The Special Case of Cyprus

The deposit levy in Cyprus is a remarkable step in the management of the euro crisis – FT report here. Research on contagion indicates that it is limited if the ‘ground zero’ is sufficiently differentiated (and sufficiently ringfenced) from other potential targets.

Update: the WSJ provides a ‘blow by blow’ of how the deal was decided here.

By the way:  St Patrick’s Weekend / Ides of March is a regular date for crisis events

St Patricks Day (March 17)   (or I suppose the Ides of March – March15)

2006:  Icelandic banks under pressure

2008:  March 16/17 Bear Sterns takeover; also Anglo Irish shares fall 30% in one day (St Patricks Day Massacre)

2013:  Cyprus!

343 thoughts on “The Special Case of Cyprus”

  1. “Dijsselbloem declined to rule out taxes on depositors in other countries besides Cyprus in the future”
    ts dumb as a bag of hammers. It puts every deposit in every country in the firing line before our bond pals

  2. The EZ must be calculating that the hot money in the system will pay the levy and remain in the system rather than go back on shore. That is a brave call in the Sir Humphrey sense. The impact will be interesting. Clearly, all large corporate depos in EZ banks could now be subject to bail in so how will the large corporates and SWF react.

    It has been surprising that there has not been major flows out of Cyprus give this has been on the table.

  3. http://www.nytimes.com/2013/03/17/business/global/cyprus-agrees-to-euro-zone-bailout-package.html?hp

    In the early hours of Saturday morning, after 10 hours of talks, finance ministers from euro area countries, the International Monetary Fund and the European Central Bank agreed on terms that include a one-time tax of 9.9 percent on Cypriot bank deposits of more than $130,000, or 100,000 euros, and a tax of 6.75 percent on smaller deposits, European Union officials said.

    “It’s not a pleasant outcome especially for the people involved,” Michalis Sarris, the Cypriot finance minister, told reporters. “But we believe it is something that, compared with other possible outcomes, is the least onerous,” he said.

  4. http://www.faz.net/aktuell/wirtschaft/europas-schuldenkrise/zypern/nach-rettungsbeschluss-mini-ansturm-auf-zyperns-banken-12116986.html

    The decision of the Euro Group on Cyprus rescue triggered on the Mediterranean island of a small Bankenrun. Many people tried on Saturday morning to clear their accounts. It was a short time to a run on some cooperative banks are also open on Saturday.

    Dozens of customers trying to withdraw their savings, reported the public broadcasting (RIK). They were from the staff informed that the online system, the banks had shut down. Later joined the few open stores, as the deputy president of the Cooperative Central Bank of Cyprus, Erotokritos Chlorakiotis, on state radio said.

    About a third of the deposits include foreign account holders
    At night the Euro group had decided to also ask bank clients without exception to the strong cash to avert national bankruptcy because of the ailing financial institutions. For deposits less than 100,000 euros a tax of 6.75 percent will be due, at higher amounts, it is 9.9 percent. That should bring in an estimated 5.8 billion euros, euro group chief Jeroen Dijsselbloem announced after the agreement of the Treasury on the bailout package on Saturday morning in Brussels. About a third of the deposits in Cyprus are in the hands of foreign account holders – especially wealthy Russians and British. To one Bankenrun forestall those amounts have been frozen on all accounts at night. The Cypriot radio reported that customers could withdraw money from the machine of course, but not the amount that corresponds to the special levy on their deposits

  5. Doesnt anyone here read Gurdgiev? Do before talking about hot money and all that. Go on facts wont hurt….

  6. http://www.lesechos.fr/economie-politique/monde/actu/0202646296696-chypre-obtient-10-milliards-d-euros-de-ses-creanciers-549760.php

    NTERNATIONAL
    INTERNATIONAL NEWS
    Cyprus gets 10 billion euros of its creditors
    By Les Echos | 16/03 | 9:33
    The eurozone and the IMF found Saturday morning an agreement on a bailout of up to € 10 billion for Cyprus. In exchange for a windfall tax on bank deposits will be implemented by Nicosia.

    Cyprus became the fifth recipient of international aid – Reuters
    After a marathon session, Cyprus finally got help from the eurozone and the IMF in the very morning of Saturday. Nicosia becomes the fifth country in the euro area to benefit from international aid program, was assured of a bailout of up to 10 billion euros.
    But in exchange for this aid, which is well below the amounts disbursed to Greece, Portugal or even Ireland, Cyprus will have to hand the portfolio. To reduce their participation, donors actually asked Nicosia to introduce a windfall tax of 6.75% on bank deposits to below 100,000 euros and 9.9% above this threshold, as well as a withholding tax on interest on these deposits.
    These samples should yield a total of 5.8 billion euros, said Saturday the leader of the Eurogroup, Jeroen Dijsselbloem. To these charges, in addition to privatization and an increase in the corporate tax from 10 to 12.5%.
    A law passed during the weekend
    Donors Cyprus waived a debt cancellation, which would have inflicted heavy losses on private creditors, which was firmly rejected by Nicosia, but all investors will be affected by these new taxes, they are Cypriot or foreign in particular Russia.
    The authorities have already taken steps to freeze the funds on the accounts and a law should be passed over the weekend to allow this operation and prevent massive capital flight.
    “We do not penalize Cyprus,” said Jeroen Dijsselbloem. “We stand by the Cypriot government is the package that will allow a restructuring of the banking sector and make debt sustainable,” he said.
    “The solution presented is durable, sustainable and in the best interests of the Cypriot economy,” added the director of the IMF, Christine Lagarde, whose institution should participate in the plan to help Cyprus even if no order of magnitude n ‘ was raised publicly. According to a European diplomatic source, the IMF’s contribution could be around one billion euros.
    Avoid cuts in wages and pensions
    Taxes on capital and interest on deposits will be fully offset by the distribution of shares, said the Cypriot Minister of Finance Michalis Sarris, noting that measures have prevented “cuts in wages and pensions “.
    Cyprus had requested in June financial assistance of the EU and the IMF to help bail including its two main banks, weighed down by the Greek crisis.
    But its backers were not prepared to grant € 17.5 billion, equivalent to its GDP : they feared that the country can not pay too much money and the debt exploded to unsustainable levels Once the aid paid. In the end, the debt will be reduced to Cyprus 100% of GDP in 2020.
    Nicosia should also turn to Russia, it is economically and culturally close, but the contribution of Moscow should be limited. “The country is ready to extend a loan” of 2.5 billion euros maturing in 2016 “and reduce interest rates, but it does not intend to go beyond,” warned European Commissioner for Economic Affairs, Olli Rehn.
    may-cel/abl

  7. I will stop now. Dinging the depositors is making this more newsworthy than it would be if the stockholders and bondholders took the hit.

    Note that the major depositors are wealthy Russian and British.

    http://www.lesechos.fr/economie-politique/monde/actu/0202646321379-chypre-un-sauvetage-exceptionnel-pour-un-centre-financier-off-shore-549762.php

    INTERNATIONAL
    INTERNATIONAL NEWS
    Cyprus: a rescue center for a unique off-shore financial
    By Anne Bauer | 16/03 | 11:57
    For the first time, the euro area draws a bailout that involves bank depositors. An exceptional measure to prevent a domino of bank failure of an island whose prosperity was built on financial services disproportionate

    Branch of the Bank of Cyprus – DR
    This morning, wake Cypriot impoverished. Unnecessary for them to run on their banks, they are closed and have collected all amounts required by their reopening scheduled for Tuesday morning. While applicants can check their savings has been a special levy of 6.75% for amounts below € 100,000, and 9.9% thereafter. The levy is expected to generate 5.8 billion euros to the state of Cyprus. So the Europeans advance € 10 billion needed to recapitalize banks in Cyprus and avoid bankruptcy and to finance budgetary needs of the island for three years.
    “We had no choice,” said the Commissioner for Economic Affairs Olli Rehn in the morning to explain why the finance ministers of the euro area have chosen a special levy on bank deposits in Cyprus. “If we had to make a bail-in classic, that is to say, the forced conversion of bank debt into capital, the charge would have been unbearable and poorly distributed. With this exceptional collection, we are establishing a proportionate contribution between residents and non-residents to save the Cypriot banking system, “he says.
    The Director of the IMF also noted that the Europeans never would have been able to finance the amounts claimed by Cyprus, initially estimated at $ 17 billion, except to climb the island’s public debt to stratospheric levels. While the IMF could not participate in the aid program as it did in all other aid programs for Greece, Ireland and Portugal. However, without the presence of the IMF, German Finance Minister Wolfgang Schäuble has not received a vote of members to help Cyprus. “For the IMF, it was necessary to ensure that the debt is sustainable and it is fully funded”, said Christine Lagarde. This will be the case with a loan of only 10 billion euros of debt in Cyprus in 2020 will be 100% content of GDP . “It was also the load distribution is fair and that the banking sector, now enlarged or reduced over time,” she said. “The conditions are met and the IMF will participate in financing of Cyprus”.
    A customized program
    Creditors of the Eurogroup therefore once again designed a custom program, which for the first time, involves the bank depositors. For an offshore financial center, it is the most “fair”, they say. Without this outstanding contribution, while the weight of the plane would have rested on the shoulders of Cypriot taxpayers, who like the Icelanders in 2008, are too few to bear sole responsibility for a banking sector that is seven times the GDP of the island. With this contribution, the tax base of rescue Cyprus is extended to non-resident applicants, which account for …. which represents nearly 40% of deposits in Cyprus.
    For the island, whose wealth was built on financial services, this decision is certainly terrifying. But better a windfall tax that the complete bankruptcy of banks. Finally, although most financial services are provided “legal” everyone knows that legality often covers the money from traffic doubtful.
    German lawmakers have promised they will not vote fifth European aid plan for financial services disconnected savings “workers” in Cyprus. Yesterday evening, Georg Assmussen the European Central Bank has emphasized the “systemic” Rescue Cyprus. Message directly to the intended German MPs who questioned the need to save Cyprus, casting doubt on the danger that this would be for the euro area.

    inShare

    Written by Anne BAUER
    Correspondent in Brussels abauer@lesechos.fr
    All Articles

  8. brian Lucey Says:
    March 16th, 2013 at 9:52 am
    ts dumb as a bag of hammers. It puts every deposit in every country in the firing line before our bond pals

    …According to Asmussen the Cypriot government and the ECB insisted those with accounts in other bailout countries have no reason to fear for their holdings…

    Hahaha! (shaking head in disbelief!) …Fool me once…

  9. oh gavin no. Sure the only money in Cyprus was from oligarchs. And …and…
    no, no this is needed to force them to go legal. Its all a ploy you see, not a bunch of idiots not wanting to offend Germany by telling them PRINT …..

  10. Prof Lucey,
    If this goes the way it could go, we could wake up next week to find risk-off is back in vogue. Why would you hold euros now in a peripheral European bank given that you could be haircut? The presses be rolling again but what currency would they be printing.
    OTOH, this has been so well flagged that anybody concerned has had time to evade it, bar the Cypriot small businessman.

    Whichever outcome there is nothing to convince me that EZ policy makers really know what they are doing. Roll them dice.

  11. Tull why indeed would you. Thats the several trillion euro question nobody is asking (well, lets read the Irish Examiner monday…). None of the usual suspects are defending this. It reeks of old men late at night tired and needing to go home …. and we know where that got us. As for that ESM legacy debt wish? HAHAHAHAA

  12. The island is one of the largest sources of foreign direct investment in Russia.

    According to the Piraeus Bank, FDI investment from Cyprus into Russia was worth $12.3bn in 2010.

    Russian depositors own a large number of the €22bn in non-Eurozone Cypriot bank deposits according to both the FT and Piraeus Bank.

    There are 60,00 Russian expats in Cyprus and Russians have stakes in a number of the banks.

    Hair-cutting subordinated bondholders would save only €1 billion, according to Huw van Steenis of Morgan Stanley.

  13. Allo over twitter it’s 1.7b Michael Hennigan. Sure what’s a few hundred billion.

  14. @ All

    One of the elements that makes Cyprus “special” is the high level of per capita wealth relative to other countries and, notably, some of those putting up the money to bail the country out.

    http://www.ecb.int/home/html/researcher_hfcn.en.html

    The report from the ECB on wealth distribution should make for interesting reading when it emerges (assuming that the roof has not fallen over the weekend which is rather unlikely as Cyprus is, indeed, a special case).

  15. @ GtfawayHolymoley

    Allo over twitter it’s 1.7b Michael Hennigan. Sure what’s a few hundredbn.

    To paraphrase Groucho Marx, if you don’t like my facts find your own — but hey there’s Twitter with all those wise people retweeing — known in the computer world as GIGO.

    @ All

    Cypriot gas resources could generate over 90% of GDP in revenues in the years to come if geopolitical and technological issues are overcome.

    Russians have chosen Cyprus as their haven of choice to mask transactions or take advantage of tax issues just as others use the Netherlands and Ireland.

    Huw van Steenis of Morgan Stanley recently commented:

    On the Central Bank of Russia (CBR) FDI statistics, over the last five years Cypriot entities have been responsible for a flow of US$60bn or 23% of Russia’s FDI, while US$79bn or 30% of Russian investment abroad was invested in Cyprus. As a result, on paper, as of December 31, 2011, Cyprus, with GDP of US$25bn, accounted for US$129bn or 28% of the total FDI stock in Russia, while US$122bn or 34% of Russian investment abroad was invested in Cyprus.

