Cypriot politicians will never learn.
On March 15, members of parliament rejected an initial Eurogroup bailout plan that would have meant a milder haircut on all savings and the possible survival of the island’s second largest lender, Popular Laiki. However, in their foolish wisdom they rejected the rescue package naïvely thinking that they could bargain for a better deal. Thanks to the incompetence of the previous communist administration, it was too late for that and the following week a harsher bailout package was imposed, including a nearly 50% bail-in of all unsecured depositors at Bank of Cyprus and a basket of austerity measures that brought the economy to its knees.
The economy is still struggling to recover.
This week, Cypriot MPs almost did it again, this time rejecting key legislation as part of the MoU with the Troika of international lenders, almost blowing to smithereens a 1.5 bln euro bailout for the Cooperative banking system that needs to be reformed.
The bill in question foresees the transfer of the supervision of the Coop banks (formerly “credit societies”) from the self-regulated Cooperative Central Bank to the Eurosystem-member Central Bank of Cyprus.
As expected, the populist anti-bailout communist party Akel and the smaller socialist Edek parties rejected the bill, with 23 votes against 21, nearly jeopardising the 10 bln bailout rescue for Cyprus, sending the legislation to a second reading. This time, the haggling lasted well into the night with a final vote just after midnight Thursday, finally approving minor revisions to the bill with a vote of 41 against 3. On Friday morning, the local media branded MPs as "incompetent", "comics" and "irresponsible", as there was a risk that Coop banks would just not open.
The bulk of the 1.5 bln euro rescue for the Coops will be ploughed back into the economy by recapitalising the Coop banks that will be downsized and restructured from 85 regional credit societies, based on depositor-members, to 18 commercial banks with shareholders.
For the time being, the Coop banks will be nationalised with the state undertaking the bulk of the shareholding, gradually giving up control to shareholders.
The reforms for the Coops also include legislation that will allow accounting firms to conduct audits of each of the new Coop banks, while the issue of shareholders, as opposed to “cooperative member” has fuelled scare-mongering among depositors that their savings too will be wiped out by the Troika of the ECB, IMF and the EU, just like a conspiracy theory that foreign interest are keen to take over the Cyprus economy.
With MPs like these, the Cyprus economy does not need enemies.
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