Despite the fact that the Cyprus program is on track, the rescue of banks with the same instruments (bail-in) failed says the Economist, outlining the state of the economy, after the dramatic rescue of March last year. Terms of creditors in Cyprus beyond the usual demands for austerity and reforms, included the banking bail-in where uninsured depositors absorbed the losses of banks. The experience of Cyprus has a major impact on how you are treated in future banking crises in Europe. The trauma of last spring, when the banks were closed for about two weeks and imposed capital controls, expected to have devastating consequences for Cyprus.
Cyprus
The economy shrank by 5.4% in 2013 after falling 2.4% in 2012. Although painful, however, was milder than the drop of 8.7% projected in April by the troika. However, the Cypriot economy has proved more resilient than expected, notes the Economist. The Economist referred to the large size of the banking sector before the rescue, noting that at their peak, in 2009 their assets were nine times the Cypriot GDP. But Cyprus has other strengths, which are located mainly in tourism and business services, which lasted quite well.
Cyprus central bank
Reported that the business services sector contracted at a slower rate than the overall economy. The events of March hit confidence in the banks, especially the Bank of Cyprus. The article speaks for nonperforming loans, which reached 53%, and the hole in the balance sheet of the Bank of Cyprus between loans and deposits, where the loans are 45% larger than the deposits. The deficit is covered by 11 billion euro funding from central banks.
By Nicole P.