    In practice, we believe that the ultimate owner of most of Russia’s FDI stock, including the 28% provided from Cyprus, tends to be Russian. The 1998 Russian-Cypriot double taxation treaty provides for low rates of taxation of dividends (5%), interest (0%) and royalty (0%).

    It appears that a combination of factors – the tax advantages of this treaty, Cyprus’ use of English law, a reputation for light-touch regulation and Russian political risk – led many Russian owners to structure their companies as a Cypriot parent owning a Russian subsidiary.

    Cyprus is one of the key sources of loans for Russia, providing US$203bn in loans, or 24% of total lending to Russia, over 2007-11. This lending is large in relation to the size of the Cypriot economy, with net lending to Russia during this period amounting to US$54bn, or twice the size of the Cypriot economy.

    Second, Russian banks have a large positive net position in Cypriot banks, mainly in short-term assets, amounting to US$9bn at end-2011. This suggests that, of the 31% of Cypriot deposits or US$27.8bn held by non-euro residents, as reported at end-2011 by the Central Bank of Cyprus, at least one-third is Russian. The total is larger – perhaps twice as large – since many Russian companies also manage their finances through Cyprus.

    The strength of the banking relationship is further illustrated by the number of Cypriot banks, including Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank, which have operations in Russia, by the fact that the Russian businessman Dmitri Rybolovlev is the largest shareholder in the largest Cypriot bank, Bank of Cyprus, with a 9.7% stake, and by CBR data which show that in 2011, 4.8% of Russia’s cross-border transactions, or US$2.7bn, involved Cyprus.

  16. The EU is making it up as it goes along, and after today no-one’s money is safe in any Eurozone bank.

  17. @Brian Lucey

    ts dumb as a bag of hammers. It puts every deposit in every country in the firing line before our bond pals

    Requesting Clarification on this: Are you saying that the depositors have been hit before the bondholders? Have the bondholders, shareholders, and bank creditors been hit at all?

  18. The immediate reaction of the Economist is agin it.

    Unfair, short-sighted and self-defeating

    “[T]here is a case for hitting everyone in Cypriot banks before any taxpayer in another country. But there is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched, as appears to be the case here; or not imposing any losses on sovereign-debt investors in Cyprus; or protecting depositors in the Greek operations of Cypriot banks, as has also happened. The euro zone may cloak this bail-out in the language of fairness but it is a highly selective treatment. Indeed, the euro zone’s insistence that this is a one-off makes that perfectly plain: with enough foreigners at risk and a small enough country to push around, you get an outcome like Cyprus. (That is one reason why people are now wondering about the implications of this deal for little Latvia, also home to lots of Russian money and itself due to join the euro zone in 2014.)”

    “It is also hard to square this outcome with the ongoing overhaul of finance. The direction of efforts to improve banks’ liquidity position is to encourage them to hold more deposits; the aim of bail-in legislation planned to come into force by 2018 is to make senior debt absorb losses in the event of a bank failure. The logic behind both of these reform initiatives is that bank deposits have two, contradictory properties. They are both sticky, because they are insured; and they are flighty, because they can be pulled instantly. So deposits are a good source of funding provided they never run. The Cyprus bail-out makes this confidence trick harder to pull off.”

    Karl Whelan in Forbes here:

    ‘Cyprus Depositor Tax: Genius Plan or the End of the Euro?’

    “The more interesting question, however, is how will depositors react in the rest of the Eurozone. There will undoubtedly be promises that this is the only country in the euro area that will write down deposits but promises from European politicians don’t mean much. They insisted for ages that a default in Greece was “not an option” but it happened and Cyprus’s own finance minister dismissed the idea of a depositor haircut only a few days ago saying ”Really and categorically – and this doesn’t only apply in the case of Cyprus but for the world over and the euro zone there really couldn’t be a more stupid idea.” Well maybe but it’s a stupid idea whose time has come.”

    “This decision has the potential to trigger a full-scale bank run across the euro area and such an outcome could place in question the continued existence of the euro as a common currency.

    “However, we simply don’t know whether depositors will react at all.”

    http://www.forbes.com/sites/karlwhelan/2013/03/16/cyprus-depositor-tax-genius-plan-or-the-end-of-the-euro/

    Thanks to Aidan Kane.

    Also, if I have under 20k in a EZ bank the assumption was that at the very worst – the bank being wound up, I was ensured for that amount. Right? But now I can lose money without even the bank going bust? Is that the current state of affairs?

  19. @ Gavin Kostick

    KW poses the question; “genius plan or end of the euro?”

    Is it not blindingly obvious that it is neither and that posing the issue in this way makes little or no sense?

  20. @DOCM
    Perhaps this bit from Karl is the issue….”Well maybe but it’s a stupid idea whose time has come.”

    The cypriot outcome clearly demonstrates that you cannot rely on utterances from EZ Finance Ministers…but ,of course, cyprus is a special case. So is Ireland,Portugal, Spain, Italy and the ever so “special” Greece.

  21. @Gavin
    “Also, if I have under 20k in a EZ bank the assumption was that at the very worst – the bank being wound up, I was ensured for that amount. Right? But now I can lose money without even the bank going bust? Is that the current state of affairs?”

    It appears that depositors no longer rank parri passu with senior bondholders and can now be “haircut” in the Eurozone at will..should any necessary circumstance arise.

  22. @Gavin

    It’s a tax. The ‘one-off’ ‘tax’ on private pension assets in Ireland was a tax – perhaps a trail-blazing one.

    From the ICB

    “The Deposit Guarantee Scheme (DGS) protects depositors in the event of a bank, building society or credit union authorised by the Central Bank of Ireland being unable to repay deposits.

    Deposits up to €100,000 per person per institution are protected. The DGS is obliged to issue compensation to depositors duly verified as eligible within 20 working days of a credit institution failing.

    The DGS is administered by the Central Bank of Ireland and is funded by the credit institutions covered by the scheme. The DGS is part of the Central Bank of Ireland’s strategy to ensure that the best interests of consumers of financial services are protected.”

    The deposit guarantee is not a guarantee against tax.

    Suggest a re-read of this thread might be worthwhile:

    http://www.irisheconomy.ie/index.php/2011/05/24/daniel-gros-external-versus-domestic-debt-in-the-euro-crisis/

  23. Incidentally, another of my suite of contrarian indicators might have been triggered:

    http://www.cnbc.com/id/100556937

    Last one like this was 3 months after the first SIVs started imploding:

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aCs.keWwNdiY

    …but 8 months before the precipitous flight to the dollar.

    There are currently lots of indications of complacency about financial risk. Perhaps the mood music (not least due to Draghi’s OMT) has facilitated the Cyprus deposit haircuts.

  24. So someone who sold a house, put the proceeds on deposit in the back for a couple of weeks as prelude to paying it over as part of the purchase of a new family home, now loses maybe 9% of the sum…

  25. The meeting concluded at 3 am on a Saturday morning, yet again. The problem in Cyprus was a lack of (bank) bondholders to bail in. The communique mentions a possible partial bail-in of ‘junior’ bondholders but total bank bonds only about €3 bill versus deposits €70 bill. Most deposits are not held by Russians, not that that should make any difference. British depositors likely to be big losers. Without a depositor haircut the official lending would have been too big, debt/GDP ratio too high. And there would have been political problems in Germany and that’s not allowed.

    Another Rubicon has been crossed. This levy in Cyprus is being dressed up as a tax, hence the deposit guarantee scheme is not triggered apparently. Monday should be interesting in Spain and Italy. Ireland closed.

    The last country in these parts to haircut bank depositors was, open to contradiction, Brezhnev’s Soviet Union in the 1980s.

  26. @ Grumpy

    Interesting distinction between tax and default. The thread refers to the fact that a tax on assets/wealth is ineffective when the holders are foreign because of “international norms”. So how come British and Russian depositors in Cyprus are subject to this tax without violating these norms?

    Anyway, to those who are predicting that this is the end of the world as we know it, consider that nothing is absolute, anything can happen – one must simply balance the risks and rewards. The possibility of a deposit tax in Ireland has increased a tad since this news. It would need a Sinn Fein administation to impose it and then they would probably tax all wealth and not merely Irish deposits.

    Will this give rise to a further run on Irish banks. No. The fact is that there has already been a massive run on Irish banks by people who never believed in anybody’s guarantee in the first place.

  27. How soon before we hear that connected officials friends and family accounts had moved overseas in the days coming up to the decision?

  28. @Gavin Kostick

    Thank you for the link — Karl Whelan’s commentary is indeed a must-read.
    One point that KW doesn’t emphasise, though, is the fact that Cyprus is actually welshing on its bank deposit guarantee scheme.

    This has already been pointed by another Forbes’ contributor, the brainiac Tim Worstall. His response to the Cyprus bailout is not just a must-read, but a must-read-at-least-three-times-and-ideally-learn-off-by-heart:

    The Cyprus Bank Bailout Could Be A Disastrous Precedent: They’re Reneging On Government Deposit Insurance

    Under the system until yesterday all depositors in Cypriot banks were insured up to the value of €100,000 with any one bank. Today that solemn and governmental promise has been shown to be false. And not even the European Union nor the European Central Bank are going to make them stick to it. Indeed, very much the other way around. The EU and ECB are insisting that the Cyprus authorities breach this deposit insurance provision.

    http://www.forbes.com/sites/timworstall/2013/03/16/the-cyprus-bank-bailout-could-be-a-disastrous-precedent-theyre-reneging-on-government-deposit-insurance/

  29. “Will this give rise to a further run on Irish banks. No. The fact is that there has already been a massive run on Irish banks …”

    The Run could get Runnier…

  30. @ Colm McCarthy

    France, Iceland, India, Netherlands, Norway and Sweden have a wealth tax.

  31. @Colm

    I recall British & Commonwealth Bank haircut depositors (and bondholders), as did BCCI, both at the start of the ’90s.

    B&C had an Atlantic Computers problem, BCCI has a white powder problem.

    I think there were another 2 or 3, but can’t remember them. In all cases, the remaining banks could differentiate themselves from the duffers.

    Much like the Icelandic banks, lots of UK local authorities had funds with BCCI simply because of a few bps extra.

  32. @Colm McCarthy
    CMcC writes:

    This levy in Cyprus is being dressed up as a tax, hence the deposit guarantee scheme is not triggered apparently.

    That’s a good one — indeed a fine precedent for the EU’s other loser countries. Why not just impose a 100% ‘tax’ on bank deposits across the board?

  33. “To paraphrase Groucho Marx, if you don’t like my facts find your own”

    We’re just asking you to look past the first link in the chain Michael

  34. @Brian Woods11
    Your right. The lesson here is don’t believe any guarantee..they will find a way to renege on it.
    I wonder if the doctrine of unintended consequences was considered at the all nighter in Brussels.

    It seems the legislation for the haircut is not guaranteed…..
    “The question is whether the Cypriot House of Representatives will approve of the bill given that the two main parties that supported Anastasiades in the presidential election, the Democratic Rally (DISY) and the Democratic Party (DIKO) do not have an overall majority. They account for 28 out of the plenary’s 56 members, but among the DIKO deputies is also Nicolas Papadopoulos, a dissident who recently resigned from vice-president of the party in disagreement with its support of Anastasiades.

    The bill might also get the support of some deputies from minor European Party (EVROKO), while the presidential adviser Giorgos Vassiliou, a former president himself who is in touch with many people in the Left, has been enlisted to try and convince some deputies to vote in favor of the bill. However AKEL, the main party of the Left, has signaled its opposition to the measures.”
    From ekathimerini

  35. Michael H doesn’t do chains. Mind you he’s agin twitter with all those chains
    Michael. GIGO you say? faisal Islam, Robert Preston, marina stevis, fabrizio Gloria, mostw of Reuters and dj newswire are saying this sucks. But I guess they’re garbage also Michael?

  36. David Murphy on RTE assuring Irish depositors that they had the 100K guarantee. Hmmm! And he seemed to understand what was happening.

  37. Seems t,here is a bit more to the rescue of Cyprus….if Bloomberg report is accurate..
    ““Further measures concern the increase of the withholding tax on capital income, a restructuring and recapitalisation of banks, an increase of the statutory corporate income tax rate and a bail-in of junior bondholders,” according to a statement released by ministers after the talks. It didn’t specify whether bank or sovereign bond holders could be affected.
    The European Central Bank will use its existing facilities to make funds available to Cypriot banks as needed to counter potential bank runs. Depositors will receive bank equity as compensation.”

    Now that’s a novel idea. Force all depositors in banks to become shareholders and dress it up as compensation.
    I was wondering how they would get on with the inevitable legal challenges but this seems to cover individual property rights. Pity you get paper in bust banks though.

  38. The depositor haircut has little to do with the Bundestag and a lot more to do with the IMF scaring depositors out of the little tax havens and back to the power financial centres New York, London, Tokyo, Frankfurt, Paris and lately Toronto and Singapore.

