Case Study-AW-Q141

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8 A Guide to Case Analysis
6. Expect to learn a lot in class as the discussion of a case progresses; furthermore, you will find that the cases build on one another—what you learn in one case helps prepare you for the next case discussion.
There are several things you can do on your own to be good and look good as a participant in class discussions
Although you should do your own independent work and independent thinking, don’t hesitate before (and after) class to discuss the case with other students. In real life, managers often discuss the company’s problems and situation with other people to refine their own thinking.
• In participating in the discussion, make a conscious effort to contribute, rather than just talk. There is a big difference between saying something that builds the discussion and offering a long-winded, off-the-cuff remark that leaves the class wondering what the point was.• Avoid the use of “I think,” “I believe,” and “I feel”; instead, say, “My analysis shows —” and “The company should do ______.because ______.” Always give supporting reasons and evidence for your views; then your instructor won’t have to ask you “Why?” every time you make a comment.
• In making your points, assume that everyone has read the case and knows what it says; avoid reciting and rehashing information in the case—instead, use the data and information to explain your assessment of the situation and to support your position.
• Bring the printouts of the work you’ve done on Case-TUTOR or the notes you’ve prepared (usually two or three pages’ worth) to class and rely on them extensively when you speak. There’s no way you can remember everything off the top of your head—especially the results of your number crunching. To reel off the numbers or to present all fi ve reasons why, instead of one, you will need good notes. When you have prepared thoughtful answers to the study questions and use them as the basis for your comments, everybody in the room will know you are well prepared, and your contribution to the case discussion will stand out.
Preparing a Written Case Analysis
Preparing a written case analysis is much like preparing a case for class discussion, except that your analysis must be more complete and put in report form. Unfortunately, though, there is no ironclad procedure for doing a written case analysis. All we can offer are some general guidelines and words of wisdom—this is because company situations and management problems are so diverse that no one mechanical way to approach a written case assignment always works.

Your instructor may assign you a specific topic around which to prepare your written report. Or, alternatively,
you may be asked to do a comprehensive written case analysis, where the expectation is that you will (1) identify all the pertinent issues that management needs to address, (2) perform whatever analysis and evaluation is appropriate, and (3) propose an action plan and set of recommendations addressing the issues you have identifi ed. In going through the exercise of identify, evaluate, and recommend, keep the following pointers in mind.3
Identification It is essential early on in your paper that you provide a sharply focused diagnosis of strategic issues and key problems and that you demonstrate a good grasp of the company’s present situation. Make sure you can identify the fi rm’s strategy (use the concepts and tools in Chapters 1–8 as diagnostic aids) and that you can pinpoint whatever strategy implementation issues may exist (again, consult the material in Chapters 9–11 for diagnostic help). Consult the key points we have provided at the end of each chapter for A Guide to Case Analysis 9
further diagnostic suggestions.
Review the study questions for the case on Case-TUTOR. Consider beginning your paper with an overview of the company’s situation, its strategy, and the significant problems and issues that confront management. State problems/issues as clearly and precisely as you can. Unless it is necessary to do so for emphasis, avoid recounting facts and history about the company (assume your professor has read the case and is familiar with the organization).
Analysis and Evaluation This is usually the hardest part of the report. Analysis is hard work!
Check out the fi rm’s financial ratios, its profi t margins and rates of return, and its capital structure, and decide how strong the fi rm is financially. Table 1 contains a summary of various fi nancial ratios and how they are calculated. Use it to assist in your fi nancial diagnosis. Similarly, look at marketing, production, managerial competence, and other factors underlying the organization’s strategic successes and failures. Decide whether the fi rm has valuable resource strengths and competencies and, if so, whether it is capitalizing on them.
Check to see if the fi rm’s strategy is producing satisfactory results and determine the reasons why or why not. Probe the nature and strength of the competitive forces confronting the company. Decide whether and why the fi rm’s competitive position is getting stronger or weaker. Use the tools and concepts you have learned about to perform whatever analysis and evaluation is appropriate. Work through the case preparation exercise on Case-TUTOR if one is available for the case you’ve been assigned. In writing your analysis and evaluation, bear in mind four things
1. You are obliged to offer analysis and evidence to back up your conclusions. Do not rely on unsupported opinions, over-generalizations, and platitudes as a substitute for tight, logical argument backed up with facts and fi gures.

