Cyprus: an example of Contagion.

Cyprus is a small country, its economy totals roughly E18B/year. The Country has two major banks: The Bank of Cyprus and Cyprus Popular Bank. Cyprus Popular Bank, founded in 1901 as a small savings bank, operates in Cyprus, Greece, the U.K., Ukraine, Russia, Romania, Serbia, Malta and China through 439 branches, servicing 1.35 million customers, according to information on its website. The total bank deposits in these two banks totaled E126B, of which the E31B was Russian money(some people put the Russian deposits at E120B).

So, what is the problem? Cyprus Popular posted a net loss of E3.65B for 2011 and E1.56B for the first 9 months of 2012. (I have not seen the figures on the Bank of Cyprus). What happened? Well, remember the "haircut" depositors in Greek banks had to take to avoid Greek defaults? While European banks were allowed to avoid the haircut, Cypriot banks took the brunt. Thus, we can truly say that the Cypriot banking crisis is due to the decisions of the EU robbing the Cypriot banks while sparing the EU banks . To add insult to injury,  Michael Meister, deputy parliamentary leader of Merkel’s CDU, told BBC Radio 4’sToday program: "Cyprus is living in an illusion,”. “They have to restructure the whole economy, restructure the banking sector and until now I don’t see the Cyprus people and politicians agreeing on this.” 

That's why you see Cypriots demonstrating.

Cypriot legislators are rushing to comply with EU orders. Part of the orders will spread the contagion further down the line. Deposits larger that E100,00 at Cyprus Popular will be frozen untill the govt decides how much of a haircut they will have take to satisfy the EU.

So, the Greek crisis will leave its footprint far and wide.