    Did you notice that Cyprus has to raise corporate tax from 10% to 12.5% as one of the loan conditions.

  39. @ Frank Galton

    What Single Market? Cherry-picking one element – a late arrival by the way – is just nonsense.

    All will be revealed on Monday (or, rather, Sunday evening when the Asian markets open) and I would be very surprised if the reaction were not the equivalent of a small earthquake in Latin America.

  40. The dodge is getting dodgier.

    It’s not just a tax. The depositors get shares in the banks equal to their losses on the levy.

    That feature alone sounds ripe for legal challenge.

  41. Sharon Bowles makes the point that the Cypriot bank bust was a predictable consequence of the sovereign haircuts in Greek Bailout II. Arbitrary decisions lead to other arbitrary decisions.

    The Cypriot parliament has to vote through a ‘tax’ on deposits that were supposedly insured, which should be fun.

  42. “Research on contagion indicates that it is limited if the ‘ground zero’ is sufficiently differentiated (and sufficiently ringfenced) from other potential targets.”

    Does anyone (P Lane?) have any links/recs on this research?

  43. @ rf

    If you think that governments in their relations with one another put topics in tidy compartments to meet the requirements of models taught in economic courses, you are sadly mistaken.

  44. Is a euro still a euro. The Cypriot euro/euro exchange rate looks to be about .90. It remains to be seen what other xeuro/euro cros rates manifest themselves next week.
    I would imagine The Fed has rung the ECB to enquire WTFiGO..? I Would also imagine Putin is ringing Merkel to ask a similar question. Don’t rule out another meeting to re-decide the issue.
    For those of us longing for the death of the EP, this is good news. I would imagine DOCM is looking at flights to exile in Pomerania.

  45. That Syria is, by your own admission, a little off topic..not that I care DOCM..I was just agreeing with you

  46. @ rf

    My misunderstanding! But a relevant topic which our exchanges may have served to clarify somewhat.

    In sum, Hollande has to decide where exactly he is taking France. He seems not to have the vaguest idea. The same appears to hold true of Cameron with regard to the UK.

  47. Some months ago a Greek friend of mine was urged by her financial adviser to transfer her quite substantial savings from Greece to Cyprus. Fortunately for her (and unlike many of compatriots) she did not do so.

    Many British expatriates also hit:

    Up to 60,000 British savers face losing thousands each after £8.7billion EU bailout imposes tax on ALL bank accounts in Cyprus.

    http://www.dailymail.co.uk/news/article-2294388/ATMs-emptied-Cyprus-savers-learn-10billion-euro-bailout-agreement-includes-levy-bank-accounts.html

  48. Strange times all roight. I hear a rumour that Papam Francis is considering nominating the Chinese Communist Party ‘Blessed’ as they have done more to bring millions of people out of poverty than anyone else. Methinks Francis of Assisi would approve!

    @colm mccarthy

    “… there would have been political problems in Germany and that’s not allowed.” Looks like Jorg Asmussen was the key player here …

    European Union:
    The problem with Germany
    15 March 2013 Presseurop New Statesman, The Daily Mail

    “A spectre is once again haunting Europe – the spectre of German power,” writes historian Brendan Simms in The New Statesman’s cover story, dedicated to “The German problem”. The weekly outlines how the last five years have witnessed a “remarkable increase” in German influence, while Berlin has simultaneously fared well during the economic crisis and stopped the European Central Bank (ECB) from embarking – on the bond-buying spree that the countries of the bankrupt European periphery so crave, prescribing for them a diet of unpalatable fiscal ‘rules’ instead. […] It is not surprising, therefore, that this period has also witnessed a surge of political and popular Germanophobia across the continent.

    http://www.presseurop.eu/en/content/news-brief/3543801-problem-germany

  49. @ grumpy, et al.

    “It’s a tax.”

    Shall we have a go at this?

    Is this really a tax?

    It is in the sense that the government of Cyprus, presumably over the weekend, will bring in this new tax. I bet they’ll have help drafting the new legislation.

    But the person on the Nicosia omnibus can might have the opinion this is not really a tax but a haircut as part of a bailout deal.

    One immediate aside occurs, which is that what is being caught is simply that which can be caught. Can bondholders be ‘taxed’? If so, how?

    It is extremely frustrating that in the EZ sovereign bondholders (unlike Iceland, Iceland fans) can lose money, that people who save their cents in banks can lose out, but that senior bondholders (and in this case subordinated bondholders) cannot.

    From the personal POV. In order to function in modern society I need a bank account.

    I put MY money in the bank.

    I know, I know, I know all the complex stuff. But I earn money, I put it in the bank. At a gut level, this is my money in the piggy bank that they can make some small profit on – but it is mine, resting with them.

    I even think, well, there might be a tax on the interest I gain there: but MY money is in the bank because I can’t really function with it under my mattress, and, hey, my money is oiling the wheels of trade.

    And then I am told that over a bank holiday weekend, a portion of my money is being removed. Even though I thought that with 20k or under the EU and the State thought that at the worst (my bank going bust) I should keep my money.

    Why has this happened? Because my Government agreed to help another country reduce its sovereign debt.

    My country needed 17bn in loans, but that would put it’s debt to GDP ratio to 145% – numbers that mean nothing to me as I go to the local fish market – so my country can only take on 10bn. It’s all just numbers, but I feel like me and my Governments are idiots who should not have been stand up guys.

    Europe could easily afford the 7bn gap (yes I know all the other arguments).

    But the decision, taken far away, by people who have only the most tenuous democratic legitimacy, in what is clearly a poor decision making arena (3am), have decided that MY small amount of money must be taken away to close this gap.

    I have lost faith in the bank being the sensible place to leave my money. Why shouldn’t I go on Tuesday and take the rest out – because I should go to sleep at night thinking of the EZ banking system?

    I’m not coming to any great conclusion or making any great point, but you can see how the people of Cyprus and the EZ might be not so keen on leaving money in banks any more.

  50. @ Grumpy

    I hit the submit button before I intended to: my post went before I had a chance to read it through and to add, ‘with great respect as ever’.

  51. @Gavin Kostick

    It’s all just numbers …

    Nicely put.

    The Delirium of Milliards
    The majority of statesmen and financiers think in terms of paper … They sit in their offices and look at papers which are lying in front of them, and on those pages are written figures which again represent papers … They write down noughts, and nine noughts mean a milliard. A milliard comes easily and trippingly to the tongue, but no one can imagine a milliard.

    What is a milliard? Does a wood contain a milliard leaves? Are there a milliard blades of grass in a meadow? Who knows? If the Tiergarten were to be cleared and wheat sown upon its surface, how many stalks would grow? Two milliards!

    – Walther Rathenau, Berliner Tageblatt, 9 February 1921

  52. @DOCM

    Thanks a lot — let’s hope that Spiegel translates this report ASAP and puts it on its English website.

    Here’s the title and first paragraph in English:

    Partial expropriation of bank customers: Cyprus deal horrified Greek savers

    In Greece anger and frustration prevails: Just over three billion euros have been stashed by the crisis-hit Greeks in Cypriot accounts in order to protect themselves from the crisis in their homeland. Now they will lose some of their money – because Cyprus is being rescued at the expense of bank customers. …”

    The Greek expatriates here in the GDdL are talking of nothing else.

  53. DOCM,
    The Cypriot banks need a bail out because of OSI in Greece. That was a capricious decision by the EZ. If you keep making it up as you go along, eventually you rack up the uninnded consequences.

    Could this decision, cause a run on irish banks and prevent an exit from the bail out? Could it result in US money funds withdrawing funding from BNP and Soc Gen again? Does these guys know what they are doing? Monday will tell

  54. @Gavin

    Seargent Wilson summed up the essence of the situation wrt deposit guarantees and propert rights forty years ago.

    Not easy to improve on it:

    “Mainwaring: They’ll never get through the Maginot Line.

    Wilson: Haven’t you heard… They went around the side.

    Mainwaring: That’s a typical shabby Nazi trick!”

    (note to non Anglophones, the N word here is merely part of a comedy sketch)

  55. @Colm McCarthy
    This part of a Bloomberg article confuses….
    “The European Central Bank will use its existing facilities to make funds available to Cypriot banks as needed to counter potential bank runs. Depositors will receive bank equity as compensation.”

    Tax deposits and pay compensation in the form of bank shares at the same time? Seems weird! Perhaps it’s a new form of Cocos which transforms your cash into shares in unspecified circumstances.

    @DOCM
    Depends if that little earthquake in Latin America you mention is also the site of a nuclear reactor. I wouldn’t expect much reaction from Asia on Sunday night but Monday in European markets should be interesting. The real question is how much damage will the ECB suffer to its credibility.

  56. So google tells me that depositors have lost about €100 million from IBRC being wound up. That figure would have been many multiples higher if not for the Sep 2008 government guarantee and subsequent bailout.

    Denmark also saw depositors burnt recently, so we definitely don’t have to go back to 80s Russia for such cases.

  57. Anybody who puts its money in the banks of a country where the banking system has a balance sheet nine times the size of the GDP is an idiot.

  58. NYT is headlining the Cyprus situation on its website now..seems it is becoming bigger news. Interesting quote from article..
    “What the deal reflects is that being an unsecured or even secured depositor in euro-area banks is not as safe as it used to be,” said Jacob Kirkegaard, an economist and European specialist at the Peterson Institute for International Economics in Washington. “We are in a new world.”

    Cyprus had been a blip on the radar screen of Europe’s long-running debt crisis — until now.

  59. Although this article

    http://www.ft.com/intl/cms/s/0/8eee4e24-8b0f-11e2-8fcf-00144feabdc0.html#axzz2NjOEo0KD

    apparently tries to make the opposite case of where blame lies (Russian oligarchs, hot money etc) they do at least acknowledge the problem as it appears to be

    “Increasing numbers of Israeli, Canadian and UK-owned businesses began to arrive after the government adopted the EU’s current anti-money laundering directive the same year, making the island a more respectable place to do business.”

    So those in favour of good governance, against crony capitalism and who believe our salvation is in technocrat led reform should pay heed

  60. Schaeuble wins. Draghi loses.

    A euro is no longer a euro backed by the ECB.
    It is now worth what the German minister decides it is worth, on any particular day, or in any particular EZ country.

    Draghi should now go home and leave Schaeuble to destroy what is left of the EZ and the EU.

  61. The full statement by the President of Cyprus is informative. It appears that the ECB again threatened withdrawal of liquidity…now where did I hear that before.

    Presidents statement….
    “http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_17/03/2013_488241

    Another article suggests that the Troika wanted a 40% haircut. It seems EZ depositors are not safe in many areas.

  62. Alleged money laundering aside, as a matter of principal, why does this “upfront one-off stability levy” not pull the rug from under government deposit guarantees in general?

    Why cannot any government (or group of governments in the case of an EZ wide deposit guarantee) estimate the shortfall to depositors which would arise from the liquidation of an insolvent bank, and then levy a “upfront one-off stability levy” equal to that amount on the depositors and use that to re-cap it rather than liquidate?

    That way surely, the depositors loose the same amount of money as they would have with no guarantee in place – hence the guarantee is by-passed.

    Which part of this have I got wrong?

  63. On reflection, not only it is time to take the money out, it’s time to convert it into dollars and sterling as well. A euro isn’t worth much anymore, inside or outside a bank.

  64. Overseas
    Do you think or does the stupid just flow down your arms to the keyboard? Imagine your a Cypriot with a few bob. Say 20 or 30k. Wher do you put it, presuming you don’t avidly hang on the words and actions of the FT and the WSJ every moment of every day?

  65. Sharon Bowles comes out against.

    “Sharon Bowles MEP, who chairs the European Parliament’s economic and monetary affairs committee, said she was appalled by the Cyprus bail-out.
    “This grabbing of ordinary depositors’ money is billed as a tax, so as to try and circumvent the EU’s deposit guarantee laws. It robs smaller investors of the protection they were promised. If this were a bank, they would be in court for mis-selling,” she said.”

    http://www.telegraph.co.uk/finance/financialcrisis/9935242/Cyprus-bail-out-risks-UK-troops-savings.html

  66. A couple more pieces – as you might expect there’s a lot about this on Twitter and a lot of links popping up. Anyway.

    ‘A stupid idea whose time had come’
    John Cotterill

    http://ftalphaville.ft.com/2013/03/16/1425732/a-stupid-idea-whose-time-had-come/?

    And:

    ‘The Cyprus precedent’
    Felix Salmon

    “Don’t for a minute believe that this decision is part of some deeply-considered long-term strategy which was worked out in constructive consultations between the EU, the IMF, and the new Cypriot government. Instead, it’s a last-resort desperation move, born of an unholy combination of procrastination, blackmail, and sleep-deprived gamesmanship.”

    http://blogs.reuters.com/felix-salmon/2013/03/16/the-cyprus-precedent/?dlvrit=60132

  67. Now now gavin…twitter…:)
    Nobody seems to think this is a good idea. I add my tuppenceworth tomorrow in the Zamminer…and on my blog. Its dumb and getting dumber as it goes on. With luck the cypriot parliament will give it a raspberry. Only when the euro is on the cliff will Frau Dr Merkel wake up and smell the burning…

  68. It is hard to fathom why all deposits under €100,000 are subject to the tax levy.

    Governments still have choices and we can see in Ireland how the burden of the post-crash adjustment has mainly fallen on a minority in the private sector. Cyprus likely also has its insiders with ‘legitimate expectations’ to be met.

