In return for the “bailout package” graciously granted to Cyprus today, that nation must “implement structural reforms and privatize state assets” reads a part of the agreement mostly ignored by media coverage of the agreement.
The “bailout” will hurt big foreign investors in the Cypriot banking sector, particularly those from Russia.
In a sop to local “ordinary” people, who are unlikely to have over 100,000 euros in their accounts, small depositors with less than that are to be “let off the hook” and now will be levied nothing.
However, depositors with more than 100,000 euros are set to lose up to 40 percent of their money in terms of a new levy—which will however, be challenged in court by the Association of Russian Businessmen (ARB) in Cyprus.
“This is legalized theft,” ARB president Yury Pyanykh was quoted by Russian media as saying. “This violates a number of fundamental international treaties. And if this action is taken, I can imagine how many lawsuits will be initiated over this case and how many of them will be won.”
Russian companies and individuals hold over $30 billion, about a third of all deposits, in Cypriot banks.
The source of the problem is that the banks need a 10 billion euro rescue package to recapitalize in order to prevent a total financial meltdown.
However, the seizure of cash from the large depositors will reportedly raise 4.2 billion euros, leaving a shortfall of around 6 billion euros. This will come from new tax increases and privatizations.
The agreement has not been voted upon by the Cypriot parliament, and will probably not be put to that body either, according to the EU, which claims that the Cypriot parliament has already agreed to broad rescue measures.
Opposition to the new plan is just as widespread as it was to the old one, with the chairman of the Cypriot parliament’s finance committee, Nicholas Papadopolous, saying that it made “no economic sense. We are heading for a deep recession, high unemployment. They wanted to send a message that the Cypriot economy ought to be destroyed, and they’ve succeeded in a large part—they’ve destroyed our banking sector,” he told the BBC.
It is not clear exactly which “state assets” are set to be privatized, but the mania of privatization which has already afflicted much of the EU has seen previously state-held infrastructure turned over to the control of “private shareholders” and run on purely profit-grounds.
This in turn has led to decreased capital investment and increased costs to the consumer. In the UK, for example, energy prices have risen by as much as 300 percent in the past ten years, an increase which has been reflected in telecommunications and other sectors.
Cyprus’s central bank has imposed a daily withdrawal limit of 100 euros from ATMs to physically prevent a bank run by depositors, who are still justifiably wary of what the next week may hold.