2. If your analysis involves some important quantitative calculations, use tables and charts to present the calculations clearly and effi ciently. Don’t just tack the exhibits on at the end of your report and let the reader fi gure out what they mean and why they were included. Instead, in the body of your report cite some of the key numbers, highlight the conclusions to be drawn from the exhibits, and refer the reader to your charts and exhibits for more details.
3. Demonstrate that you have command of the strategic concepts and analytical tools to which you have been exposed. Use them in your report.
4. Your interpretation of the evidence should be reasonable and objective. Be wary of preparing a one-sided argument that omits all aspects not favorable to your conclusions. Likewise, try not to exaggerate or overdramatize. Endeavor to inject balance into your analysis and to avoid emotional rhetoric. Strike phrases such as “I think,” “I feel,” and “I believe” when you edit your fi r st draft and write in “My analysis shows,” instead.
Recommendations The fi nal section of the written case analysis should consist of a set of defi nite recommendations and a plan of action. Your set of recommendations should address all of the problems/ issues you identifi ed and analyzed. If the recommendations come as a surprise or do not follow logically from the analysis, the effect is to weaken greatly your suggestions of what to do. Obviously, your recommendations for actions should offer a reasonable prospect of success. High-risk, bet-the-company recommendations should be made with caution. State how your recommendations will solve the problems you identifi ed. Be sure the company is fi nancially able to carry out what you recommend; also check to see if your recommendations are workable in terms of acceptance by the persons involved, the organization’s competence to implement them, and prevailing market and environmental constraints. Try not to hedge or weasel on the actions you believe should be taken.
A Guide to Case Analysis
By all means state your recommendations in suffi cient detail to be meaningful—get down to some defi nite nitty-gritty specifi cs. Avoid such unhelpful statements as “the organization should do more planning” or “the company should be more aggressive in marketing its product.” For instance, if you determine that “the fi rm should improve its market position,” then you need to set forth exactly how you think this should be done. Offer a defi nite agenda for action, stipulating a timetable and sequence for initiating actions, indicating priorities, and suggesting who should be responsible for doing what.
In proposing an action plan, remember there is a great deal of difference between, on the one hand, being
responsible for a decision that may be costly if it proves in error and, on the other hand, casually suggesting
courses of action that might be taken when you do not have to bear the responsibility for any of the
consequences. A good rule to follow in making your recommendations is: Avoid recommending anything you
would not yourself be willing to do if you were in management’s shoes. The importance of learning to develop
good managerial judgment is indicated by the fact that, even though the same information and operating data
may be available to every manager or executive in an organization, the quality of the judgments about what
the information means and which actions need to be taken does vary from person to person.4
It goes without saying that your report should be well organized and well written. Great ideas amount to
little unless others can be convinced of their merit—this takes tight logic, the presentation of convincing
evidence, and persuasively written arguments.
Preparing an Oral Presentation
During the course of your business career it is very likely that you will be called upon to prepare and give a number of oral presentations. For this reason, it is common in courses of this nature to assign cases for oral presentation to the whole class. Such assignments give you an opportunity to hone your presentation skills. The preparation of an oral presentation has much in common with that of a written case analysis. Both require identifi cation of the strategic issues and problems confronting the company, analysis of industry conditions and the company’s situation, and the development of a thorough, well-thought out action plan. The substance of your analysis and quality of your recommendations in an oral presentation should be no different than in a written report. As with a written assignment, you’ll need to demonstrate command of the relevant strategic concepts and tools of analysis and your recommendations should contain suffi cient detail to provide clear direction for management. The main difference between an oral presentation and a written case is in the delivery format. Oral presentations rely principally on verbalizing your diagnosis, analysis, and recommendations and visually enhancing and supporting your oral discussion with colorful, snappyslides (usually created on Microsoft’s PowerPoint software).
Typically, oral presentations involve group assignments. Your instructor will provide the details of the assignment—how work should be delegated among the group members and how the presentation should be conducted. Some instructors prefer that presentations begin with issue identifi cation, followed by analysis of the industry and company situation analysis, and conclude with a recommended action plan to improve company performance. Other instructors prefer that the presenters assume that the class has a good understanding of the external industry environment and the company’s competitive position and expect the presentation to be strongly focused on the group’s recommended action plan and supporting analysis and arguments. The latter approach requires cutting straight to the heart of the case and supporting each recommendation with detailed analysis and persuasive reasoning. Still other instructors may give you the latitude to structure your presentation however you and your group members see fit.
A Guide to Case Analysis 13