    By June 2014, the Irish government will have seized almost €2bn from pension funds since 2011 as schemes with guaranteed payouts are being abandoned. However, politicians’ pensions have similar constitutional protection as property, apparently.

    All the input and votes on this issue come from people with a self-interest and imagine the outrage if the ECB or Angela Merkel proposed a common system for all workers?

    @ Gavin Kostick

    There are many euphemisms for taxes.

    Inflation and related negative interest rates are sometimes a destroyer of value and inflation is often also a stealth tax. Jean Baptiste Colbert (1619–83), minister for finance to French king Louis XIV reputedly said on stealth taxes: “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”

    The gabelle (salt) tax wasn’t a stealth tax and salt was put in the wound by exemptions for the nobility, the clergy, and certain other privileged persons!

    @ All

    It’s important that there is transparency in the national data of small countries where tax haven activities can seriously distort statistics.
    It’s bad enough when officials lie about data but it’s as bad when they believe it to be reliable.

  69. MH,
    It is easy to see why the Germans insisted on an end run around deposit protection for the little guy. It is to make the numbers & also to avoid plucking the Russian goose excessively. Any more and the gas might get turned off.
    Classic Bismarkian policy. Control Europe without paying.

  70. Huge hits to larger deposits wouldn’t necessarily be great for the “little guy” either. Might close a lot of businesses, for example.

  71. Michael H
    its not really. Twitter, that garbage fiilled site, has lots of links to what seems to have been presented to the cypriots. Stiff them all a little or the larger ones a lot. In doing that it would 1000% sure kill their offshore banking system AND annoy the present lolr, Russia. So, devil and deep blue sea
    Meanwhile the ECB have apparently turned up at the cypriot presidents residence DEMANDING (wtf?) that he ensure the bill is passed today. Guess they must think hes called Benes…..

  72. It is depressing that people are so slow to join the dots in all of this.
    Basically banks want to supersede democracies. Simple as….
    Depositors (people) get stiffed so as to protect bond holders (banks). Tax payers got stiffed here to do the same
    Bankocracies are here to stay

  73. Parties represent 24/56 seats have decided to vote against it. .. squeaky bum time in nicosea

  74. @BL

    “I add my tuppenceworth tomorrow in the Zamminer…”

    Have made a note in my parchment diary, using a quill. Never has the print media been so fleet of foot and relevant.

    Will hibernate untill publication.

  75. Well grumpy I could email it to you. I guess I could blog it but then I’d have to do another and us a holiday weekend. So hold your ie. This story is not going away fast.

  76. @ Brian Lucey

    “Twitter, that garbage fiilled site,…”

    You’re stupid and childish suggesting that is what I implied in respect of Twitter.

    Garbage can be easily found online__hardly news_to say that is all it contains would be a joke.

    Wonder when you’re going to bailout from this site again?

  77. Bailouts bailin michael..good cominf from a man with no skin in the euro game. Good day in Kuala Lumpur?
    Tull. ..I think its part of the southern star if memory is right?

    Meanwhile even intra account transfers are blocked in cyprus. …

  78. Eh any chance of decoupling the easing of Irish loan terms and graft theft larceny…about trow on the oul green jersey raise glass….is Ireland complicit in this….30 pieces of silver and all that-link above.Good news but ….

    “The details will be presented to euro ministers at the same time as the memorandum of understanding underlying a rescue program for Cyprus.”

    The irish govt. response to mugging widows and orphans….
    http://m.youtube.com/#/watch?v=4zLfCnGVeL4&desktop_uri=%2Fwatch%3Fv%3D4zLfCnGVeL4

  79. Mohammed El-Erian in FT

    http://blogs.ft.com/the-a-list/2013/03/17/a-muddled-and-dangerous-approach-to-cyprus

    By limiting the levy on large accounts to just 9.9 per cent, officials will raise insufficient funds for Cyprus while encouraging remaining deposits to flee the country, thus increasing the likelihood of a second PSI down the road.
    If this is correct, the specifics of this weekend’s agreement risk becoming part of the problem rather than a solution for Cyprus.
    In Cyprus, they would fuel a private liquidity implosion and more acute credit rationing. They would also risk triggering a disruptive political backlash and social unrest.

  80. Could someone point me in the right direction
    1: Who do Cypriot banks owe?
    2: Why could they not keep going with such a broad deposit base?

  81. @JR will no depositors in Cypriot bank branches in say UK be taxed…Greece ?

    “Laiki Bank UK said on its website: “We have clarified with the Cyprus authorities that this levy is not intended to have an effect on customer deposits held with the overseas branches of Cyprus Banks, which includes Laiki Bank UK.”

    Bank of Cyprus UK said on its website: “Whilst the measures agreed include an up-front one-off stability levy on deposits in Cyprus, there is no effect on deposits with Bank of Cyprus UK Limited which is a UK bank.”
    http://www.bbc.co.uk/news/uk-21820237

  82. Brave and courageous Cypriots will recognise that the necessity of the deposit tax and will not withdraw; further they will realise the necessity in a wider European context not to bail in sovereign or bank debt lest this cause destabilisation for the entire block.

    There will be no serious blow back on this even though it may be to the detriment of a few Cypriots. Those who do complain can emigrate to Germany and will subsequently be replaced by other persons who will be more conscious of the need to play ball and do what the EZ asks for them.

    The free movement of capital, labour and flexible work forces – thanks be that its never been abused or used to the detriment of an European nation

  83. @Eureka

    The Cypriot banks would have taken in deposits from the locals, but , according to the propaganda, they also specialised in taking deposits from Russia and other sources. They then decided to invest in EZ government bonds, as all bank do. However they picked Greeks bonds and lost a shirt, they could ill afford to lose.

    Meantime, any bondholders have been paid in full and the remaining few must be paid in full, because the German axis mandates it.

    The ‘smart’ depositors, and those that got a heads up, have already taken their money out, to the benefit of French or German or Netherlands or UK banks.
    Those that are left, the little guys, will get in the neck, because they are little guys, and to make matters worse they are little Cypriot guys. They don’t count. Its as simple as that.

    In the case of Cyrpus, the ECB have threatened to carry out tomorrow (Monday) in Cyprus, what Trichet allegedly threatened to do in Ireland at the time of the ‘bail-out’, ie To shut down the Irish banking system.

    Those countries that are recipients of deposit flight are described as being in rude health. In the jargon of economics, these deposit flights etc are called ‘capital flows’, and the freedom for capital to flow, or take flight, must not be hindered. All our lives and our well being depend, apparently, on that very fundamental principle.

  84. @ Joseph & Frank
    Thanks for that.
    I can’t make sense of it at all.
    This will make a lot of people very nervous.

  85. Total deposits from non eu in Cyprus is about 20 of the 68b. 30 or so is local rest is british/greek/other eu

  86. @ Eureka

    One issue seems to be that they were running a financial centre without ever having ring-fenced it as a financial centre. Thus there are cross-over/contamination issues that Ireland dodged with the IFSC/domestic banks separation.

    Maybe Turkey should offer a bailout in return for a deal on TRNC.

  87. @Gavin

    “By the way: has anyone come across a tax before for which you get shares in a bank or similar?”

    Now thats an idea for Mickey Noonan. When you pay the dreaded property tax you get a fistful of AIB shares as compo. After all he has half a trillion of them so he wouldn’t miss a few. 1.6 million households by xxx shares..sorry I assume that all will pay..silly.

  88. Text from Blind Biddy:

    1ST TIME GRAND SLAM FOR IRISH RUGBY

    IRELAND 6 ITALY 3

    Luvly hurlin ladies! Super stuff!

    @ECB

    STUPID CUBED. for a measly 6/7 billion you have destroyed ‘confidence’ of EZ Citizenry on the safety of its bank deposits. Further damaging capital flows to Deutsche banks or out of the Euro … crazy stuff.

  89. @ Joseph Ryan,

    If all of the above transactions you described were carried out in cash form then you’d be right. However cash forms only 3% of money and when you take electronic money into account it’s totally different.

    First of all very few Cypriot deposits would have come from people depositing their money, cash, with the banks.

    Most ‘deposits’ would have been created as follows; a Cypriot gets a ‘loan’ from the bank and the banks types new money into the borrower’s account. This new ‘deposit’ from the customer is recorded as a liability of the banks and the borrower’s debt as its asset.

    Completely separately the banks may have bought Greek bonds but this would not have been with any money deposited with them. It would transfer some reserve-account-money from its reserve account at the central bank swapping one asset (reserve-account-money) for another (the bond).

    Once the bonds reduced in value the banks has less assets and so to lower their liabilities they lower the bank balance of some of their depositors.

    The electronic money that was in people’s account won’t exist anymore.

    Hence cancelling money out of existence is a pretty ridiculous way of trying to resolve the Cypriot’s debt worries. Presumably the economic advisers just don’t understand accountancy and don’t realise banks create the money they lend etc.

  90. @ PF: Interesting explanation of ‘money’.

    I am reading Michael Flursheim [ Clue to the Economic Labyrinth] and his explanations of ‘money’ are pretty hair-raising.

    Can you recommend a modern text which discusses and explains ‘money’ and how it is both misunderstood and mis-used. Thanks.

  91. “What was astonishing is that, while the peoples of Europe are sick and tired of the gross inequities and regressivity of austerity-fuelled bailouts, they did not set a threshold below which poorer depositors would be untouched. And that they left unaffected the banks’ bondholders (even though the sums involved in these bonds were small, it was utterly unprincipled to spare them). I have no doubt that this decision will haunt them/us for decades.

    http://yanisvaroufakis.eu/2013/03/17/cyprus-stability-levy-another-sad-euphemism/

    Here are the details of the plan:
    One-time 9.9% levy on deposits over €100,000
    6.75% levy on deposits below that level
    Cypriots hit by the deposit levy will be given bank shares of equal value
    Increase in corporate tax rate to 12.5% (from 10%)
    €1.4bn in privatisations
    €10bn bailout loan (likely including the IMF)
    Cypriot debt to GDP to be at 100% in 2020

    http://openeuropeblog.blogspot.co.uk/2013/03/cyprus-bails-in-depositors-to-reduce.html

    A dozen or so other potentially interesting links from nakedcapitalism here:

    http://www.nakedcapitalism.com/2013/03/links-31713.html

  92. And lots of reports floating round of large companies placing “move my funds” orders,when and if the cypriot banks reopen..
    While the Nobel dr p may be some Nobel economist, his Wikipedia entry suggests expertise in labour search models not banking….

  93. @ Paul Ferguson
    Excellent website – really clear explanation in the video on front page.

    To me this is the unknown unknown – the thing that would shift momentum in this project. Problem was that Europeans in bailout countries were willing to put up with the sacrifices as long as their money in the banks was safe. That’s gone now.

    Interesting to see the British reaction too – must be delighted and must have been involved in some way on this (their composure in protecting their service-men’s deposits suggests some degree of foresight/preparation for this event).

    This is one of the daftest things I have ever seen but completely symptomatic of a Eurozone that has lost its way.

  94. @David O’Donnell

    Yanis Varoufakis certainly has the gift of the gab when it comes to austerity-bashing but his interpretation of European politicians’ response to the crisis is somewhat naive — if not plainly malevolent. Varoufakis writes:

    “What they [Europe’s leaders – CG] have not understood is that limiting the bailout loan’s size is insufficient to prevent the free-fall, even if it buys them some extra time in the short run. That they will have to learn the hard way in the months to come.”

    Actually, anything that “buys … some extra time in the short run” is like manna from heaven for the political class. Some extra time is better than no time at all, and — as Harold Wilson famously said – “a week is a long time in politics.” Kicking the can down the road is what most politicking is about in times of crisis. Of course it’s all going to end in tears. We know.

    So it’s the same old broken record: what got a country into trouble (borrowing) is what will get it out of trouble (i.e. more borrowing) and anybody who questions this philosophy is — in the eyes of Varoufakis — either dim-witted, or evil, or both.

    Varoufakis actually recommended voting for Syriza (a pot-pourri leftist alliance ranging from Trots to dinosaur ex-Pasok supporters) at the last general elections in Greece. Syriza is a party that proposes increasing the. number. of. civil. servants. in. Greece. Honest. Cross my heart and hope to die.
    Varoufakis’s credibility, in my view, approaches zero on these grounds alone.

    More about Varoufakis here:

    http://klauskastner.blogspot.com/2012/06/prof-yanis-varoufakis-recommends-vote.html

  95. I see that PR guy hasn’t rowed in yet. I expect that he’s busy at the moment.

    The establishment is going to need to spin this like a Neutron Star in order to prevent a euro-wide bank run on Monday.

    If the Cypriot parliament ends up dragging the legislation out over the course of a week, the panic can only saturate the rest of the continent. So much for the brilliance of the technocrats.

  96. @ Carolus

    …another Forbes’ contributor, the brainiac Tim Worstall…

    Oh dear. Are we really at the stage where Worstall gets called a “brainiac” without comment? Being a former ‘contributor’ to the Tech Central Station snake-oil show ought to be enough to damn any opinion-scribbler forever from being taken seriously.

