Cyprus deal best of a very bad job
canada goose clearance sale Cyprus economy is going to suffer terribly in the next few years. Some canada goose uk shop of that is inevitable given how bloated the banking system had become. But the disastrous handling of the crisis, especially in canada goose clearance sale the past week, will make things much worse.
buy canada goose jacket cheap James Murdoch shouldn’t be kicked out of BSkyB
canada goose coats on sale That said, uk canada goose the bailout deal that Cyprus reached with canada goose black friday sale its euro zone partners in the early hours of Monday morning makes the best of an extremely bad job both for the small Mediterranean island and its buy canada goose jacket rescuers.
cheap Canada Goose It establishes three important principles. First, there will be no losses for insured canada goose uk black friday deposits. Last week aborted deal foolishly Canada Goose Outlet involved taxing them at 6.75 percent. Second, uninsured creditors rather than taxpayers will pay the entire cost of bailing out Cyprus two troubled banks Cyprus Popular Bank (CPB) and Bank of cheap canada goose uk Cyprus (BOC). Third, Cyprus oversized banking sector, which depended heavily on somewhat dubious Russian cash, will be slimmed down.
canada goose deals There are two lingering doubts. Will capital cheap Canada Goose controls be imposed? And is Cyprus debt sustainable given the economy will be clobbered?
canada goose coats The key to the deal was to impose the entire pain of bank restructuring on the lenders uninsured creditors. CPB will be a euphemism for being put into controlled bankruptcy. Its good assets and insured deposits will be Canada Goose online merged canadian goose jacket with BOC. But its 4.2 billion of uninsured deposits will be kept in the remaining bad bank and converted into equity. They could lose most Canada Goose Parka of their money.
Canada Goose Jackets BOC is being https://www.canadagooseonline.org treated slightly less harshly. It will continue as a going concern and will be recapitalised so that it enjoys a capital ratio of 9 percent. The money to do this will come from converting a portion of its uninsured deposits into equity.
Canada Goose sale Until the number crunching is finished, these deposits which amount to perhaps 10 billion euros will be uk canada goose outlet frozen. It unclear what the eventual losses will be but the Cypriot government says canada goose store they could be about 30 percent.
canada goose store Meanwhile, shareholders and bondholders in both banks are going to be virtually wiped out. There are only about 1.4 billion euros of these.
buy canada goose jacket The deal will be extremely painful for the unsecured creditors of these two banks. But they are the ones who ought to suffer the most pain. There is also a silver lining in that many of these will be precisely those Russians who poured money into Cyprus, cutting somewhat the impact canada goose coats on the domestic economy. That said, there no denying that local businesses and others will be savaged too tipping some into bankruptcy and stifling activity.
canada goose The flip side of canada goose coats on sale the decision canadagooseonline to inflict all the cost on creditors is that taxpayers don have to pay a single euro to bail out the two big banks. So Cyprus may not suffer a repeat of the Irish problem where a decision to bail out its oversized banks dragged down the government too.
canada goose black friday sale But Cyprus will still have big problems. Its offshore banking centre, a huge source of income and employment, has been destroyed. Confidence has been thwacked and businesses will find it hard to get credit.
All the old Canada Goose Online economic forecasts are up in the air. Exotix, the broker, is now predicting a 10 percent slump in GDP this year followed by 8 percent next year and a total 23 percent decline before nadir is reached. Using Okun law which translates every one percentage fall in GDP to half a percentage point increase in unemployment such a depression would push the unemployment rate up 11.5 percentage points, taking it to about 26 percent.
Nicosia is getting 10 billion euros, about 60 percent of GDP, from its rescuers to help it over this difficult period. Some will be used to finance a fiscal deficit, which will be worse as a result of the coming slump. The rest will Canada Goose Coats On Sale be used to roll over canada goose clearance maturing debt and bail out some smaller banks.
Canada Goose online The International Monetary Fund thinks Cyprus debt will still hit 100 percent of GDP in 2020, despite the worsening economic outlook. It says the original programme had some wiggle room. But it not clear how the IMF has done its sums. If they don add up, investors will worry that today bailout is just the precursor to another one in six to 12 months. The fear of that will then further buy canada goose jacket cheap dampen economic spirits.
canada goose clearance The more immediate worry is that Nicosia could impose capital controls when the banks reopen. So far no decision seems to have been taken, beyond the plan to convert CPB uninsured deposits into equity and freeze BOC uninsured deposits.
canadian goose jacket There will be a temptation to take more extensive action in order to prevent a run on canada goose uk outlet all the remaining deposits. But this would be a mistake. Not only would it further gum up the Cypriot economy. It would send a bad signal to depositors in other vulnerable euro zone canada goose countries such as Spain, Italy and Greece.
Canada Goose Outlet The European Central Bank has said it will provide BOC with liquidity line with its applicable rules It should make clear this means it is prepared to fund a run on deposits and doesn want capital controls beyond freezing BOC uninsured deposits. The mere act of doing so will settle Canada Goose sale nerves.
The decision to exempt insured depositors from a tax has stopped one channel of potential contagion from Cyprus. Canada Goose Jackets The euro zone must now remove any risk of a second possible channel: capital canada goose factory sale controls.