At the weekend European Union leaders thrashed out a bail-out deal aimed at resolving the banking crisis in Cyprus. The bailout package will keep Cyprus in the eurozone and allegedly rebuild the country's devastated economy.
It took hours of meetings, before finance ministers from the eurozone, approved the deal. The ministers involved were from the 17 countries which use the common currency, the Euro. The package will result in a restructuring of the banking sector of Cyprus. Chistine Lagarde, and other E.U. leaders wanted a radical overhaul of the banking sector on the island of Cyprus and that will follow. The deal will result in drastic cuts to the size of Cyprus’s banking sector, which many accept is over-sized compared to the size of the economy on the island of Cyprus.
The accepted bail-out package will guarantee the money of small investors but those with funds over 100,000 euros, around £85,000, in accounts will take a massive hit. The latest estimates are that a 30% tax could be applied to large accounts.
Whilst E.U. ministers claim the "haircut" of savings is necessary those who will take the hit are unlikely to agree.
The banking crisis was partly caused by banks on Cyprus paying unsustainable high interest rates. Cyprus became a tax haven and many wealthy people invested heavily in the country's banks. Russian Oligarchs, the new rich of that country, are big investors in Cyprus. Perhaps that should read WERE, big investors in Cyprus.
Any tax levied on bank accounts will be mandatory. The country, backed by E.U. ministers, will basically steal money from investor's accounts. There is no other way to describe the action. The likes of Merkel, the German Chancellor, and Lagarde, the International Monetary Fund boss, will have their investments stashed well out of harm's way. For the people of Cyprus there is still a long hard path, paved with austerity, closing businesses, an increase in unemployment and declining incomes, to travel.
Personal Forecast, opinion: Expect currencies to plummet and banks to experience losses as people's confidence in the banking sector hits an all time low. The BBC reports, "Eurozone finance ministers have agreed a 10bn-euro bailout deal for Cyprus to prevent its banking system collapsing and keep the country in the eurozone. Laiki (Popular) Bank - the country's second-biggest - will be wound down and deposit-holders with more than 100,000 euros ($130,000; £85,000) will face big losses. However, all deposits under 100,000 euros will be "fully guaranteed". Officials warn the island faces a deep recession with many businesses to shut."
Full BBC report here