are looking for. Like most things, once you get a little experience under your belt on how to do company and
industry research on the Internet, you will fi nd that you can readily fi nd the information you need.

As a way of summarizing our suggestions about how to approach the task of case analysis, we have compiled what we like to call “The Ten Commandments of Case Analysis.” They are shown in Table 2. If you observe all or even most of these commandments faithfully as you prepare a case either for class discussion or for a written report, your chances of doing a good job on the assigned cases will be much improved. Hang in there, give it your best shot, and have some fun exploring what the real world of strategic management is all about.

To be observed in written reports and oral presentations, and while participating in class discussions. 1. Go through the case twice, once for a quick overview and once to gain full command of the facts; then take care to explore the information in every one of the case exhibits.
2. Make a complete list of the problems and issues that the company’s management needs to address.
3. Be thorough in your analysis of the company’s situation (either work through the case preparation exercises on Case-TUTOR or make a minimum of 1 to 2 pages of notes detailing your diagnosis).
4. Look for opportunities to apply the concepts and analytical tools in the text chapters—all of the cases in the book have very defi nite ties to the material in one or more of the text chapters!!!!
5. Do enough number crunching to discover the story told by the data presented in the case. (To help you comply with this commandment, consult Table 1 in this section to guide your probing of a company’s financial condition and fi nancial performance.)
6. Support any and all off-the-cuff opinions with well-reasoned arguments and numerical evidence; don’t stop until you can purge “I think” and “I feel” from your assessment and, instead, are able to rely completely on “My analysis shows.”
7. Prioritize your recommendations and make sure they can be carried out in an acceptable time frame with the available resources.
8. Support each recommendation with persuasive argument and reasons as to why it makes sense and should result in improved company performance.
9. Review your recommended action plan to see if it addresses all of the problems and issues you identifi ed—any set of recommendations that does not address all of the issues and problems you identifi ed is incomplete and insuffi cient.
10. Avoid recommending any course of action that could have disastrous consequences if it doesn’t work out as planned; therefore, be as alert to the downside risks of your recommendations as you are to their upside potential and appeal.

Nandita and Pratap Chandra Biswal wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western

