The Cyprus Bail-In Blows Up: President Urges Complete Bailout Overhaul (Full Letter)

Tyler Durden's picture

Cyprus' President Nicos Anastasiades has realized (as we warned), too late it seems for the thousands of domestic and foreign depositors who were sacrificed at the alter of monetary union, that the TROIKA's terms are "too onerous." Anastasiades has asked EU lenders to unwind the complex restructuring and partial merger of its two largest banks leaving EU officials "puzzled", according to a letter the FT has uncovered, as "essentially, he is asking for a complete reversal of the program." The EU officials claim that the failure to prepare for the bailout’s impact was partially the fault of Mr Anastasiades’ government, which voted down a first agreed rescue before succumbing to a similar deal nine days later.

The FT goes on to note that although the letter does not request it explicitly, Mr Anastasiades is in effect asking for further eurozone loans on top of the existing EUR10bn sovereign bailout – something specifically ruled out by a German-led group of countries at the time. The return of beggars-can-be-choosers we presume - or just token gestures to recover some populist support as the enemy of my enemy is my friend.

As we noted here (and on the chart below), it seemed pretty obvious where this was going to end - obvious that is to everyone except Europe's victory-claiming politicians.

It seems the ongoing flood of capital (despite controls) and collapse of the economy that we discussed here is occurring at ever increasing pace - and demanding even more gold be sucked out of their vaults...

"Unless Cyprus implements some controls that truly work, at this pace its entire banking system will be completely deposit-free in under one year. And it will need to sell much more than all its gold to continue keeping the Troika happy and in compliance with all the future (because there will be many more) bailouts."

In other words, anyone who has been paying attention to the facts on the ground, in this case represented by the record April collapse in deposits (during a capital-controlled month!), would be well aware of the inevitability of this happening; and that in a continent in which the link between the banking sector and the sovereign is stronger than an umbilical, it was only a matter of weeks or most months before Cyprus pulled an Oilver Twist once again.

Via The FT,

Cyprus’ president has asked eurozone leaders for a complete revamp of his country’s €10bn bailout, warning Nicosia may not be able to meet the rescue’s current terms because it has harmed the country’s economy and banking system even more than expected.




“[T]he economy is driven into a deep recession, leading to a further rise in unemployment and making fiscal consolidation all the more difficult,” Mr Anastasiades wrote to the heads of three EU institutions and the International Monetary Fund.


“I urge you to review the possibilities in order to determine a viable prospect for Cyprus and its people.”




A senior eurozone official directly involved in the Cypriot talks said EU officials were “puzzled” by the letter




Essentially, he is asking for a complete reversal of the programme,” the official said, adding that the failure to prepare for the bailout’s impact was partially the fault of Mr Anastasiades’ government




Although the letter does not request it explicitly, Mr Anastasiades is in effect asking for further eurozone loans on top of the existing €10bn sovereign bailout – something specifically ruled out by a German-led group of countries at the time.

No explicit M.A.D. "we'll leave the Euro" threats aside from the implicit view that this is not a viable path for his people.

Finally, when bailing out ungrateful European insolvent nations (who voted on the terms of the onerous bailout through their own government precisely two months ago), can Europe next time makre sure they get the memo to not make a ruckus before the critical reelection of Europe's de facto viceroy, Angie Merkel?


Full Letter below (via Open Europe):

I am writing to update you on the economic and banking system developments in Cyprus following the Eurogroup decisions of last March and to request your support regarding a number of very pressing issues which need to be addressed the soonest.

1. The Cypriot economy is adapting to major shocks

The Cypriot economy is adapting to major shocks. Substantial private wealth has been lost and a significant number of Cypriot firms have lost their working capital at the two systemically important financial institutions which were subject to the bail - in. Restrictive measures, including capital controls, are seriously hampering the conduct of business and confidence in the banking system has been shaken. As a result the economy is driven into a deep recession, leading to a further rise in unemployment and making fiscal consolidation all the more difficult.

2. Application of bail-in was implemented without careful preparation

It is my humble submission that the bail-in was implemented without careful preparation. Its form was changed drastically within a week. Originally designed as a general bail-in across the banking system, it eventually became focused on the two distressed banks, the Laiki Bank and the Bank of Cyprus (BOC). There was no clear understanding of how a bail-in was to be implemented, legal issues are being raised and major delays in completing the process are being observed. Moreover, no distinction was made between long-term deposits earning high returns and money flowing through current accounts, such as firms' working capital. This amounted to a significant loss of working capital for businesses. An alternative, Ionger-term, downsizing of the banking system away from publicity and without bank-runs was a credible alternative that would not have produced such a deep recession and loss of confidence in the banking system.

