Screwed in Cyprus

Bloomberg Businessweek has just published my story on the crisis in Cyprus.

Ionna Constantinou, a 24-year-old lawyer in Nicosia, Cyprus, was up early on March 16, packing her bags for a weekend holiday in London. She turned on her laptop and logged on to Facebook (FB). “You see people screaming, posting links, and you say, ‘What’s happening?’ ” she recalls. The news—that the leaders of the tiny island nation in the eastern Mediterranean had agreed to raid deposits in the country’s banks as part of a bailout deal—instantly upended Constantinou’s plans. She and her boyfriend, a lawyer named Simos Angelides, immediately canceled their flights. They waited for the banks to reopen, to see whether their savings would still be there. And like all Cypriots, they wondered whether the financial system was about to collapse and take their country down with it. “It was like an atomic bomb that fell,” says Angelides, 35. “Now we’re just living in the radiation.”

In the early hours of March 25, after more than a week of wrangling between officials in Nicosia and Brussels, Cyprus reached a deal that may have prevented it from tumbling out of the euro. In exchange for a €10 billion ($12.8 billion) bailout from the European Union, the European Central Bank, and the International Monetary Fund, the nation’s newly elected president, Nicos Anastasiades, agreed to shutter the second-largest bank, Cyprus Popular Bank, largely wiping out deposits above the insured limit of €100,000. Depositors in the country’s biggest bank, Bank of Cyprus (BOC:GA), could lose as much as 40 percent of their uninsured savings.

Read the rest.