The Cyprus Banking Crisis - General Court Of The European Union Judgments In Cases T-680/13 and T-786/14

Introduction

On 13 July 2018 the General Court of the European Union ("the Court") issued its judgments on the cases T-680/13 and T-786/14 whereby the claims for compensation based on non-contractual liability launched by several individuals and companies in relation to the Cypriot banking sector claiming damages from the European Union have been rejected.

Due to their exposure to Greek bonds, in early 2012, several banks established in the Republic of Cyprus ('RoC') and more specifically, the Cyprus Popular Bank Public Co Ltd ('Laiki') and Bank of Cyprus Public Co Ltd ('BoC'), faced financial difficulties.

Particularly, the losses suffered by Laiki and BoC amounted to more than EUR 4 billion and which represented approximately 25% of the GDP of the RoC.

Simultaneously, the RoC was also facing financial and budgetary difficulties as a result of the exposure of its banking sector to the Greek economy and having been downgraded by rating agencies. Consequently, the RoC became unable to refinance itself at rates compatible with long-term fiscal sustainability and issued various measures in order to cover its financing needs which included the issuing of short-term treasury bonds and receiving a loan of EUR 2.5 billion from the Russian Federation.

By 25 June 2012, rating agencies had downgraded the RoC to a speculative grade and the RoC's bonds ceased to be accepted as collateral for the monetary operations of the Eurosystem. On the same day, the RoC requested for financial assistance from the ESM (European Stability Mechanism). According to the Cypriot Government, the assistance sought to 'contain the risks of the Cypriot economy, notably arising from the negative spill over effect through its financial sector, due to its large exposure to the Greek economy'.

On 26 April 2013 a Memorandum of Understanding was signed between the RoC and the Commission whereby it was agreed that financial assistance would be granted in the form of a microeconomic adjustment programme. The programme was to be negotiated by the Commission together with the European Central Bank ('ECB') and the International Monetary Fund ('IMF').

Following the implementation of the programme, major bank restructuring took place with the aim of correcting the budget deficit and restoring the soundness of the RoC's financial system.

The Claims

The claims arose by several individuals and companies (the 'Applicants') who at the time were depositors in Laiki and BoC or shareholders or...