Following the re-opening of the banks and the apparent agreement of a bailout, Cyprus became page two news, and that is not surprising, because absent accurate up-to-date deposit withdrawal and ECB lending information, we are unable to plot the graph to see whether ECB support for Cypriot banks is reaching unacceptable levels. This lock-down on information was discussed here previously and unless the ECB provides information on its level of support, the first wemight know about how critical things are, might be when the ECB withdraws funding. Out TV screens are no longer filled with ATM queues nor loud protests outside the Cypriot parliament nor worried looking European and Cypriot politicians.
There is some hopeful news yesterday with some capital controls being eased with interbank payments under €300,000 no longer needing approval and international transfers raised from €5,000 to €20,000 but the daily cash withdrawal limit remains at €300.
But another threat to the Cypriot economy has now emerged with news that the country needs a €23bn bailout rather than the €17bn previously slated; I notice that the previous figure is now being put at €17.5bn as if that will minimize the increase! There is no indication that the external bailout Troika of the IMF, ECB and EU is willing to provide more than €10bn which leaves a funding requirement of €13bn for Cyprus itself, and €13bn in an economy with a GDP of €18bn is not pocket-change – Ireland with an economy of €160bn contributed €17.5bn to its bailout and all of that was in the national rainy day fund, the pension reserve.
The BBC reports that raiding deposits over €100,000 at Laiki and Bank of Cyprus might raise €10.6m. There is now talk about Cyprus selling its “excess” gold reserve worth €400m and previously there was talk of privatization proceeds of €1.4bn. How confident though would you be that a bailout requirement that has risen by 35% in a month, mightn’t rise by another 35%, particularly with what pseudonymous Pawel Morski, a London fund manager, calls “dementedly optimistic”, the assumptions about the Cypriot economic outlook – that blogpost contains links to the leaked bailout documents and is worth a read. Perhaps we will get some enlightened thinking in Dublin today and tomorrow when European finance ministers and central bankers are meeting to discuss the Euro crisis, bailouts and all that.