On March 23, 2013, barely one month after presidential elections, people were calling on the new government of
Cyprus to resign. The government’s proposed levy on bank deposits had left Cypriots with the feeling of being
robbed of their savings.2 Anxious Cypriots were out on the streets — in long queues at bank ATMs and in
demonstrations where they chanted such slogans as “Hands off Cyprus”3 and against the European Union (EU), the
European Central Bank (ECB) and the International Monetary Fund (IMF), which had set a deadline of March 25
for dealing with the country’s fiscal mess. Amid wide public criticism and limited options, the government had to
identify the best alternative to avert an impending economic crisis in Cyprus before this deadline.
The EU was created to combine independent European countries in a single open market. It was based on the
principle of the free movement of goods, capital, services and people to enhance the prosperity of the entire area.4
EU member countries signed the Maastricht Treaty in December 1991 and agreed to its convergence criteria, which
involved acceptable levels of interest rates, inflation, government debt and fiscal deficit. Despite the well-defined
rules on fiscal and monetary control, EU members could not keep their debt levels within the specified limits,
especially after the global financial crisis that began in 2007. By late 2009, many member countries faced the
problem of ballooning government debt triggered by various reasons — Ireland due to its banking system, Greece
and Portugal due to poorly managed government expenditure, Spain due to a real estate bubble and Italy due to its
high government borrowing (see Exhibit 1).
Considering the threat these countries posed to the stability of the area, the EU and ECB decided to extend help to
them in the form of a bailout. Some of the bailout programs also involved the IMF. Greece was provided the first
bailout on May 2, 2010 in the form of bilateral loans pooled by the European Commission. The second Greek
bailout program, worth US$213.85 billion, was provided on March 14, 2012 through the European Financial
Stability Facility (EFSF). EU countries contributed the major portion (US$188.11 billion), while the rest (US$25.74
billion) was contributed by the IMF. The bailout was subject to adherence to quantitative performance criteria,
which were to be assessed by the “Troika” — the European Commission, the ECB and the IMF. It was accompanied
by the largest ever debt restructuring of bonds worth US$256.1 billion (about 95.7 per cent of US$267.28 billion) in
a “private sector involvement” (PSI).5 Similarly, Spain was bailed-out to help revitalize the banking sector,6 and
Portugal was granted bailout to reduce deficit and promote growth7 (see Exhibit 2).
During the growth period (1995—2006) of the “Celtic Tiger,”8 inadequate monitoring of Irish banks led to their
borrowing binge in the interbank money market. In 2008, foreign borrowing by the Irish banks reached US$143
billion — about 60 per cent of Iceland’s gross domestic product (GDP) — up from US$19.5 billion in 2004. Money
raised was lent into the economy as real estate loans, leading to a rise in property prices.9 However, as the credit
market froze in the financial crisis in 2007—2008, the Irish banking sector suffered a twin blow: (1) unavailability
of funds in the money market accompanied with withdrawals caused a liquidity problem and (2) lack of financing
froze the property market so property valuation plummeted.10 This led to a huge mismatch between the assets and
liabilities of the domestic banks, creating a solvency problem.
In response to the situation, the Irish government provided a state guarantee to all bank liabilities including deposits,
secured and unsecured debt. Fresh capital worth US$4.55 billion each was infused into the two largest banks —
Allied Irish Bank and Bank of Ireland. Until mid-2010, the Irish government was confident that the banks were
well-funded by the guarantee, but the situation worsened as those banks failed to raise money in the bond market.11
By November 2010, the Irish government had formally requested the Troika for a bailout; the Troika agreed since it
did not want the crisis to spread to other countries.12 A bailout of US$110.5 billion was approved, out of which
US$22.75 billion was to be contributed by Ireland’s domestic resources. The bailout included US$13 billion for
recapitalizing banks, US$32.5 billion for banking contingencies and US$65 billion for correct excessive fiscal
Thriving Iceland’s economy was led into crisis by its banking system. The three largest banks in Iceland — Glitnir,
Landsbanki and Kaupthing, which had been privatized by 2004 in the wake of financial liberalization — extended
credit heavily in the economy such that their assets grew to about 1,100 per cent of the country’s GDP (and 80 per
cent of total Icelandic banking assets) (see Exhibit 3). They engaged in maturity mismatching by issuing short-term
liabilities and investing in long-term assets, such that the short-term liabilities needed to be rolled over through the entire maturity period of the long-term asset. The Central Bank of Iceland provided explicit guarantees to these
banks and acted as a “roller over of the last resort.”14 The banks had also borrowed money in foreign currency
denominated loans mostly from the United Kingdom and the Netherlands, which were a predominant part of their
liabilities. As the credit market dried up due to the global financial crisis in 2007—08, these banks faced difficulty in rolling over their loans and found themselves in a liquidity crisis, which soon went beyond the control of the Central Bank of Iceland.
The Icelandic government took several steps to “ring fence” the crisis. On October 6, 2008, the Emergency Bank
Act was passed to assure domestic depositors that their deposits in the domestic and foreign branches of the three
banks would be guaranteed. However, foreign depositors were kept out of this guarantee, which totaled about 60 per
cent of GDP.15 The Financial Supervisory Authority (FSA) took control of the three banks. Considering the
guarantee on domestic deposits, the FSA split the three banks and passed their domestic deposits to three different
state-owned banks. Foreign deposits, however, remained with the troubled banks, which were allowed to go
bankrupt (see Exhibit 4). Iceland enforced capital controls to protect the Icelandic krona and also requested a bailout of US$5.1 billion from the IMF and the Nordic countries.16
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Defining Problem

