Cyprus and the Central African Republic.

Somewhere amid the chaos of last night the European Union (EU) agreed to give Cyprus a E10bn bailout. The main points of this deal will see Cyprus' second largest bank Laiki closed down meaning that its shareholders and bond holders will lose everything. Laiki's good assets such as savers accounts will be transferred to the Bank of Cyprus while its toxic assets such as defaulted on loans will be put into a bad bank to be disposed of. This will be funded in part by the E10bn from the EU and a seizure of private assets. However bank accounts containing less than E100,000 will be protected while accounts over E100,000 will see 40% of their contents going to the Cypriot government. In order to prevent people from draining their accounts Cypriot banks will remain closed on Tuesday and ATM withdrawals are to be limited to E100 per day.

The doubling of the levy on accounts over E100,000 from 20% to 40% is a clear attempt to hurt Russian investors. Although there are the long term frictions between the EU and Russia this seems to be the Eurogroup sending a very clear message to Russia that they want them to end their support for the Syrian government in order to punish the US for their behaviour in the Rihanna operation. The Russians have responded by announcing that it is going to review a E2.5bn loan it made to Cyprus in 2011 presumably with a view to recouping some of the money it's citizens will lose through the asset seizure.

While I appreciate the message being sent over the Rihanna situation I think this is a bad idea. Firstly setting the precedent that private assets can be seized is hardly going to increase investor confidence in Eurozone nations such as Spain and Italy who are close to the edge themselves. If investment dries up it will be enough to push those nations over the edge and the EU simply cannot afford to bail them out. Also there are significant doubts over whether the bailout agreed for Cyprus will be enough. With Russia likely to retaliate by either calling in or increasing the cost of it's existing loans to Cyprus the nation could be requiring another bailout by the end of 2013. If that happens Cyprus will simply have to leave the Euro.

Also today the Seleka rebels formally took control of the Central African Republic (CAR). The Seleka leader Michel Djotodia has declared himself President and declared that he will not hold elections for at least three years. The only positive sign is that Djotodia has spoken of forming a government of national unity and is keeping former President Francois Bozize's Prime Minister Nicolas Tiangaye in post for now. However with the common enemy gone and the spoils of a peace-deal to be shared out it is more likely that Seleka (literally "alliance") will break apart leading to more fighting which may spread into neighbouring Democratic Republic of Congo (DRC).

At the moment the situation in CAR is deeply chaotic. Former President Bozize has been confirmed as having fled to Cameroon but that is really the only thing we do know. Residents of the capital Bangui have been more or less confined to their homes for the past two days as the rebel fighters loot and ransack their way through the capital. 13 South African peacekeeping troops were killed in the fighting for Bangui and 1 more is missing in action. French troops who are basically in the country to secure the airport and help French nationals escape ended up killing two Indian nationals and a number of the Chadian nationals amid the chaos. This is hardly likely to improve relations between France and Chad as they fight Islamists in Mali.

The timing of the coup in CAR is highly suspicious because it comes just as senior UK Foreign Minister William Hague and Hollywood actress Angelina Jolie in her United Nations (UN) special envoy role visited the DRC and and neighbouring Rwanda to tackle the conflict in DRC particularly the use of sexual violence and sexual slavery in that conflict. Rwanda is widely accepted to be supporting the March 23 (M23) rebels who carrying out most of the sexual violence in DRC and are in turn close allies of the people who have just seized power in CAR. Therefore the confusion caused by events in CAR and the possibility of it opening up a new conflict in DRC makes the job of the people such as the UN who are trying to end the conflict in DRC difficult to the point it must feel damn near impossible.

(Originally Posted) 23:20 on 25/3/13.