3. Cyprus was forced to pay the cost to ring-fence Greece but no reciprocity has been granted

Another feature of the current solution was that deposits at the branches of Laiki and Bank of Cyprus in Greece were spared from a haircut to prevent contagion. These deposits amounted to €15 billion. The wish to avoid contagion to Greece was also evident in the Eurogroup's insistence that Cypriot banks sell their Greek branches. In addition and as a result of the sale, the Cypriot banks have lost their Greek deferred tax assets. As understandable as ring-fencing may be, this was absent at the time of deciding the Greek PSI in relation to the Greek Government Bonds which cost Cyprus 25% of its GDP (€4.5 billion). The heavy burden placed on Cyprus by the restructuring of Greek debt was not taken into consideration when it was Cyprus' turn to seek help.
4. Imposition of Laiki's ELA liability to Bank of Cyprus

The implementation of the sale of the Greek branches of the Cypriot banks, as urged by the Eurogroup, resulted in Laiki selling assets that were pledged against its ELA liability to Piraeus Bank, without Piraeus assuming the corresponding ELA liability. As such, Laiki was left with the related ELA liability but without the aforementioned assets. The ELA liability which was left "unsecured" as a result of the sale amounts to around €3.8 billion and was imposed on Bank of Cyprus as a result of the Eurogroup decision. It is worth reminding that a substantial part (in excess of €4 billion) of Laiki's ELA liability was required in the first place in order to cover deposit outflows experienced by Laiki's Greek branches.

Bank of Cyprus itself has a total ELA liability of around €2 billion. By taking an additional €9 billion from Laiki, which was accumulated over the course of the last year under very questionable circumstances, BOC has substantially increased the vulnerability of its own funding structure, with its cumulative ELA liability reaching a very high €11 billion. BOC was called to pledge its own assets to cover for the collateral shortfall for the €3.8 billion liability carried over by Laiki. Such a high amount of ELA liability hinders BOC's funding sources as the room for obtaining additional ELA is limited. The imposition of Laiki's ELA liability on Bank of Cyprus is the main contributor to the liquidity strain Bank of Cyprus faces.

5. Urgent need for Troika to provide a long-term sustainable and viable solution to the liquidity issues Bank of Cyprus is facing as a result of the Eurogroup decisions

Instead of addressing the issue of severe liquidity strain on Cyprus' mega-systemic bank through a long-term sustainable and viable solution, the Troika partners seem to have chosen the path of maintaining strict capital restrictions. Artificial measures such as capital restrictions may seem to prevent a bank run in the short term but will only aggravate the depositors the longer they persist. Rather than creating confidence in the banking system they are eroding it by the day. Maintaining capital restrictions for a long period will inevitably have devastating effects on the local economy, will also affect the country's international business and will have an adverse impact on GDP. Under such scenarios spill over effects will no doubt register on other local banks through higher non-performing loans as a result of dampened economic activity. In addition, increased deposit withdrawals from other local banks, as fear of lack of liquidity of the only systemic bank will have a domino effect on the entire banking system.

I stress the systemic importance of BOC, not only in terms of the banking system but also for the entire economy. The success of the programme approved by the Eurogroup and the Troika depends upon the emergence of a strong and viable BOC. It is for this reason that I urge you to support a long-term solution to Bank of Cyprus' thin liquidity position. Such a solution will re-instate depositor confidence in the banking system and will allow the full functioning of the economy away from restrictive measures and capital controls. It will also facilitate the attraction of foreign direct investment in Cyprus.

My Finance Minister has alerted the Troika Mission Chiefs in writing on 19 May 2013, in relation to the need to implement a long-term viable solution to Bank of Cyprus' liquidity position. No response has been received yet.

A possible long-term solution could be the conversion of part of Laiki's ELA liability into long term bonds and the transfer of these bonds and corresponding assets into a separate vehicle. Another solution could be the reversal of the Eurogroup decision in relation to the merger of Good Laiki (carrying the €9 billion ELA liability) into Bank of Cyprus. In any case the BOC should exit resolution status without any further delays and should be granted eligible counter-party status by the ECB. Of course more options need to be examined. I should mention that an interim Board and an interim CEO is already in place at BOC and the final asset valuation is progressing according to schedule.

