Human instincts and behavior now have primacy in Cyprus – politics and economics have taken a back seat. So, whatever Plan B was introduced in the Cypriot parliament will fail, but the numpty politicians and economists still cling to the belief that they can trump human instinct, and that the scenes played out over 10 days when ordinary people have been confronted with shuttered banks, ATMs providing limited or no service, a suspension of electronic transfers, credit and debit cards and cheques refused in shops, discretionary trade down 50%, bank employees without a job to go to – that after ALL this – that there is a belief all of this can be made right with Plan B is laughable. But here goes anyway.
Nine bills – seven according to some sources, eight according to others including a 61-page banking bill — were presented to the Cypriot parliament yesterday evening which are together designed to give effect to Plan B.
(1) Laiki Bank is to be split into a “good” and “bad” bank. Sound familiar? It’s actually a huge departure from other countries’ good and bad banks. In the Laiki case, the bad bank will not have toxic loans but instead will have deposits of over €100,000, and the split is aimed at clearly delineating larger depositors who will now face much greater than 9.9% levies to make Laiki solvent again. Bank jobs would be safeguarded. Sub €100,000 deposits would be guaranteed, like most people believed they were anyway, up until last Saturday. Russians are likely to be deeply unhappy with this move – although it remains unclear exactly how much Russian cash is swilling around the Cypriot banking system with estimates ranging from €5-10bn according to the finance minister to the Russian business magazine Vidimosti yesterday to €15-20bn according to other sources, it seems that the Russians are still in line to make a big contribution to the Cypriot bailout.
(2) The Central Bank and finance minister have been given broad powers to introduce capital controls. Although the controls have not yet been specified, they will likely place limits on withdrawals from banks or movement of cash from Cyprus to other countries. Cheques may be restricted.
(3) There will be a “solidarity fund” where citizens and businesses can invest spare cash or repatriate cash and assets in other countries to invest in a bond to help Cyprus recover.
(4) There is a menu of state assets that may be pledged as security for loans or bond issuance. There is still talk about the menu including private pension funds which would have to be expropriated, church property and assets, and the disputed gas assets in the east Mediterranean. However all such assets will require extensive due diligence before they can be practically packaged for sale or security.
The bills are set to be debated on Friday. If it weren’t so serious for the Cypriot people and its economy, you’d be tempted to get the popcorn in as the sophistry is played out in parliament and no doubt the politicians and bankers will convince themselves they have done enough to restore confidence in the Cypriot banking system. But unless they’ve discovered one of those Men-in-Black memory thingies, their labours are for nought, and it should be no later than Sunday when they realize that their banks are doomed in the context of the euro system, and the only thing that will practically restore confidence is a Cypriot currency and independent central bank.