  97. Bottom line- how long will the euro and EU last? Second question, how should we prepare as a country for the end of the post war EU architecture?

  98. On the twitter machine…
    @MatinaStevis: Exclusive: plans to revise #cyprus deposit tax on wires: under 5% for €0-100k, under 10% for €100-500k, around 13% for €500k+ #wsjeuro @WSJ

    Still a shocking precedent and is it really better to hit corporates ? Anyhow…the clusterfoock rolls on…

  99. @Gavin
    Thanks for links. Excellent article from Peter Spiegal . No wonder the President is using the word “blackmail”.
    One question..did we (Irish delegation) participate in this extraordinary charade.

    The summary from businessinsider is apt…
    “So, you can see, this little decision to seize a little money from bank depositors in the little island of Cyprus could be a much bigger deal than you think.
    It could conceivably precipitate a run on weak European banks.
    And a run on weak European banks could hammer the European economy and then the economy of Europe’s trading partners. And it could cause global markets to crash.
    So keep an eye on what’s going on over there in Cyprus.
    It’s potentially much more important than it seems.”

    Read more: http://www.businessinsider.com/cyprus-bailout-risks-europe-bank-runs-2013-3#ixzz2NrRgQYC4

  100. @ Flj

    Oops!

    A lot of ifs and buts! It would be surprising in the extreme if the main players have not already made their calculations. Time will tell whether they are correct or not. In all likelihood, they are.

  101. Fiat luck of course we did participate.we hid hoping the big boys and their weedy sidekicks going hnuk hnuk would keep kicking Cyprus and not us….please not us..

  102. @DOCM
    Not so sure about them having it all worked out. Maybe Draghi will buy bonds on Monday. But it seems the Cypriots are now trying to revise the terms. The president’s televised statement (from ekathimerini) tonight confirms that the ECB threatened the nuclear option…

    Anastasiades promises natural gas bonds to depositors

    “Cypriot President Nicos Anastasiades told his citizens on Sunday that he has chosen the least catastrophic option and confirmed that depositors will get bonds linked to natural gas earnings for the haircut their bank accounts have suffered. He also said he is trying to change the terms imposed on Nicosia for the bailout of the 10 billion euros.

    In a televised address Anastasiades admitted that Cyprus is undergoing “the most tragic moments since 1974,” in reference to the Turkish invasion that has led to the occupation of the northern third of the island.

    “The first option would have led to a disorderly default as a result of the decision by the European Central Bank for the immediate stop of the emergency liquidity assistance to the two major Cypriot banks.

    “The second is the option of a very difficult but controlled and manageable situation that will eventually lead to the stabilization of the economy and to a rebound,” said Anastasiades, rendering full account of the disastrous impact on the country a disorderly default would have entailed.

    “In recognition of its obligations, the state will offer to those who will keep their deposits in Cyprus bonds equal to half of their contribution now, linked to the future public revenues from natural gas,” he said, adding that all this is meant to relieve future generations from the consequences of this generation’s mistakes.

    Meanwhile the government has not yet announced that Tuesday is going to be a bank holiday although sources confirm that this has been the decision of the cabinet.”

    So it seems that Schauble and Merkel are running the ECB. Solidarity how are you. Trust?

  103. @ Flj

    It is a negotiation with a lot at stake. By definition, it is a trial of strength. The Greek and Cypriot crises are intimately linked and both countries have over-estimated the leverage that they have. This is reflected in the far less strident coverage of events in the Continental press, the levy on depositors being seen as a necessay but possibly dangerous step. London and New York based media have a totally different tone, no doubt sensing that there may be money to be made.

    I find it remarkable that negotiations domestically – e.g. recently in the case of the CPA – can be carried out in a no holds barred fashion without anyone raising an eyebrow while those taking place internationally are expected to be a kid glove affair.

    Note also the role played by the IMF if the information relayed to the FT is correct!

  104. @ DOCM
    Unfortunately I think you’re right. The main players have made their calculations. The British have distanced themselves from the Euro project very markedly almost in anticipation of its collapse, the French are very noncommittal and the Germans are showing their usual grasp of things

  105. Docm
    The continentals were of course the ones pushing this bitter pill down the Cypriot throat. But hey, keep those lips placed firmly on the reichfundemental and you’ll be rewarded with a post in another satrapy, someday. The white mans burden is heavy isn’t it

  106. @DOCM

    How valuable is a guarantee from a government that is unable to honour it?

    Are you talking about the Irish government? Maybe you’re an expert on euro matters, but you have forgotten that Ireland retains a mint — the financial equivalent of an air carrier group.

    Ireland can honour any guarantee, if she is so inclined.

  107. Yoga,
    In the cold light of day, EZ govts may realise that this is a stupid idea. Qs round the block in Spain would be helpful.

  108. FT

    http://www.ft.com/cms/s/0/a2eac7d0-8f11-11e2-a39b-00144feabdc0.html

    Cypriot officials insisted no levy on smaller depositors was impossible. One senior Cypriot official involved in the talks said that because about 35 per cent of all deposits are below the threshold, exempting them would mean a rate so high for the rest that it would no longer be viewed as a tax.
    “If this is successful then it will be used in the future,” said the dejected official, predicting Spanish and Italian banks could face similar levies. “If this is not successful then who cares about Cyprus.”
    Archbishop Chrysostomos, the island’s influential spiritual leader, called for Cyprus leave deposits intact, leave the eurozone and readopt its former currency, the Cyprus pound.

  109. @Tull
    You would hope so, but nothing the Cypriot government do is going to help/stop/affect that. Their banks are bust and cannot reopen without some sort of restructuring. Doing nothing is not really an option. Doing something this bad, though, is pretty disastrous.

    As you say, every weak bank in the periphery seeing a run by small depositors would be the effect that might prompt a rethinking of the cause.

  110. I don’t see how this can work without de-facto capital controls. Now that would be a huge crack in the facade of the euro.

  111. @ yoganmayhew

    Good question!

    My reading of the current situation on the basis of press reports – notably from Peter Spiegel of the FT – is that the newly-elected president (i) overplayed his hand (ii) was left holding the baby as to how small depositors were to be treated and (iii) is now trying to retrieve some, at least, of the situation. The high-rollers on the EA side evidently expected it to be all done and dusted by this evening i.e. before markets open tomorrow. How these react is bound to have some influence.

    The Cypriot parliament is to convene at 16.30 tomorrow.

  112. @Carolus Galviensis

    Yanis Varoufakis wrote – “What was astonishing is that […] they did not set a threshold below which poorer depositors would be untouched. And that they left unaffected the banks’ bondholders.

    Changes to his former suggestion on thresholds (100K are now being discussed as I write: Yanis politically astute or what? Case rested.

  113. The Cypriots had a government led by a communist that decided to create a “financial service economy” which ballooned so much that the bank deposits grew to be nine times the GDP.
    The service rendered being essentially a 10% corporate tax rate and” no question asked” about the origin of the money deposited. Even with the “tax”,the 10 billion dollars bail-out will save the skin of Russian plutocrats. Those 10 billion will never be repaid, the Cypriot economy producing essentially nothing. I feel sorry for the small indigenous depositors but I feel worse for the European taxpayers.
    The same criminal stupidity that was observed among Irish and Icelandic banking supervisors in 2008 is displayed today ,as if nothing had happened in the meantime . Even worse: the new government hopes to save the financial service industry ,maybe a bank run will spare us that.

  114. Yogan,
    Unlimited provision of liquidity to any bank experiencing a run is the alternative… Perhaps the only one. Capital controls= the end of the euro.

  115. @DOCM
    Latest reports are they are going to hit the larger depositors for 12.5% and the smaller fry for 3.5%. The Russians won’t be happy. The finance minister might get a cool reception in Moscow tomorrow.

    Btw. The euro fell to 1.29 but has recovered to 1.2918 euro/dollar. I suppose that’s not too bad.

  116. @ Yogan
    The real solution was ECB bailout with implementation of a properly supervised banking union.
    Also separation of retail and investment banking
    And no state guarantees for banking.

    I don’t know how this is going to play out. In a word I think badly. But Ireland should not forget that she can shape events now and in the future. Things must break a bit more before they can be fixed though

  117. Massive runs on banks is mentioned above.
    An unarmed massive rub on a bank has never been successful. Many massive runs have been attempted but not a single one was successful.

    In the first few minutes of an attempted massive run the banks lock the doors. The people inside the doors are mollified in one way or another until the police come to evict them. Governments come up with new rules and regulations within 24 to 72 hours. These usually allow people to withdraw funds from their deposits on a sliding scale decreasing percentage wise as the size of the deposit increases. For example deposits over Euro 100,000 can withdraw 1.25% per month of the declining balance until further notice. UFN up to five years are not unheard of.

    The ECB are being very gentle compared to what normally occurs when banks and governments are insolvent. The low mark in recent times was the IMF in Latin America in the 1970s’ and 80′.

    Gunboat diplomacy was used by Britain against Tunis in the 1920s’.

    The PIIGS should be down on their knees thanking God for the new financial enlightenment.

  118. @David O’Donnell

    Varoukakis is certainly right on that point. OK that part of the case is indeed rested.

    I hope we get back to discussing the Varoukakis phenomenon at some later stage because the fact that a highly gifted guy like this is so remote from reality — at least when it comes to anything concerning the private sector — makes me break out into a cold sweat.

    My hunch is that he’s quite bats outside the field of macroeconomics — don’t have time to check this but I vaguely remember that he has proposed publicly funded mass investment in a Greek TGV (Trains Grand Vitesse). WTF? This in a country in which the Corinth railway station already has seven platforms and only one train per hour, presumably thanks to some EU-subsidized project to ‘improve Greece’s transport infrastructure etc.’ . JC wept.

    Still, I enjoy his blog — some sense, some nonsense, vitriol galore.

  119. @Colm McCarthy

    “Monday should be interesting in Spain and Italy. Ireland closed.”

    Indeed. Many PR Guys and sympathetic hacks earning a few bob this weekend to help make sure the horses are calmed on Monday. First will be the lies (denial any runs happening, then bad news can only be drip fed if that’s the way it goes).

    Heard from a friend in Greece there’s a problem trying to get it through the Cypriot parliament today and maybe another ‘bank holiday’ on Tuesday in Cyprus? Maybe to get some time to go back to tptb in Europe and hopefully do some backtracking? I think the only backtracking that’s going to be allowed is changing the %’s for larger and smaller deposit holders to try to make it look ‘fairer’ to the smaller guy.

    Should be an interesting day on t’markets tomorrow too.

    I wonder why anyone would want to take this kind of risk in the EZ now after the approach they have been taking for some time now? I guess it would have been default though if something couldn’t be whizzed up that would get past a lot of by now peed off Germans.

    Who said, “capital controls” ??

  120. @Mickey Hickey
    “An unarmed massive rub on a bank has never been successful. Many massive runs have been attempted but not a single one was successful.”

    I beg to differ on your observation. The Irish banks suffered a massive bank run. No queues, all electronic. It left the banks virtually without a cent and one day later Ireland’s neck was in the noose.
    Cyrpus was given the choice of half-hanging or being pitch-capped. When the Cypriot president asked for a lighter sentence, Schaeuble immediately doubled the sentence.[Ref FT article above].

    The Cypriots have no choice but to accept for now. Threat, blackmail and regime change are the modus operandi of the EZ.
    US corporate treasurers and bank treasurers with short-term funds are likely to be busy issuing new directives tomorrow.

  121. Oh… and that bit about it being the Russian mafia laundering their money in Cyprus that will be the hardest hit….. er, that’s spin too.

  122. Whatever way you look at it this has precipitated a major crisis of confidence.
    It is now clear that banks can be robbed by governments but more worryingly it is clear that the EC and the IMF haven’t a clue….
    The fact that Noonan was taught by Mme Legarde is most worrying of all in a way.
    The French rarely succeed at anything

  123. @PR Guy

    Oh… and that bit about it being the Russian mafia laundering their money in Cyprus that will be the hardest hit….. er, that’s spin too.

    I hope you’re keeping note of all this. Your memoirs are going to be a bestseller — I’m convinced of it.

  124. @Fiatluxjnr

    The ekathimerini quote from Schaeuble is virtually impossible to reconcile with the FT story.
    He is pushing responsibility onto the ECB /EC and Cyprus, yet he was the person in room demanding the €7billion, when the Greek president wanted lighter terms for depositors. [We know Draghi had already faced him down over cuts to depositors in Cyprus, with Schaeuble insisting that Cyprus was not systemic]. This was a very calculated probing attempt by Germany to push a non systemic Cyprus out of the euro.

    He is now ‘spinning’ furiously, to a domestic audience.
    They may believe him. Nobody else will.

    The reality is that Germany wants to ditch a number of weaker members, but does not want to be seen as the instigator of such a course.

  125. @Joseph Ryan

    One of the beauties of automated banking as opposed to the old quill and quire unconnected branch banking is that the movement of every unit of currency is recorded in real time for every transaction whether it be credit, debit, deposit or withdrawal, bank wide internationally.