I urge you to review the possibilities in order to determine a viable prospect for Cyprus and its people. The new government of Cyprus, despite its expressed disagreements, has abided by the Eurozone decisions and remains determined to implement the programme fully and effectively. I am personally determined to lead Cyprus out of this dire situation and towards a path of sustainable growth and development. We are also fully committed to re-establishing Cyprus's stance as a credible EU partner. However, at this crucial juncture, we are calling upon you for active and tangible support.

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Kirk2NCC1701's picture

The Troika was playing for time anyway.  Do what you gotta do, but do it NOW, you naive Troika-serving schmucks!

Pladizow's picture

LawsofPhysics's picture

In other words; "What?  Fuck me? no no no, fuck you."

So many paper fucking promises,

so little assets or collateral of real value.

Time for the world to "go to the matresses" and sort this out.

Winston Churchill's picture

Don't worry LoP ,homo sapiens will be going to the dirt mattress soon enough

at the current rate.

That body language at the G8 meet. Just as well Putin had his shirt on otherwise

he would have kicked Obozo to death.

LawsofPhysics's picture

So true, I have done business with the russians for a long time now.  Good people, love their "cut to the chase" approach, but what else would one expect from a society that understands "bread and circuses" very well and has lived through the collapse of a union that was a superpower.  America's demise is really not that different.

MisterMousePotato's picture

I am not being (or about to be) coy, but is it possible - is it actually possible - I mean, did it really happen in real life - that Mr. Anastasiades, et al., actually expected some other outcome? What I am trying to say (or ask) is that li'l ol' me, utterly bereft of  military and security and intelligence apparatus and diplomatic and financial contacts galore (such as the government of Cyprus has, one must assume) knew that this was going to happen (in fact, I'm kinda surprised that the fallout has been so mild, frankly) based on nothing more than the collective wisdom available on this stupid, time consuming web site ...

But the government of Cyprus was somehow taken unawares?

That cannot possibly be true.

Oh, I forgot to mention ... I'm not exactly the sharpest knife in the drawer.

BurningFuld's picture

Hey Cyprus, welcome to going bankrupt. Maybe call up Detroit for some pointers.

LawsofPhysics's picture

Pensioners and account holders in California, the next to be "cyprussed" - one can be optimistic anyway...

Sudden Debt's picture

today they said that 1 in 40 Belgians is a dollar millionair. And that's just the suckers who keep their money in the bank...
Plenty more to steal over here with their bail ins :)

americanspirit's picture

If you have a million in the bank you aren't a millionaire - you're somebody's bitch.

smlbizman's picture

better idea....superman towels...hi five

chubbar's picture

The Troika is playing for gold, not time. This has only one ending but the job of the elite is to completely disarm all nations of their only means to stay sovereign after the reset. The leadership in the U.S. is doing that via gold suppression sales as well as making sure the banks stay well funded as the rest of the economy does a slow default (slow default so citizens and companies sell assets first to try and stay afloat). The european elites are just making sure that each country slowly defaults after first pledging all available assets, especially gold. It shouldn't be too hard to understand the end game.

PTR's picture

Dude, I totally bookmarked you post.  I'm going to be watching to see how all this unfolds...

Midasking's picture

Just mint everyone a trillion dollar coin that must be deposited into Cyprus banks.. problem solved. Next....

Mongo's picture


knukles's picture

It used to be said in Europe about the time of WWII that "The Americans do everything right, after they've tried everything else first." or some such meandering truism.
Well my friends, methinks it's time that the EU be officially blessed with said stigmata.

Maybe the whole problem is that it's all just fucked beyond repair, anyhow.
Where be my Obiephone?

Big Corked Boots's picture

"The genius of you Americans is that you never make clear-cut stupid moves, only complicated stupid moves which make the rest of us wonder at the possibility that we might be missing something."

- Gamal Abdel Nasser

MisterMousePotato's picture

Statesmen from generations ago ...

Even when they were spectacularly wrong, they were more edifying than those of today.

