Embattled Cypriot banks were able to strike an eleventh hour bailout deal that will, at least for now, save Cyprus from a banking collapse and keep it in the Eurozone. Many doubt the deal's effectiveness, however.
The agreement between President Nicos Anastasiades and heads of the European Union, banks, and IMF was reached mere hours before a deadline that would have seen the banking institutions in Cyprus collapse. If that were to have happened, Cyprus would have been the first nation to completely crash with the Euro currency.
"How long will it last?" asked Georgia Xenophontos, 23, a hotel receptionist in Nicosia. "Why should anyone believe anything this government says?"
In the deal, the Popular Bank of Cyprus (Laiki Bank) will slowly dissolve into the Bank of Cyprus. Accounts under $100,000 will immediately be shifted to the Bank of Cyprus while accounts over 100,000 euros will be held and forced to pay a tax to help raise money for the failing country. The tax will be between 30% and 40% and should help raise in excess of 4 billion euros. Bank accounts of over 100,000 euros are not currently protected under European law.
The deal was reached in order to spare the majority of Cyprus' population from under-going across the board taxation of their bank accounts. That proposal was seen as highly dangerous to the economy and political welfare of the nation. Mass protests have been staged against the proposed taxation, and bank runs have been commonplace thus far as credit is not currently in use there.
"This raises an important question: Why should a depositor in any Euro zone country similarly vulnerable to a banking crisis expect to be unscathed if a Cyprus-like calamity were to befall them," says Ilya Spivak, a currency strategist at DailyFX.
Depite the fact that a deal was reached that will save the Cypriot banking system, the very fact that this type of thing could happen has left many in the markets feeling uneasy. The FTSEurofirst 300 index, which had seen gains of .9% before the deal, immediately fell by .2% upon its announcement. The Dow Jones, Standard and Poor's 500, and the Nasdaq were all down for the day.
Though the deal does have its supporters, with German Chancellor Angela Merkel among them, it is seen by many as an absolute last resort tactic and not anything to be proud of. Some are far more cynical. Prime Minister Dmitry Medvedev of Russia, a country who has many investors with billions in Cypriot banks, did not mince words when describing the situation, noting that "the stealing of what has already been stolen continues."
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