking sector. Neither
did the European Central Bank – which
threatened to pull the plug last month –
when evaluating Cyprus’ fitness to join the
eurozone in 2007. Ironically, when Cyprus
adopted the euro in January 2008, as the

storm clouds of the financial crisis were
gathering on the horizon, the ECB promised the island that the euro would protect
its banks. “For a small, open economy like
Cyprus, euro adoption provides protection from international financial turmoil
which often has a disproportionate impact
on smaller economies,” said Jean-Claude
Trichet, Head of the ECB at the time.
The IMF, which conducted an evaluation
of the Cyprus economy on an almost yearly
basis, has never previously criticized the coun-

try’s banking sector. On the contrary, in the
October 12, 2011 Article IV Consultation
Concluding Statement of the Mission, the
IMF said that “Cyprus’ large banking sector, with assets of over eight times GDP, is a
pillar of the economy, directly generating a
high share of jobs and income, and indirectly
supporting other business services. Cypriot
banks have a number of strengths, including
limited exposure to securitized assets and
predominant reliance on deposits rather than
wholesale market funding”.

h Agreement
The 25 Marc

O

n 25 March, the Eurogroup reached an
agreement with the
Cypriot authorities
on a financing programme. According to the terms of the
deal, large depositors, many of whom
are non-residents including some from
Russia, are set to bear a much higher
burden. The involvement of large
depositors is, however, restricted to
Laiki Bank and Bank of Cyprus. The
Government considered that, under
the circumstances, it was the best available deal and it avoided the worst-case
scenario of a potential bank and sovereign default and Cyprus exiting the
eurozone.
The programme focuses on bank restructuring and it include