Analyst: Bankruptcies Will Result From Cyprus Bailout Deal

Category: Economy / Mar 25, 2013 3:56PM EDT
One of Cyprus’s economic analysts said on Monday that even though the bailout deal will keep the country in the Eurozone, it still risks a credit crunch as businesses will struggle after bailout deal. Economic analyst Yannis Tirkides said businesses could suffer bankruptcies due to the Cyprus bailout package. "The decision, the agreement that we reached last night had the good side that we are in the euro zone. The island is not out of the euro zone and being part of the euro is a big plus for the island, so this is a good thing. The way forward from here surely is going to involve a credit crunch, and that is going to hit the private sector, maybe hard, I don't know, it depends how things develop on the liquidity side. But surely too many companies and too many people will lose money, and that is going to lead a change of the decisions, less consumption, less investment, some companies will be hit hard because they will lose deposits when they have loans and therefore will be under pressure in the markets, some may have to close down. So there will be real consequences, typical of a credit crunch, companies going bankrupt without having to go bankrupt if things were normal, so this will hit the economy," Tirkides said. "The way it's going to operate, there will a very, very strict capital controls for a while. This cannot be forever, these controls, but I think for the short term, it can be a week, it can be a month, it can be more than a month - people will calm down. So the main thing now is to prove and convince that the banking system that remains is stable and sound. The way I understand it the banking is sound, because Laiki Bank is going to be absorbed by a bigger bank, the bigger bank is fully capitalized, more than the nine percent requirement, so it's back in business, and it has a guarantee of the ECB for unlimited liquidity," he said. "A big chunk of what happened was our responsibility. We made mistakes, we made mistakes as an economy, as bankers, as political procedures, as institutions, like the central bank. So when you make mistakes you pay a price for it, so you can't blame the EU entirely, the EU could have adopted a lenient approach if it had the option," Tirkides said. (Video Source: REUTERS)