Cyprus bailout plan

Even after the Monday morning movement caused by news released over the weekend, Cyprus continues to shake up investors for the EUR/USD trades. This is very clear from the H4 chart candlestick (2013.03.13 1600hrs) that indicates a 935 points price movement after the parliament voted against the EU bailout demands i.e. levy on bank deposits.

What exactly is happening in Cyprus?

The Cypriot economy is on the verge of being declared bankrupt if the government does not deal with its debt deficits. This includes raising $5.6b by Monday. This means that the Cypriot government needs to come up with a deal that would work for them and hurt Cypriots less.

The ECB could have bailed out the Cypriot economy but just like previous bailout plans, conditions are attached to it. However, unlike the other bailout plans i.e. Portugal, Spain, Greece and Ireland the ECB has included a tax levy on bank deposits in an attempt to push the Cypriot government to reduce its budget deficits. However, the Cypriot parliament raised concerns over whether this plan is the best for Cyprus, being the only plan of its kind in the recent ECB bailout plans

The ECB has bailed out Euro zone economies before but usually it attaches austerity based plans in an effort to push for debt deficit reduction. With the Cypriot parliament turning down the ECB conditions, this leaves the government with limited options:

1. The Orthodox Church
The Orthodox Church in Cyprus owns substantial assets (land) in Cyprus and has pledged to assist in the crises. However, the extent to which this could help in the deficit reduction process is yet to be determined.

2. Turning to Russia
Cyprus has been a safe haven for offshore accounts holders for decades. Russians own a third of the total deposits in the Cyprus economy. The Russians could be willing to assist in the crises but then this means interest in the Cypriot oil reserves. It should also be noted that the Russians are not usually involved in these kinds of bailout plans.