Cyprus Bailout | South Seeks IMF & EU Finance Ministers Approval

Cyprus Bailout | South Seek IMF & EU Finance Ministers ApprovalCyprus Bailout | South Seeks IMF & EU Finance Ministers Approval

Tonight the 17 EU Finance Ministers are due to decide whether to give approval to the south’s bailout plans. If they do then the troika consisting of the IMF, European Central Bank and European Commission will determine whether the plans meet the requirement that Cyprus’ debt will be sustainable over the long run. If, and it is a big if, these plans are accepted in Europe then they have to be voted on by the south’s Parliament.

After all the obstacles have been climbed, the bailout money will not be going to the depositors it will be going to save the banks. With Laika Bank now limiting withdrawals to €100 a day, it will be a long time before the flow of money reaches the levels needed for the south’s economy to function.

If the south falls at any of these hurdles, and the banks’ source of Euros is cut off, not many options remain. One option, to return to the Cypriot Pound, could operate on the day the banks open. The psychological impact of this change is uncertain with many Cypriots probably proudly returning to the ‘good old days’ but it is uncertain how many non-Cypriots would be willing to deal in this currency or if they would accept the exchange rate that has to come with the issue of these notes. It could even be a game of ‘pass the parcel’ of notes with whoever is left with them when they are devalued gets caught out. A bit like 1920s German hyper-inflation and we all know what followed that!

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