Well, the Cypriot banking crisis has been “resolved.” It is being reported that the government in Nicosia has agreed to a deal with the European Union (EU) and International Monetary Fund (IMF) lenders. The deal involves a large loan from the European Central Bank (ECB), the imposition of austerity measures and capital controls, and the restructuring of the country’s banking system.
Several eurozone countries, such as Germany, must also sign on to the bailout deal, which might take another few weeks. EU officials said they expect the whole program to be approved by the end of next month.
Last week, the world was shocked to hear about a plan to save Cyprus’s troubled banking system: a levy that would have automatically withdrawn cash from every single private account in the country.
The plan was met with widespread public opposition, and in a stunning development Cyprus’s parliament voted to reject the measure, with none of the 56 members voting to accept it.
The immediate cause of this latest financial panic was the exposure that Cyprus’s two largest banks — the Bank of Cyprus and the Cyprus Popular Bank (aka Laiki) — suffered when Greece defaulted on her bonds.
The ECB will now be called on to create billions of digital euros to cover the losses of the Cypriot banks.