A key political point from last night’s Cyprus deal is that Angela Merkel has scored an epic victory in an election year.
One wonders what the point is in these late night negotiations if the result is always a near total German victory. Last night’s agreed deal is almost the same as the one proposed by the IMF and Germany initially – with ultimately only some minor technical modifications. The final agreement foresees the resolution of Laiki, with deposit of under €100,000 put into a good bank, which in turn will be merged with Bank of Cyprus. Shareholders, junior and senior bondholder, and large depositors in Laiki will be wiped out.
There are so many reasons why Cyprus was a win for Merkel:
- She got to show her tightfistedness (even though we were never talking about much money).
- She helped insure a diminished future for the Cypriot banking system.
- She stuck it to the Russians.
- She did it all while creating virtually no financial contagion/ripple effects elsewhere in Europe.
- She showed that there’s no serious opposition to Germany among the rest of the nations.
In an election year, you really couldn’t do much better.
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