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The foreign depositors of the Icesave branch (in the United Kingdom and the Netherlands), who were left out of
Iceland’s deposit insurance, were compensated by their local deposit guarantee scheme and the respective
governments. Later, the European Free Trade Association Surveillance Authority (ESA) challenged the Icelandic
action of not supporting the U.K. and Dutch savers in a European Free Trade Association (EFTA) court. However,
the court ruled that Iceland did not violate any directive of the European Economic Area: “[the directive] does not
lay down an obligation on the State and its authorities to ensure compensation if a deposit guarantee scheme [which]
is unable to cope with its obligations in the event of a systemic crisis.”17

Although domestic saving accounts were rescued, many other financial assets offered by the banks lost their value.
Icelanders either suffered losses on these assets or experienced huge outstanding personal debt. The economy on the
whole suffered a currency depreciation, leading to rise in import prices, high inflation and recession.18
Cyprus, a small island country, joined the EU in 2004 after much political uncertainty and with the support of the
United Nations (UN). It adopted the euro in 2008 and became one of the smaller members of the eurozone with 0.2
per cent of the zone’s GDP.19 Cyprus’s economic performance had been stable at that time, except for a mild
recession in 2009, which was cushioned by fiscal spending worth 4 per cent of GDP and bank lending.20 Fiscal
stimulus resulted in a fiscal deficit of 6 per cent of GDP in 2009. The current account deficit improved from 2008 to
2009 and was mainly financed by foreign direct investment (FDI) into the country.
Cyprus was a tax haven and attracted a lot of foreign deposits.21 Joining the eurozone was a positive signal and led
to an increase in inflow of foreign deposits. The banking system also experienced a similar boost. Banks in Cyprus
could use only 30 per cent of foreign deposits to extend domestic loans before joining the eurozone. However, after
adopting the euro, all eurozone deposits became local deposits and led to a boom in local lending.22 In 2011, the
IMF remarked that during that period of high growth and the property market boom, the economy of Cyprus also
developed some “vulnerabilities.”23
1. The banking system grew rapidly, which led to a high growth in credit. By 2011, total bank assets in Cyprus
were US$197.6 billion (835 per cent of GDP), out of which US$119.6 billion (500 per cent of GDP) were
extended within Cyprus and US$37.7 billion (160 per cent of GDP) extended to Greek borrowers. By 2012, the
total bank liabilities in Cyprus were US$166.4 billion (see Exhibit 5).24 Those loans took a hit on a couple of
counts: first, during the Greek debt restructuring in March 2012, Greek bonds faced a 75 per cent cut, which
caused the Bank of Cyprus a loss of US$2.08 billion (4.4 per cent of the bank’s assets)25; second, bad debt due
to the poor performance of the Greek economy26 meant that the ratio of non-performing loans (net of
provisions) to capital rose from 16.1 per cent in 2008 (Q4) to 34.8 per cent in 2011 (Q1).27
2. The poor performance of the Cypriot economy led to poor performance of public finance. Access to financial
markets became difficult, which made debt rollover difficult, adding to the debt woes.28
The economic situation in Cyprus had been weakening since then, and the country had raised the issue of a formal
bailout in the latter half of 2012. By November 2012, it was negotiating a bailout program, becoming the fifth EU
country to request a bailout from the Troika. It was estimated that Cyprus would need close to US$22.75 billion in
assistance, which was nearly equal to its GDP in 2012.29
Inability to find a way to reduce the cost of the bailout to more tolerable levels delayed the bailout program. On the one hand, the IMF wanted significant debt relief before it could make a commitment to the bailout. On the other hand, EU leaders had grown weary of the Cypriot president’s “lack of willingness to accept the reality of the situation.” They wanted to wait for the new government to be elected by February 2013 before engaging in any further discussion.30
The delay in finalizing a plan came with a cost — by March 2013, the economy had been put under a lot of strain.
Cyprus was running out of cash to support government operations and a functioning banking system.31 Finally, a
bailout of US$13 billion was proposed with the condition that Cyprus had to raise US$7.54 billion to unlock the
assistance. The proposed bailout had to be finalized by Monday, March 25, 2013, as failure to do so would render
the country ineligible for the EU’s US$11.7 billion emergency liquidity assistance (ELA). The emergency facility
was made available to the Central Bank of Cyprus, which was used to help the country’s two largest troubled banks
— Bank of Cyprus and Cyprus Popular Bank (Laiki).32
A bailout had usually been associated with conditionals placed on the seeking government to raise some funds
internally in order to reduce the amount of bailout and consequently keep a check on the level of fresh borrowing.
The Cypriot government proposed a plan for raising money internally to unlock the bailout, and the following steps
were proposed

