A Difficult Bailout Proposal for Cyprus

While the details of the proposed Cypriot bailout are unsettled, with banks closed and the Cypriot parliament expected to make changes to the package, the preliminary agreement has already sent shock waves through Europe, Russia and the global financial system. If approved in its existing form, it would be the first eurozone bailout in which depositors will have to bear part of the bailout burden. The proposal indicates that creditors are willing to risk financial turmoil in order to keep the pressure on troubled countries to apply reforms and contain the rise of Euroskepticism in the north.

In addition, the bailout conditions would hit Russian depositors particularly hard, adding to existing tensions between Russia and the European Union over Syria, trade and energy. The terms of the bailout could strain relations between Moscow and Berlin.