No matter what the Eurozone authorities may officially say, the troika's (EU, ECB, IMF) Sunday evening decision on Cyprus is a game changer. It is reasonably save to say that the EU's debt crisis will be solved via private and public debt restructuring followed by bail-ins / debt-to-equity swaps in the European banking sector.
No more, or only very limited, taxpayers' money will be used to recapitalise Eurozone banks. From now on, bank shareholders and debt holders will bear the burden. Welcome back to a proper functioning market economy.
The most relevant bit of the Eurogroup's Sunday statement on Cyprus gives us all the hints we need:
"Following the presentation by the Cyprus authorities of their policy plans, which were broadly
welcomed by the Eurogroup, the following was agreed:
1. Laiki will be resolved immediately - with full contribution of equity shareholders, bond holders and uninsured depositors - based on a decision by the Central Bank of Cyprus, using the newly adopted Bank Resolution Framework.
2. Laiki will be split into a good bank and a bad bank. The bad bank will be run down over time.
3. The good bank will be folded into Bank of Cyprus (BoC), using the Bank Resolution Framework, after having heard the Boards of Directors of BoC and Laiki. It will take 9 bn Euros of ELA with it. Only uninsured deposits in BoC will remain frozen until recapitalisation has been effected, and may subsequently be subject to appropriate conditions.
4. The Governing Council of the ECB will provide liquidity to the BoC in line with applicable rules.
5. BoC will be recapitalised through a deposit/equity conversion of uninsured deposits with full contribution of equity shareholders and bond holders.
6. The conversion will be such that a capital ratio of 9 % is secured by the end of the programme.
7. All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation.
8. The programme money (up to 10bn Euros) will not be used to recapitalise Laiki and Bank of Cyprus."
The Eurogroup's full statement on Cyrpus can be found here:
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/136487.pdf
For a detailed analysis and explanation of the agreement you don't need me. You just have to go to:
http://ftalphaville.ft.com/2013/03/25/1437052/scratch-one-stupid-idea/?
No comments:
Post a Comment