Last Updated : 21 March 2013 at 15:15 IST
The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013 for Cyprus. Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks in the island nation.
“That sets Nicosia a clear deadline -- find €6bn by next week, in a way that satisfies the IMF and the European Union, or your banks collapse.” The Guardian reported.
This means, Germany and others in Northern Europe would not blink. This take-it-or-leave-it deal sounds too arrogant and smacks of a blunder. Cypriots would possibly reject it just after they have read the headline.
Chances galore that Cyprus would leave Eurozone which could even usher in a financial turmoil whose impacts would be unpredictable.
For want of a nail...
For want of a nail, a kingdom was lost, says the proverb. For want of few billion Euros, would Eurozone be lost?
Cyprus, after all is a nation of 1.1 million people owing some 17 billion Euros in value. That is small change for the troika of lenders. The problem is that if the lenders show some leniency and grant Cyprus the money, chances are more that it would set a precedent and may tempt the other debt-laden nations like Italy and Spain to expect and attune their behaviour in the Cypriot lines.
That would be costly and explains the underlying tone of lenders who have from the beginning stuck to a stand of treating Cyprus a stand-alone case. Cyprus has been portrayed as an exception and exceptions are not examples.
“If Cyprus is not bailed out, it would not be able to service its debt and thus may have to default. To avoid that possibility either Cypriots will have to float a currency of their own thereby exiting the Euro. That would be catastrophic and may prove to be tempting for nations like Greece and who knows, Italy and Spain! But this being an empty-gains-to-drains-scenario would be unthinkable for Germany and other nations.
In short, they cannot bail out Cyprus. But they cannot afford not to bail out. Now, that is a dilemma and a deadlock. Matters complicate as there is no exit route from Euro; no formal mechanism for an exit from Euro.”
The ECB has decided that would not bailout Cyprus until they raise some cash which is in sync with EU/IMF programme. And possibly this would estrange ordinary Cypriots to the effect that Cypriots would pressurise its government to leave Eurozone.
But Cyprus can always bank on Russia. That is a possibility which is being explored by Cypriots.
"There's a lot of teams now working on a number of issues. Banks, natural gas, are there opportunities (on which) we can base some cooperation and some support from Russia," Finance Minister Michael Sarris told reporters in Moscow and was quoted by Reuters as saying.
"We've asked for help clearly, but something that would make also economic sense for Russia."
Certain reports say that Russia would be sensitive to European Union concerns pertaining to Cyprus. Cyprus is very much in the strategic arc of Europe and Russians would not do anything that may estrange Europe as a whole.
All eyes are now focused on Plan B to be presented in Cypriot Parliament today. Reports suggest that it would have Russian content as well as some dipping into Provident Fund, Real-estate assets etc of nation.
Perhaps, Cypriots could now blow dust off their mints and start printing some currency. While they float a new currency, let them watch Eurozone sink. What a pathetic irony!
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