Friday, March 22, 2013
Can Cyprus Come Up with 40% of Their GDP by Monday?
What is going on in Cyprus really is mindblowing and judging by US equity market actions people seem to think that there will be some last minute solution. I'm not so sure. First, there is pretty much no way that Cyprus can come up with 6.7 billion Euros by Monday. What do you mean 6.7 billion you ask? You thought it was only 5.8 billion? Well the powers that be at the Troika decided to up it as "conditions worsened", which is a also a sign that Germany is not just going to back down and simply bailout the country. Of course they keep talking about a tax on bank deposits but at this point, with 68 billion in deposits, they would have to skim 10% off the top of every bank account in the country. If they do that, will anyone ever put money in a Cypriot bank again? So even if they are able to come up with the money, the problem is they won't have much of an economy left afterwards as the banking system completely collapses (and of course they would need another bailout). They can slow down the collapse by using capital controls like freezing bank accounts and limiting withdrawals, but I don't see how that fixes anything. And can you imagine what happens to an economy when people aren't allowed access to their money for weeks or months? They might as well start buying tires now to try to float to Italy or something to escape the collapse (hopefully not Syria).