the introduction of an upfront one-off stability levy applicable to resident and nonresident depositors,
increase of the withholding tax on capital income, a restructuring and recapitalization of banks, an increase
of the statutory corporate income tax rate and a bail-in of junior bondholders, an agreement between
Cyprus and the Russian Federation on a financial contribution.33
The stability levy was proposed as a one-time charge of 6.75 per cent on deposits less than US$130,000 and 9.9 per
cent on deposits greater than US$130,000. The proposal met with huge criticism from the Cypriot people who felt
they were being -robbed of their savings. However, some eurozone members found the proposal justified as they
believed that Cyprus was a hub for money laundering from Russia and were uneasy with the idea of bailing out illgotten bank deposits using tax-payers’ money.34
Amid huge criticism that the bank levy would hurt small savers, a few suggestions were made to change the levy
percentage to make sharing the burden more progressive (see Exhibit 6). First, it was suggested that the levy
percentage for deposits below US$130,000 could be reduced to 3.5 per cent, and the levy on large deposits increased
to 12.5 per cent, such that the large (and potentially foreign deposits) would contribute 81 per cent of the required
US$7.54 billion total. A second suggestion was that the levy on smaller deposits should be scrapped entirely and the
entire burden of raising US$7.54 billion should fall on large depositors.35 Another suggestion, floated informally but rejected, recommended exempting the first US$26,000 of smaller deposits, charging 6.75 per cent for the rest of
deposits within that segment and charging 9.9 per cent for deposits larger than US$130,000.36
The bank levy proposal had to be put through a parliamentary vote, and the ruling government had to gather political
support to implement it. Apart from the two parties forming the ruling coalition (Democratic Rally, DISY and the
Democratic Party, DIKO), no other party favoured the proposal. Moreover, four DIKO members threatened to
dissent and bring the ruling coalition down on the issue.37 On March 19, the Cypriot Parliament rejected the levy
proposal with no vote in favour, but skepticism lingered. Later in the week, news came that Cyprus had come to an
agreement with the EU and IMF to charge a 20 per cent levy on large deposits in the Bank of Cyprus and a 4 per
cent levy on large deposits in other banks.38

Given the severe criticism of the bank levy, Cyprus announced a proposal on banking sector restructuring. The crisis
had emerged due to a rise in bank lending over the growth years of the Cypriot economy. The top two lenders — the
Bank of Cyprus and Popular Bank (Laiki) — had come under financial stress. By 2011, loans extended by these
banks were 835 per cent of the country’s GDP. Also, loans worth about 160 per cent of GDP were extended to
Greek borrowers. Those loans took a hit on a couple of counts — cuts during Greek debt restructuring and bad debt
due to poor performance of the Greek economy.39 A restructuring was essential for the banks to avoid bankruptcy
and closure of operations, with repercussions for employees, clients and the overall economy. The proposed
restructuring plan involved splitting the Laiki bank into “good” and “bad” segments with deposits larger than
US$130,000 moved to the “bad” segment. This division would ensure a deposit guarantee for deposits less than
US$130,000, along with bank job retention. 40
The Cypriot Parliament was due to discuss the 61-page proposal, along with other bills related to restrictions on
bank activities such as processing cheques. A failure to arrive at a plan for raising funds would result in cutting the ECB’s lifeline to the Central Bank of Cyprus, which had been holding the two banks afloat up till then.41 A severing of the ELA would cause the immediate bankruptcy of the banks, resulting in widespread economic catastrophe and a possible exit from the euro.


