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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