Sudden Debt's picture

hahahahahaha damn that is so right!

to bad there's no quote for us Europeans as we just don't make moves at all...
wait for it... wait for it a bit longer.... yawn.... wait for it.... OH ANOTHER PROBLEM!!! let's forget the first one ever existed!

asscannon101's picture

I've also heard before; 'When God wants to punish Americans, he sends them tornadoes and hurricanes. When God wants to punish anyone else, he sends them Americans.'

Navymugsy's picture

What the fuck did they expect? They could have manned up in March and ditched the Euro but NOOOOOOOOOOOOOO, they had to fold. Too late Mr. A. The jig is up and the EU owns you! The banking crisis was worse than expected... Ya fucking think? Now that all of your cronies got their money out I guess it's time to beg for more. I can't wait to get back to Limassol and hear my neighbors tell me what a brave man Anastisiades is.

flacon's picture

I lived 11 years in Limassol. 

Sudden Debt's picture

HERE'S A WARNING SHOT................................................

Yardfarmer's picture

is this hopelesss clusterfuck the new normal?

thisandthat's picture


is this hopelesss clusterfuck the new normal?


  1. Yes.
  2. Yes.
  3. All the above.
MisterMousePotato's picture

I prefer the philosophical approach of Orientals to matters concerning the human affair:



1. Yes;

2. No;

3. Both the above; AND,

4. Neither of the above.


Gives one a little more wriggle room, too.

MisterMousePotato's picture

Did you know that Microsoft actually attaches four different states to the following:


(I can only explain three of them, but on page 87,465,934 of the Microsoft Knowledge Database, it is explained that the fourth is a feature, not a bug.)

thisandthat's picture

Feature, not a bug, explains the current situation perfectly well...

Truther's picture

You want your money back? give me your wife or bend over first. Bitchez.

Father Lucifer's picture



Rings upon your fingers
Bells upon your toes
Ev'ry day's a game of chance
Ev'ry body knows
In the king's apartment
Heavy lies the crown
There must be a thousand ways
To bring that castle down

Wave the mighty dollar
Make us live again
Lead and we will follow
Faithful to the end
Wave the mighty dollar
Pave the streets with gold
Lead us by the collar
All our dreams are sold

Rings upon your finger
Stardust in your hair
Jumping through that wall of fire
All for the market share
In the king's apartment
Desperate human greed
Try to find a diff'rent way
Satisfy that need

Wave the mighty dollar
Make us live again
Lead and we will follow
Faithful to the end
Wave the mighty dollar
Pave the streets with gold
Lead us by the collar
All our dreams are sold

Dewey Cheatum Howe's picture

There is only one way to reverse it, LEAVE THE EU ASSHOLES or bend over, take it like a man and stop complaining.

WarHorse's picture

Who will be first to leave the EURO?

jubber's picture

Euro still over 1:34  ?

Ms. Erable's picture

It's a little late to withdraw consent when their cock is already up your ass.

flacon's picture

It's the ejaculation that counts. 

Bunga Bunga's picture

In some related news....

A £1.5bn "bail in" plan to rescue the  Co-operative Bank could cost pensioners big


NoTTD's picture

This fucker just awaken from a long nap?

Inthemix96's picture

I heard the 'O' on the radio today at work kids, he is over here at the G8 with the rest of the circus clown show lot of ours.

How the fuck do you lot take him seriously?  He even SOUNDS disingenious on the fucking radio, he knows we know hes lying.

I mean this is the nicest possible way mind, even camoron sounds plausible which hes not, against your supreme leader.  He comes across as a fucking idiot in my opinion.

knukles's picture

Most people don't.
Even the ones who voted against the other guy(s)

Global Douche's picture

We generally don't, except for those Americans who remain on the government teet. Probably the best political cartoon I've seen is The "O" saying to the skeleton cow called the US Treasury "Good morning, sunshine" and having so many milk pails. The cow was ready to faint and had no more meat on the bones. This was maybe two years ago. It clearly deserved headlines, but Rome continues to burn.

NoTTD's picture

It's too late to ask for your viginity back after the deed is done.

Non Passaran's picture

Merkel: "Let's talk about it, but after the elections"

IridiumRebel's picture

keep withdrawing my friends

THX 1178's picture

from financial institutions? Done.

CaptainObvious's picture

Done.  Way back on March 17.  They want to keep 60% of $30, let 'em have it.  Fuckers.

Never One Roach's picture

Dear Mutter und Fater,


Send moar cash, bitte.


Du Kind,

Nikos Akroplis Klytemnestra