    Any bank that does not have in place planned limits that kick in without human intervention is simply incompetent. Any government that allows banks to operate without limits is guilty of aiding and abetting incompetence.

    There was considerable insider activity and a proper inquiry would reveal who did what and when. I am not asking for an inquiry as they tend to be expensive white wash jobs in Ireland. Waste of millions over years.

    The banks took note of the increase of withdrawals and made decisions in concert with the National Bank of I and the DoF to allow withdrawals. The NBI then involved the government who retained consultants and together with ECB, IMF and others decided to borrow with government revenue as collateral. In a nutshell the taxpayers fund the banks and the gov’t.

    A real mass run on the banks occurs when word spreads that a number of branches and ATMs are shut down. This brings thousands out onto the streets and results in violence directed at banks and governments. This did not happen in Ireland.
    When I travelled in the past using debit cards I asked what the country daily withdrawal limit was. I quickly found out on the ground that it varied by city and time of day for the same bank chain. Not alone that but the amount varied weekly without notice in a single city. I was told it was based on loss experience by the banks in real time. Banks have more control now over fund flow than they ever had since the day of the single bank with a single clerk operating from a single ledger.

    You paint a fine picture of our poor penniless banks, if that actually happened to at least one Irish bank we would all be better off in the long run. In the short run it would have been painful. But then we are Irish we could offer it up for rewards in the next life. This could be a Kerry thing and not applicable to the rest of the country. In any case nothing is lost
    you can now offer up tax and fee increases instead.

  126. Wouldn’t it be legend if the Russian govt. we’re to offer a low interest bilateral loan to Cyprus in return for a few ships in its docks what with Syria etc kinda kicking off…it’s what a good despot would do

  127. @Joseph Ryan
    Schauble may be spinning furiously but somehow it has a ring of truth to it. It looks like the Cypriot President may have capitulated at 3 am after all that Ballygowan he drank.

    Meanwhile the euro is getting whacked..now 1.2890 in Asia. Good for exporters like little old Ireland and of course our fatherland.
    Even El Arian is twittering..sell the euro. Maybe it’s time to buy?

  128. The Wall Street Journal has a succinct analysis of the situation:

    There was no other source of debt relief: Most of the country’s sovereign debt is held under UK law, making it very hard to restructure in an orderly way. The local-law debt is mostly held by the domestic banks, so any losses would simply deepen their capital holes. And the deposit-rich banks had issued few bonds that could be written down.

    The only alternative to the deal was a disorderly national bankruptcy to be followed by near-certain euro exit. After all, the idea that Cyprus could be spared this fate by a fiscal transfer or direct euro-zone recapitalization of its banks was fantasy. Even if legally possible, which it isn’t under current euro-zone rules, it was politically impossible.

    There is no appetite in euro-zone countries such as Germany, to create a transfer union, or to bail out a country whose banking system is widely suspected to be a haven for money-laundering.

    Even so, this solution is a gamble—for Cyprus and the euro zone.

    This crisis is another signal of a difficult decade ahead as countries struggle to adjust to leaner times. Easy bubble income is disappearing and the simple fact is that the government of Cyprus can only guess what proportion of deposits are ultimately owned by foreigners.

    Even Delaware, the legal home of almost half US corporations, has limited transparency and has attracted the attention of Russian arms smugglers, drug kingpins and Ponzi schemers. The chairman of the Cayman Islands stock exchange has even complained about the lack of a “level playing field.” It’s easy to set up shell companies there with no questions asked about origin of directors etc.

    Temporary external funds can give false confidence to banks and at a country level a perverse situation where the Japanese yen fell about 20% against the US dollar in the boom period of 2004-2008 and as the economy weakened during the bust, it hit a postwar high in 2011 and is now down about 28% from that level.

    Retail funds which accounted for about 15% of yen flows ended up in such high interest places as Brazil, Iceland, Australia and New Zealand.

    Germany could of course come up with the cash for Cyprus but it could not save for example Italy without a big local bailin. Anyone who expects a significant change in stance from a SPD-led government after the general election, is deluded.

    It’s a valid point that creditors can also be blamed for the financial mess but short of default, the main culprit is left carry the can.
    As for the outlook for the euro, as long as central banks maintain very low rates, it will keep spluttering along.

    Italy’s gross public debt jumped in 2012 to 127% GDP from 120.8% a year earlier. That’s the highest since 1924, when Mussolini ‘won’ 64% of the popular vote. It was 50% in 1975%.

    However, the annual servicing cost took 12% of GDP in the early 1990s and in recent years has been about 5% and below that level in the past decade.

    It’s hard to teach old dogs new tricks and so do not expect much new from policymakers.

    Nineteen Irish ministers are abroad on ‘Promote Ireland’ tours but it’s not 1990.

  129. @Joseph Ryan

    “The reality is that Germany wants to ditch a number of weaker members, but does not want to be seen as the instigator of such a course.”

    Probably about hits the nail on the head.

    There are some interesting questions coming out of all this e.g.

    I wonder what the Turkish view is in the north of the island of Cyprus – and over on the mainland? Would you want to join an outfit who appear to make up the rules as they go along?

    What happens if the Cypriot parliament don’t vote for it? They will no doubt be threatened with the usual disasters and threats if they don’t…. but what if they don’t? It’s not that stable a coalition. Euro exit? Regime change (sorry, I mean the EU offering the services of a technocrat leader)?

    What if there is a run on Spanish or Italian banks this week? If you were the CFO of a major co. would you keep your money on deposit there at the moment?

    Finally, who knew? Who got their money out of Cyprus before the announcement? Not the ‘little people’ that is for sure. But money went out last week, especially Weds-Friday.

  130. All very interesting as ever.

    @ Eureka, etc.

    Perhaps the Russians are in a position to try something racy. Nobody seems to have said, ‘thank you very much’ for supporting Cyprus and all seem to be taking them for granted:

    http://www.foxbusiness.com/news/2013/03/18/russia-yet-to-decide-on-cyprus-loan-extension-source/ (sorry Fox, perhaps that doesn’t count)

    Perhaps control over the gas supplies to the West for a few billion now – suddenly gas bonds are for sale – might be attractive.

  131. Worth reading the Cypriot and Greek English language papers….they are still stunned but one ipwonders when that will turn to anger?

  132. Lots on this rolling story.

    Larry Elliot in the Guardian:

    ‘Cyprus bailout: big implications in a small-scale rescue’

    “The assumption in Brussels, Frankfurt and Washington seems to be that Cyprus is the coda to the eurozone crisis – a last echo of problems that are now all but resolved. Yet that view may not be shared in the markets, where many analysts have seen the calm that has descended on the single currency since last summer as a phoney peace.”

    http://www.guardian.co.uk/world/2013/mar/17/cyprus-bailout-big-implications-small-rescue

  133. @ All

    The FT in the closing paragraphs of its leader this morning cuts to the chase on the most essential elements of the broader crisis.

    “The suspicion must be that Cypriot leaders are determined to salvage the pieces of their offshore banking model, even against eurozone pressure to shrink the sector. Like other European island states before them, the people of Cyprus are discovering who pays to keep a metastasised banking sector alive.

    The risks for Europe are as significant. However haltingly, the eurozone has been moving towards banking union. The European Commission has also made plans for cross-border deposit insurance and resolution schemes including bail-in rules. The Cyprus “rescue” throws all this into doubt. If a deposit tax is the preferred solution, bank resilience is once again a function of sovereign strength.

    The biggest risk is political. The prescription of universal austerity combined with kid-gloves treatment of big investors in banks is increasingly toxic to European voters. Leaders have just added fuel to the fire.”

    The only hole in the argument is the assumption that “bank resilience is once again a function of sovereign strength”. Even a relatively poor country can have a very sound banking system IF it is well regulated.

    What the Cyprus crisis must be bringing home to taxpayers in the creditor countries is that such regulation can only take place at a national level in an EA as it is presently constituted i.e. an association of sovereign states. The “plans” the Commission may be making have little to do with the case.

    In short, the only thing more indigestible politically than having your taxpayers bail out your banks is having them bail out banks in another country.

  134. DOCM seems more reflective than his usual “my union right or far right” norm….cold feet in the Eurohalls? A realisation that this is a bad mad and sad day. But merkel gets a poll bump so alles recht isn’t that so?

  135. Some other questions that come to mind:

    Was it a complete accident that Ireland got that bond sale away last week before all this blew up? Or that the meeting making the decision was held on a Friday night when Cyprus was having a bank holiday on the Monday anyway?

    And would it be a good idea not to find yourself in Iran on a moonless night this year? Bomber commands all over the world just love moonless nights…..

    I was supposed to be home today having a ‘bank’ holiday myself. I’m home but not having the holiday thanks to all this guff. Mrs PR Guy is well pleased.

    See all you migrant UK commuter workers at Dublin airport in the morning.

  136. It looks like a carefully planned ambush that went wrong, with the Cypriot government walking straight into the ambush and ignoring the many warning signs.

    The ECB had originally planned to withdraw approval of Cypriot ELA around January 20. This was extended by two months to March 21 (date of next ECB meeting), to allow for the elections in Cyprus. This date happens to be in a week with a Cypriot bank holiday (1st day of Lent, it seems, in Greek Orthodox Church). As of a week ago there was no Eurogroup meeting planned for last Friday. The meeting was only called on Wednesday by Dijsselbloem. The idea of hitting depositors had been widely floated before, but the German/IMF plan was to call a meeting and demand a specific Euro amount (7bn) to be haircut, using the March 21 ELA approval expiry as leverage. This appears to have taken the Cypriot government completely by surprise, which is pretty strange.

    The Germans/IMF/ECB (the Commission are totally irrelevant at this point) had all assumed that the only amount over 100k would be hit (will post link later). However the ambush context and extreme pressure had the unintended effect that the Cypriots didn’t go along with the over 100k limit. To me there are shades of Brian Cowen’s insistance that all Anglo’s deposits be protected – the damage to the “elite” – wealthy friends/family/supporters must be minimized hence the original 10% cap. However expecting any sort of considered rational plan as an outcome, at 3.00am, while threatening the nuclear option, is insane (but standard operating procedure in the EU).

    The unintended consequence is that all depositors in weak countries now have perfectly rational reasons for assuming that the DGS schemes (which must cover up to 100k by EU law) are worthless, and will plan accordingly. This planning may include

    – print out a list of all scheduled Eurogroup meetings
    – watch for any last minute meetings called for a Friday
    – if the following Monday is a bank holiday, run to bank and take out all your money.

    No matter what way you look at it the process, and the people involved, are just nuts. There should have been a proper restructuring with senior bondholders bailed in. The 1.7bn outstanding is 30% of the deposit levy. Also no distinction was made between healthy banks and bankrupt ones. In the EZ there are now three different models of how to deal with broken banks (Greece, Cyprus, and Ireland/Spain). Not a single one has followed the creditor preference sequence that should have been followed.

  137. This is the link referred to in previous post. At least the “moderate” wing of the ECB were not expecting across-the-board hits to depositors and making a mockery of the DGS scheme.

    “All solutions should be explored,” Coeure said. “I wouldn’t include a general bail-in of depositors as part of the solution given the risks that it would pose for financial stability.

    “So I think the possible bailing-in of depositors across the board is not an option that can be envisaged given this hasn’t been done in any country. It would be entirely new and I don’t think it’s time to make experiments now.”

    Pressed to say if that left open the possibility of a narrower bail-in of deposits above the EU-guaranteed threshold of 100,000 euros, he said: “There needs to be an appropriate burden-sharing in the program because we need to achieve debt sustainability. But no bail-in across the board.

    “I don’t pre-judge any instruments because the vocabulary matters and there are many ways to achieve burden-sharing.”

    Asked if that was his personal view or that of the ECB board, Coeure said: “I’m pretty sure that (Mario Draghi) is comfortable with the way I’ve phrased it. No bail-in across the board of depositors.”

  138. In case you haven’t seen the translation from yesterday, here’s what Anastasiades claimed would happen if this deal does not go ahead (kind of sounds familiar from somewhere):

    One bank would instantly cease operation. Following that the other major bank would suspend operations and we would finally be led to the collapse of the banking sector.

    Following on from this, depositors would lose direct access to their deposits, while a large number of depositors would be subject to significant losses.

    Thousands of SMEs and other businesses would become bankrupt as a result.

    Don’t forget about the direct loss of thousands of jobs in the banking sector and the consequent loss of thousands of other jobs related to the banking sector and its activities.

    The culmination of disorderly bankruptcy would be potential coercion to exit the eurozone. This would lead to a significant devaluation of the Cypriot currency and our national wealth, with all that that would entail.

    Er, the ATM’s would stop working. Er, senior bondholders, oligarchs and Mr Putin will be looked after. There is no alternative. Er, line in the sand. Er, that’s it. Please vote this deal through or I won’t last very long as I can already see a former guvn’r of the Bank of Cyprus being warmed up in the wings by the EU as a technocrat replacement.

    This is worse than the Turks invading in ’74. At least then you could tell who the enemy was – they had guns in their hands and said nasty things in loud foreign voices. Nowadays in Cyprus, people with guns in their hands saying nasty things in loud foreign voices are called ‘bank customers’ and the real enemy keep telling you they are there to support you. Does that Lagarde woman or any of those EU finance ministers actually know anything about economics? Someone pour me a Metaxa. Oh! Is that mike still on?

