Skip to main content

View Diary: BREAKING NEWS: Parliament of Cyprus Rejects "Bailout," Bank "Haircut" (143 comments)

Comment Preferences

  •  the natural gas angle complicates things (8+ / 0-)

    the Russians may see in all this a golden opportunity to buy Cyprus' resources on the cheap, in exchange for recapitalizing the ailing Cypriot banks on generous terms.

    I presume a side effect of that would be the exit of Cyprus from the eurozone. Because obviously, if you can get another country to float you a loan, you don't need the ECB.

    The Russians have about 42% of their foreign exchange reserves (about $522 billion) in euros. So they could give Cyprus euros, because that's probably the most convenient way to do it. But that's quite extraordinary if the EU would stand by and watch Russia lend euros to Cyprus on much more favorable terms than the EU itself was prepared to give! Would that not be an assault on the eurozone's monetary sovereignty? Surely it would provoke some kind of response.

    And if one nation leaves the eurozone, others will start thinking about it as well. Not to mention the instability that's resulting from this threat to confiscate depositors' assets. At what point does the whole shebang begin to unravel?

    Now the question is whether the Russians think that buying up that natural gas is worth potentially blowing up the eurozone.

    I am betting they think the risk of ripping apart the eurozone is very small, and the gain from acquiring control of Cyprus' natural gas, very big.

    Ironically, it's Cyprus' small size that is making this possible. Russia could never do this for Spain or Portugal or Italy or Greece, it would be too risky and costly to bail out such large countries and banking systems. But for a tiny country like Cyprus? Much less risky, and the upside may be worth the potential downside, in their view.

    It would be truly the most bizarre thing, if it were not popular protest against inequality that brought down the eurozone, but simple self-aggrandizement--a mutually profitable business deal between Cyprus and Russia.

    I don't think the EU has a lot of ammo to keep this deal from going down, if the Cypriot government decides to go with it. And I'm sure the Russians are offering a lot of carrots and they are being very careful not to come across as threatening or bullying. I doubt the EU can match the Russians' offer.

    Between the guy who's threatened to confiscate depositors' savings, and the guy who hasn't, I'd be inclined to deal with the one who hasn't.

    And it may just be that the only way to avoid a bank run in Cyprus, and attendant bank runs across Europe, is to allow the Russians to recapitalize the Cypriot banks. So who knows, even the EU might have to swallow this deal in order to avoid a bank panic.

    "In America, the law is king." --Thomas Paine

    by limpidglass on Tue Mar 19, 2013 at 05:10:41 PM PDT

    [ Parent ]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site