zerohedge | Cyprus is preparing for total financial collapse as the European
Central Bank turns its back on the island after its parliament rejected a
scheme to make Cypriot citizens pay a levy on savings deposits in
return for a share in potential gas futures to fund a bailout.
On Wednesday, the Greek-Cypriot government voted against
asking its citizens to bank on the future of gas exports by paying a
3-15% levy on bank deposits in return for a stake in potential gas
sales. The scheme would have partly funded a $13 billion EU bailout.
It would have been a major gamble that had Cypriots asking how much
gas the island actually has and whether it will prove commercially
viable any time soon.
In the end, not even the parliament was willing to take the gamble, forcing Cypriots to look elsewhere for cash, hitting up Russia in desperate talks this week, but to no avail.
The bank deposit levy would not have gone down well in Russia, whose
citizens use Cypriot banks to store their “offshore” cash. Some of the
largest accounts belong to Russians and other foreigners, and the levy
scheme would have targeted accounts with over 20,000 euros. So it made
sense that Cyprus would then turn to Russia for help, but so far Moscow
hasn’t put any concrete offers on the table.
Plan A (the levy scheme) has been rejected. Plan B (Russia) has been
ineffective. Plan C has yet to reveal itself. And without a Plan C, the banks can’t reopen. The minute they open their doors there will be a withdrawal rush that will force their collapse.
In the meantime, cashing in on the island’s major gas potential is more urgent than ever—but these are still very early days.
In the end, it’s all about gas and the race to the finish line to
develop massive Mediterranean discoveries. Cyprus has found itself right
in the middle of this geopolitical game in which its gas potential is a
tool in a showdown between Russia and the European Union.
The EU favored the Cypriot bank deposit levy but it would have hit at
the massive accounts of Russian oligarchs. Without the promise of
Levant Basin gas, the EU wouldn’t have had the bravado for such a move
because Russia holds too much power over Europe’s gas supply.