  139. At what point does someone say “yes, this plan is better than putting the banks into examinership and restructuring them”? Like the Irish bailout, the cost of saving the banks in their current forms is so high, that you wonder is it really worth doing. I think not.

  140. @PR Guy

    Reading the post from Bryan G, it seems the impetus or at least the trigger for the Cyprus ‘deal’ was that the ECB wanted to withdraw ELA. Whether the independent ECB was under pressure to take the ELA money back and ‘burn’ it to use Karl Whelan’s phrase is another question.

    Again reading the Reuters link (posted by Bryan G), it looks like there will be serious spat in the ECB corridors. Coeure will not be happy at all that his stated policy has been rubbished. The Cyrpus deal does not sound like the kind of deal that Draghi, in his rational senses, would make.

    Maybe Draghi is being very clever and giving the hawks plenty of rope, though it seems like a dangerous way to go about things.

  141. Very good posts above thanks. More grist to the mill:

    “‘Unfair, Dangerous’ Cyprus Deal Whacks Rich Russians”

    “Vladimir Putin’s spokesman quoted the Russian President as saying on Monday morning that a deposit levy would be “unfair, unprofessional and dangerous”, Reuters reported.”

    Also:

    “On Wednesday, Cypriot Finance Minister, Michalis Sarris, will visit Russia to discuss extending a 2.5 billion ($3.3 billion) euro loan to Cyprus and reduce interest rate payments. The country has already requested 5 billion euros more from Russia, but the country has refused. No decision over whether to extend the loan to Cyprus has yet been made, a source told Reuters.”

    If I were the Cypriot Finance Minister, I’d be trying to get that done Tuesday.

    http://www.cnbc.com/id/100562036

    Purely speculatively I would if the Cypriot Government felt they had a good case for some kind of special treatment as a big factor in their banking bust was saying yes to the Greek haircut.

  142. I would have expected EZ banks to be down much more than the 3-4 % indicated at the mo. I guess we have to await the verdict from across the Atlantic. I would watch the behaviour of the US corporate treasurers over this. Will they pull their overseas cash from EZ banks?

  143. I’d be disappointed in Putin if he didn’t lend them 7bn. It would be such a cheap way to embarrass the EU and gain regional leverage.

    If he doesn’t then it’ll be a game of chicken between the Germans and the Cypriots. Germany has been very dogged to date

  144. @Eureka

    “I’d be disappointed in Putin if he didn’t lend them 7bn”

    He doesn’t need to when he’s got Gazprom to do it for him 😉

    Lot’s of unexploited gas deposits around Cyrpus so I hear….

    That would make some headline… “EZ Country Bailed Out By Gas Company – President Sticks Two Fingers Up At Grmany””

  145. @Tull Mcadoo

    “Will they pull their overseas cash from EZ banks?”

    If I were their CEO or CRO or CFO I’d be saying……. *

    *Fill in blanks as you feel appropriate

  146. BTW – I have it from a pretty good source a few minutes ago that Anastasiades hasn’t fully secured sufficient votes to get this through parliament yet and the EU have told him to delay the vote and keep the country/banks shut until he does have enough votes – however long that takes. I believe one of his guys is on his way back from South America to shore up the numbers even as we type here……..

  147. @ Brian Woods II

    The Prof Lucey article is here:

    http://www.irishexaminer.com/business/will-irish-savers-be-next-to-pay-as-eu-targets-cypriot-depositors-225765.html

    Perhaps it would be as well to note that he does not use the term ‘Nazis’ and he says:

    “For the first time in modern European history we see the deposits of ordinary savers at risk. While deposits have been lost in extraordinary bank failures, this is new territory. It puts at risk every deposit of every saver in every country now in or facing into a bailout.”

    Which is a different emphasis than your third point.

  148. @ Carolus Galviensis

    Naughty, naughty.

    When the station opened on 27 September 2005, it was the line’s terminus. It remained so until 9 July 2007, when the line was extended to Kiato. Trains run hourly in each direction.

    The station has five platforms, although only two are in use. In the subway to the platforms, copies of ancient artifacts excavated during the station’s construction are on display.

    http://en.wikipedia.org/wiki/Corinth_railway_station

  149. Cypriot FinMin to fly to Moscow wednesday. Not clear when (some say tuesday, some friday) the vote will be. Also not clear when banks will reopen – some say tuesday, some wednesday. …..
    Fustercluck central now.

  150. @ Eureka

    I’d be disappointed in Putin if he didn’t lend them 7bn. It would be such a cheap way to embarrass the EU and gain regional leverage.

    I do seem to remember the Russians being helpful to Iceland during its crisis, in a way that terrorist-designating EU nations were not.

  151. @ Michael Hennigan

    Even Delaware, the legal home of almost half US corporations, has limited transparency

    I admire your faith that the latter isn’t responsible for the presence of the former.

  152. @brain lucey

    I think the fact is…. that nobody is clear (least of all any Cypriot politician) when either the Finmin is going to Russia, when the banks will open or when the vote will be held. Some say Finmin is going there in person because “anything other than a face to face conversation in a lead-lined room can be listened in to.”

    “Fustercluck central” would be a compliment right now I think. This is turning into an enormous farce. No wonder Herr S. is putting as much distance as he can between it and himself at the moment. Of course, Noonan was heard to say how much he welcomed it ….. before even thinking it through. Does he know anything about economics?

    I’m still betting on Gazprom if the Cypriot Pres. doesn’t have enough votes in the bag to push it through parliament by tomorrow.

  153. @ Gavin Kostick

    Thanks for the reference to my post, which has since been removed. It appears that offending the good deposit selling Prof is verbotten in these parts whilst he is allowed to accuse me, wrongly, with impunity of being implicated in our own banking crisis.

    You will be glad to know, as I am sure so too will the Prof and most other contributors, that I’m off; no more participating in this blog for me.

  154. @ Brian Lucey

    “Instead, and setting a dangerous precedent, the ECB and the Economic and Financial Affairs Council (chaired by Michael Noonan, fresh from landing €25bn of Anglo debt onto the Irish taxpayer) decided to haircut depositors.”

    Really?

    You need to bone up on the institutional arrangement governing the EA.

    http://www.eurozone.europa.eu/newsroom/news/2013/03/eg-statement-cyprus-16-03-13/

    On the statement by the chairman of the Eurogroup on depositor haircuts not being considered for other countries but not ruling them out being “as dumb as a bag of hammers”, you may have hit a nail on the head there – if I may mix metaphors a bit – in the sense there seems to me to be method in his apparent madness. Under present arrangements, banks are the responsibility of the sovereign i.e. their taxpayers and, as to change this would require a step of political integration for which there is no appetite, there is little to be gained in implying that the situation is otherwise.

    This IMHO is the real sea-change that has taken place in the thinking of the creditor countries i.e. in Merkel’s approach.

  155. BTW – the riots in Nicosia should start right on cue around 2-3pm GMT and extend into the evening.

    I’m kind of hoping the Greek Cypriot police standing guard are going to say “f*** it – we’ve lost money too… you might as well go on in and make your point.”

    I’m sure that a direct face-to-face conversation with the potential victims would stiffen the resolve of most Cypriot politicians… there aren’t enough face-to-face conversations with people who impose their will on us from their safe bubbles.

  156. @Carolus Galviensis

    Trying to discredit Varoufakis by linking to Klaus Kastner, who routinely makes a fool of himself. Nice.

  157. BWII,
    Please don’t go. We need an antidote to the some of the Cassandras and pedlars of easy solutions around here.

  158. @ Tull

    Okay, I’m back.

    Couldn’t resist being able to ask all those Cassandras (had to Wiki that) where are the runs on Spanish, Italian, Irish banks?

  159. @ Tull Mcadoo

    The big ‘overseas’ US balances, sometimes termed ‘trapped cash’ are in dollar accounts and are effectively in the United States.

    @ DOCM

    Each country in the negotiations on a banking union will wish to have their bread and eat it.

    Enda Kenny wants all the bank support mutualised but also wants to operate a tax haven and ditto for other places.

    @ All

    The narrative of victims and villains of course gets a lot of support and some see merit in those cuddly bears in Gazprom getting in on the carve- up.

    Like a struggling company that only seriously engages with its lenders at near death’s door, Cyprus left it late.

    Christofias, the former president, missed the opportunity in 2011 to use the threat of a veto of the haircut of Greek bonds to exemptCypriot banks from losses. In the same year, his decision to store captured Iranian munitions bound for Hezbollah rather than destroy them, resulted in significant damage the island’s main power plant and the death of 13 sailors.

    The economy was adrift before Christofias took charge in 2008; in the last decade, taxes and wages rose sharply and services exports became the main growth sector with
    Russia in the lead.

    We should know from Ireland that services exports can be easily ‘manufactured.’

    @ Brian Lucey

    You are wrong again professor!

    Italy introduced a tax on all deposits in 1992 as part of its efforts to stay in the European Exchange Rate Mechanism.

    Your estimate for Russian deposits is also wrong in your Examiner article and as for the charge of ‘rancid racism’ that is also at the level of pub-stool economics. It has indeed a whiff of the nonsense Fianna Fáil used to peddle to the gullible in their heyday.

  160. BWII,

    I would not cry victory on that front. This has the potential to cry horribly wrong. Further evidence that you would not send the Eurogroup down the shops for a pint of milk.

    Still welcome back

  161. A super and sobering piece by Wyplotz
    http://voxeu.eu/article/cyprus-next-blunder

    the conditions for a total disaster are in place

    The really worrisome scenario is that the Cypriot bailout becomes euro-systemic – in which case the collapse of the Cypriot economy will be a sideshow. This will happen when and if depositors in troubled countries, say Italy or Spain, take notice of how fellow depositors were treated in Cyprus.All the ingredients of a self-fulfilling crisis are now in place:It will be individually rational to withdraw deposits from local banks to avoid the remote probability of a confiscatory tax.As depositors learn what others do and proceed to withdraw funds, a bank run will occur.The banking system will collapse, requiring a Cyprus-style programme that will tax whatever is left in deposits, thus justifying the withdrawals.This would probably be the end of the euro.

    Conclusions

    The likelihoods of these three scenarios – benign, less benign, and total disaster – are difficult to assess.What is clear is that the Cyprus bailout has created a new situation, more perilous than ever before.Once more a deeply dangerous policy action is decided apparently without any awareness of its unintended consequences.It is also another violation of sound existing arrangements. We have a no-bailout clause in the Maastricht Treaty – a clause that was essential to the Eurozone’s stability. Putting it aside in the case of Greece was the heart of the today’s problem – the reason the crisis spread (Wyplosz 2010). This no-bailout clause has once again been put aside summarily.We are now witnessing another radical change as a perfectly reasonable deposit guarantee is being undermined. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors.”

  162. Morning or is it evening Kl time Mike
    A) you assert my estimate ia wronf..ok. nit being in the boc I cant be definitive but if you can hold your nose and go to my blog feel free to follow the links and revert to them and me. Or just assert
    B) Italy in1992 isnt actually the same. Ill write on that later
    C ) theres a whiff of racism and xenophobic jeering without doubt. Feel free to ignore it.

  163. @Brian,genuinely sorry to hear that.Missed your post,like the above perhaps it’s all negotiable.Maybe the ie computer “hamsters” ate it…..

  164. @ Tull

    I agree that this sets a bad precedent. It appears to be at the behest of the IMF rather than Germany though.

    I don’t see immediate panic, for panickers are really quite rational. There is no immediate danger of the Cyprus solution being visited on other countries.

    However, the next time the Ministers meet in Brussels to discuss the latest Italian, Spanish or Irish banking crisis could be the trigger.

    Certainly, I will be hiding my small little pile under the mattress come next St Patrick’s weekend.

  165. ZeroHedge thinks that the world has 30Trillion of debt excess to “assets” in some or all “systems”.

    This is just an alpha test, with a beta to follow and after that, the really big ones.

    Some points: now that so many banks are owned by countries, will we have money laundering investigations or not?

    How many other assets will go bad in Cyprus etc? What will “they” do then? WTC7 was pulled even tho the airplane destined for it was shot down by the USAF. WTC7 was where there were many insider investigations ongoing. Follow the money? Dangerous …..

  166. Italy 1992 was a 0.6% levy on deposits, no? Much smaller.

    Does anyone know any literature on reactions in terms of money under the mattress / money moved out of Italy as a result?

    Personally, I am far from sure that excluding/reducing the impact on the small depositors by imposing a bigger hit on business deposits / individuals who have more than €100,000 in deposits (often temporarily) is going to be better for Eurozone banking stability. Others may know better, however…

  167. BW II,
    Agreed, it tempts one to put ones “running away fund” into a proper currency like GBP/USD/CHF rather than these luncheon vouchers issued by something called the EZ.

    The sooner this European Project is consigned to the dustbin of history the better. Anything designed by a French socialist is bound to fail. Would you be seen in a Peugeot?

  168. Sonderfall Zypern . Special case Cyprus

    Except the crisis is system wide and everyone is special now.

  169. @BWII

    That was a very short departure!