Cyprus and Russia had shared close financial ties since the break-up of Soviet Union in the 1990s, when nouveau
riche Russians wanted to park their funds in Cyprus to avoid government scrutiny. It was suspected by Germany that
most of these funds were unscrupulously earned by Russian “oligarchs,” businessmen and “mafiosi.”43 Moody’s
rating agency estimated that Cypriot banks held US$31 billion in Russian funds (about one-third of total deposits44)
and had lent US$40 billion to Russian companies operating in Cyprus.45
This link with Russia led to a geopolitical dimension in the evolving economic situation in Cyprus. On the one hand,
eurozone officials believed that Russia was not extending enough help to Cyprus.46
On the other hand, Russian authorities expected the European Commission to involve Russia in arriving at a solution, particularly after being “engaged in months of negotiation over Russian cooperation on the bailout.” Russia was previously considering the possibility of easing the terms of repayment of a US$3.25 billion loan granted to Cyprus in 2011. But the EU’s attempt at solving Cyprus’s problem without consulting Russia led to an antagonistic Russian viewpoint: “What kind of strategic, equal partnership with the EU countries can we even talk about? They are solving their problems at our expense.” Russians also criticized the bank levy plan as “unfair, unprofessional and dangerous,”47
“expropriatory, confiscatory” and possibly leading to a “new leg of international financial crisis.”48
Commercial interests in the Cypriot bailout were also discussed as a motivation for Russian involvement. While
Russia wanted to prevent the bailout’s 10 per cent wipeout of deposits in Cypriot banks,49 it may also have been
eyeing Cyprus’s unexplored offshore oil and gas fields.50
Russia could choose to help Cyprus with US$7.54 billion (and secure the bailout) in lieu of access to the possibly 60 trillion cubic metres of gas reserves — a deal that the EU would have rejected considering its long-drawn efforts to reduce energy dependence on Russia.51 Moreover,Cyprus’s military strategic value for Russia — that is, an increased Russian influence over this EU member state —could have security implications.52 Political strategists were concerned about the diplomatic implications of evolving Cyprus-Russia relations while managing the Cypriot crisis: “You could see a major downgrading of the relationship if the EU gets its way, and Russian companies conclude the island is no longer a convenient, secure offshore centre .
. . Or you could see a Russian bailout leading to a significant strengthening of the economic relationship and of
Russian diplomatic influence.”53
It had been a week since the banks were closed for business on March 16, 2013. A withdrawal limit of US$338 was
imposed, and Cypriots waited at ATMs to withdraw their deposits in multiples of this amount. The country was rife
with fear and rumours about “secret deals and big power politics.”54
Due to limited cash, daily transactions had become difficult. Cyprus had turned into a cash economy as supermarkets and restaurants declined payments by credit card, for the same reason that they had to make upfront payments to the suppliers instead of relying on a 45- day credit cycle. It was feared that without a functional banking system, the “supply chain could seize.”55
Loss of savings was a constant threat to the people, either through a bank levy or bankruptcy. The proposal of
bringing pension funds under the net, although rejected by the ECB and EU, posed a concern as well. Businesses
had become cautious too and planned to move their money out of Cyprus as soon as the banks reopened.56 Famous
economist Paul Krugman posted that the Cypriot situation had raised concerns of a bank run in Europe.57
A Cypriot minister said, “Most of the people and politicians in Cyprus had the wrong impression — they had
illusions we could go through this crisis without paying a significant cost.” 58
More than anything, Cypriots — from the common man to authorities alike — were left with a sense of
We found out the hard way that it’s not a family . . . [the eurozone’s biggest members] dictate the terms and
everyone else falls in line. It’s becoming a dictatorship . . . The haircut on the deposits is the smallest
This document is authorized for use only by nawal magrashi ( Copying or posting is an infringement of copyright. problem. The issue is that the haircut has destroyed the trust in our entire model. For us, it will never be the same.59
The concern was pertinent: “We are waiting for a messiah to come and save us, and of course, there is none. If we
don’t get a deal on Monday, this place is doomed.”60
Product Code-Case Study-AW-Q141

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