Sunday 24 March 2013

Yet more errors on Cyprus - reporting in the WSJ

Yet another blatant misunderstanding of the situation in Cyprus. Steve Nixon writes in the Wall Street Journal that:

In fact, Nicosia tried to blackmail the euro zone. It calculated that the euro zone would not risk the contagion that might follow a disorderly sovereign default. The previous Cypriot government demanded a loan of €17 billion ($22 billion), equivalent to 100% of GDP, a sum it could never repay, yet refused to accept any conditions in return.

This is so absurd, it’s painful to read.

The Cypriot financial crisis has two elements:

a.     A sovereign debt problem, which amounts for EUR 7.5 billion of the EUR 17.5 billion total bail-out. Cyprus has already implemented most of the loan conditionality for this, slashing public sector wages and pensions, agreeing to staff lay-offs and privatisations and a series of tax hikes. All these laws were passed in December 2012 and January 2013, with Troika approval. 

b.     A bank recapitalisation problem, which amounts to EUR 10 billion. The bank recap is needed due to the EUR 4 billion GGB write-off, and EUR 6 bln due to non-performing loans. Both the current and previous governments have been ready to accept loan conditionalities – but not the destruction of the Cypriot banking system.

As with the example of Paul Krugman, I guess it’s asking too much for objective, fact-based journalism on Cyprus.

There is a complete analysis of the Cyprus Bailout loan conditionality and its likely impacts here:

© Philip Ammerman, 2013 

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