    “I agree that this sets a bad precedent.”

    The genie is well and truly out of the bottle now.

    Don’t believe the spin coming from Germany (especially from Wolfgang S). They are in this decision up to their elbows as much as anyone else. I don’t think they thought this through….. or if they did, I must go and re-read ‘The Shock Doctrine’

    “There is no immediate danger of the Cyprus solution being visited on other countries.”

    I would tend to agree in the short term (doesn’t mean to say it won’t happen in places like Spain or Italy at some point though)…. trouble is that Italian and Spanish social media are glowing hot with this at the moment and it’s about what people might think will happen and about confidence – it’s not about facts. Strongest rumour going around in both places (completely unfounded as far as I can see – they don’t even have a government in Italy at the mo capable of doing anything) is they will get hit in May – I presume people are linking it to the next bank holidays.

    Ill-informend people follow other ill-informed people like sheep – Northern Rock was a classic example. Once confidence in the banking system takes a knock there really is no telling what might happen.

    When you also start barring access to peoples’ savings (I think there’s been a €400 limit at ATM’s and no ability to transfer money over the weekend in Cyprus) things start getting ’emotional’ and then there’s really no telling what may happen. If the Cypriot government don’t deal with this quickly they’re damned. They mustn’t let it drag out…. but like a lot of governments before them, they really love to drag their feet in difficult times. And if there are problems in Cyprus over the next day or two and the public/protestors are dealt with violently, there will be ‘solidarity’ demonstrations in other southern EZ countries.

    The only backtracking that is likely to work is if they suddenly announce that those holding under €100,000 pay 0%. I think even robbing your average citizen of 3% of their private property is still pushing it (the last revision I heard being talked about).

    But hey, realpolitik doesn’t give a rat’s about the little people as long as they think they have the paid thugs in their control to keep order on the streets by cracking a few heads. Sorry to be a Cassandra but this could all get very nasty.

  170. This “depositor tax” is an odd and risky action. The spin about dodgy Russian money is worrying. Money laundering is illegal, taxing at 10% doesn’t make it right. Either it should seized by relevant authorities or left alone. Much of this seems to be German propaganda, time to reach for history books. It’s quite possible the Russian money could be in Cyprus to avoid risks of it being left on deposit in Russia.

    What can we infer from eurfinmins latest decision? To me it seems there’s no overall strategy. Individual states are pushing their own agendas, with Germany generally getting its way. Each decision appears to be the results of last minute agreements rather than any cohesive policy.

    Where does this leave the esm bank thingy announced last June? If enda rocks up looking for cash for bank shares, are our deposits in play?

  171. Good coverage on news at one. Looks like the Russians could t cover the liquidity.
    So likely outcome is 2% on under 50k and 10% on over 50k and 15% on over 250k or something like that.
    Will likely be meg with a mix of anger and relief on the streets.
    Problem is that the EU has no credibility left after this. It’s the bigger deposits that will leave first – sparking more crises and that’s the run (could be a month or two out though

  172. “So likely outcome is 2% on under 50k and 10% on over 50k and 15% on over 250k or something like that.”

    Big shock for e.g. someone who has just sold a house and about to pay for a new one… or a small firm’s payroll account …

  173. @Tull

    The Irish commercial property cartel is revealed;

    http://debates.oireachtas.ie/BUJ/2010/03/30/printall.asp

    The above is the link to the full transcript of the Joint Committee on Enterprise Trade and Employment–Commercial Rents Discussion :30th March 2010,
    at which Frank O’Dwyer (Irish Association of Investment Managers) states “I spoke with the seven institutions but it would be legally impossible under the Competition Act 2002 to gather data from a small group of people who control the market”

  174. I can see the PR logic (?) in telling the average Cypriot citizen that it’s 6% (everyone up in arms) and then telling them how you’ve fought tooth and nail with the Troika today to now get it down to 2% (everyone breathes a sigh of relief hopefully, wow that could have been worse, etc. – even though it’s still theft even at 2%).

    But telling us that the people who are really going to get hit then are the Russian mafia and various other Russian money launderers? Come on. Would you tell a bunch of guys with their guns and reputations that instead of 10% they are now going to pay 20-30% ? You’d have to think you were pretty hard to do that! Unless of course you were lying or just very, very stupid.

    So, are the Troika:

    a) hard?
    b) liars?
    c) stupid?

    And if they are so sure it is laundered money…. there are laws that allow them to take it all 🙂 So enact the law. Get 100% of it.

  175. PR Guy
    Commerzbank…Italy…

    Meanwhile another delay http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_18/03/2013_488365 until 1800h tomorrow. He dont got the numbers. Proposal is to now exempt those less than 20k 5% to 100. Which is dumb as it still makes clear that there is no such thing as a guarantee (we knew there wasnt but this is ripping the veil bigtime) and they may as well be hung for a sheep as a lamb.
    Some suggestions banks may be closed all week which would represent an utter failure. Not that the FANGS would care…

  176. PR Guy
    Commerzbank…Italy…

    Meanwhile another delay http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_18/03/2013_488365 until 1800h tomorrow. He dont got the numbers. Proposal is to now exempt those less than 20k 5% to 100. Which is dumb as it still makes clear that there is no such thing as a guarantee (we knew there wasnt but this is ripping the veil bigtime) and they may as well be hung for a sheep as a lamb.
    Some suggestions banks may be closed all week which would represent an utter failure. Not that the FANGS would care…

  177. @brian lucey

    “Probably the Finns will want Paphos or some other ….. ”

    Have you ever been to Paphos? The Finns surely wouldn’t want that as collateral? Mind you, we are dealing with a bunch of people who roll around naked in the snow and beat themselves with sticks.

  178. @Ahura Mazda

    “… are our deposits in play?

    Every deposit in the EZ is now in play. A ‘Confidence (trick) Building Measure!

    @Joseph Ryan

    “The reality is that Germany wants to ditch a number of weaker members, but does not want to be seen as the instigator of such a course.”

    Correct for a certain segment of the influential upper_echelon in Germany. It has support in the Sinn/Issiing little deutschelander wing and in certain segments of the CDU & CSU. In attemps to placate this clique, and in procrastinating on coming out strongly in support of Greece staying in the EZ, Merkel made the crisis worse, and delivered a near fatal blow to the Solidarity Principle.

    @all

    Who kidnapped Bond. Eoin Bond? Why have certain commenters on here not been arrested? Blind Biddy swears that she did not go on a bender with Bond yesterday and that she was shacked up with the one-eyed Shia Sheik in Rome for an ecuminical discussion on Islamic banking.

    @Bond Eoin Bond

    The BAU of the BBHF are on the case.

  179. @Tull

    “Anything designed by a French socialist is bound to fail.”

    How about a race? You start from Edinburgh and I’ll start in Marseille and first one to the channel using the local train system wins.

  180. @Brian Lucey

    “Very helpful statement by Commerzbank chief economist noting a mere 15% grab would get the Italian economy back in shape.”

    Is somebody very deliberately adding fuel to the fire.

    Can the Eurogroup do as much damage in a conference call as they can at a convened meeting.
    This may all be for the best. The only way to put the genie back in the bottle is a cast iron DGS underwritten by the ECB. Otherwise as Tull says above the euro is a luncheon voucher as far depositors are concerned.

  181. It was all Ollie’s fault….from the guardian…
    “Mr [Olli] Rehn was the first to make a specific proposal. To raise funds, Cyprus should impose a special levy on deposits, taxing accounts of less than €100,000 at 3%, those up to €500,000 at 5% and those above at 7%. Such a “solidarity levy “—the brainchild of Thomas Wieser, an Austrian who chairs technical discussion among euro-zone finance officials, and Mr. Asmussen— could avoid a straight “haircut” on deposits, which they feared could be too destabilizing for Cyprus and the rest of Europe. The tax would be applied to all Cypriot banks, not just the two in deep trouble.

    But Ms. Lagarde had something else in mind. The IMF chief presented a much more radical plan, in which deposits above €100,000 in Laiki and Bank of Cyprus would have been cut by between 30% and 40%. The owners of senior bonds in the two banks would also have faced losses—a step that was ultimately rejected. That plan would have limited the international bailout to €10 billion and raise some €7.5 billion from depositors.”

  182. fyi

    Today’s Cyprus Links from NakedCapitalism

    http://www.nakedcapitalism.com/2013/03/links-31813.html

    the matrixsQuid likes the deal! Wonder why?

    Yves Smith’s take on the ‘dea’

    Will Cyprus Become Creditanstalt 2.0?
    The cheery view that Europe had moves past its crisis now looks to have been a tad premature. The astonishing weekend revelation that Cyprus had struck a deal for a Eurozone rescue of the island nation’s banks that hinged on a deposit grab, um, tax, of 6.75% of deposits below €100,000 and 9.9% for those above €100,000, sends a message that anyone in a weak bank in a periphery country, particularly a large deposit holder, is at risk. The one thing that America learned in the Great Depression is that to prevent debilitating bank runs, depositors need to be sure their holdings are safe. And if you need to extend government guarantees to provide that reassurance, then government bloody well better keep the banks on a short leash to make sure you don’t have to pay out on those guarantees all that often. The recklessness of letting financiers talk governments out of constraining bank activities is coming home to roost.

    Creditanstalt, an Austrian bank that collapsed in 1931, precipitated a financial panic that led to a series of bank failures and a currency crisis, a classic combination of contagion worsened by poor official responses. The Cyprus deposit-seizure scheme has the potential to kick off a similar broad-based financial unraveling, but whether it does depends on both customer and official reactions.

    Read more at http://www.nakedcapitalism.com/2013/03/will-cyprus-become-creditanstalt-2-0.html#efj3sIAZBrdRmEdV.99

  183. @EWI

    re: number of platforms at Corinth Railway Station

    EWI, thanks very much for the link. Actually I have counted seven platforms, having frequently alighted from or embarked on the one and only train that passes through on its way to or from the terminus. The clocks don’t work, incidentally, and the times of departure/arrival are indicated using hand-written posters.

  184. Imagine 240+ posts on the Irish government’s 4-year tax levy on knackered private pension fund savings??

    As a critic of massive tax scams by US companies, I shouldn’t be branded a racist for just saying that there are at least serious questions regarding the role of Russia in the Cypriot economy where according to the FT, it dominates financial services that account for 40% of GDP.

    There is no perfect system but the Russian one seems opaque with a close nexus between control of politics and economics.

    Foreign human rights abuses seldom provoke interest these days unless there is an anti-American angle, but the case of Sergei Magnitsky, a lawyer who died in a Russian prison 3 years ago after publishing information on insider corruption in Moscow, has again got attention because last Tuesday a grotesque Kafkaesque show trial began in Moscow with the deceased lawyer charged with tax evasion.

    The FT reported last week:

    “Cyprus attracted $119.7bn of Russian ‘investment’ in 2011 while itself transferring $129.9bn to Russia the same year, equivalent to more than five times the island’s annual output, according to Global Financial Integrity, a US-based money laundering watchdog. Raymond Baker, GFI’s director, said the amounts reflected ’round-tripping’ of illicit funds exported from Russia to companies based in Cyprus. The funds then flowed back as legitimate investment.

    Russian companies overwhelmingly dominate the financial service sector, which has doubled in size to 40 per cent of national output since Cyprus joined the euro in 2008.

    A foreigner can set up a company and open a bank account through a lawyer without having to visit Cyprus in person. Cypriot bank officials still accept suitcases filled with cash for deposit after checking with the company’s lawyer, the same Nicosia accountant said. If corporate tax rates rise to 12.5 per cent as a condition of the bailout, Russian companies may look for a cheaper jurisdiction. Malta, for example, has a 5 per cent effective tax rate, while Latvia this year reduced taxes aiming to attract Russian holding companies.”

    Der Spiegel:

    http://www.spiegel.de/international/europe/tax-haven-reputation-plagues-eu-bailout-of-cyprus-a-877369.html

  185. Nov 2012:

    “The EU is likely to bail out the banks of tiny member state Cyprus with 10 billion euros of credit. But a secret German intelligence report reveals that the main beneficiaries of the aid would be rich Russians who have invested illegal money there. It’s a big dilemma for Chancellor Angela Merkel.”

    http://www.spiegel.de/international/europe/german-intelligence-report-warns-cyprus-not-combating-money-laundering-a-865451.html

  186. “Imagine 240+ posts on the Irish government’s 4-year tax levy on knackered private pension fund savings??”

    What is there to say about it, beyond the yelping by/commiserations for those whose otherwise tax-advantaged investments were so taxed? Taxes of that sort don’t raise the possibility of systemic collapse of banking systems, but instant levies on deposits have at least the potential to do so via bank runs.

  187. @ Eureka

    Thanks Eureka,

    Yes the video on our homepage explains a lot. The system is very misunderstood partially because the economists don’t seem to talk to the accountants.

    There has been a lot happening on the ‘monetary reform’ front recently with discussions in the Icelandic parliament and the Federal Reserve Bank of Philadelphia are hosting a conference on the subject on the 17th April.

    @ Brian Wood Snr,

    Richard Douthwaite’s, ‘The Ecology of Money’, is excellent for getting you thinking about the different properties of money can be used to tweak our lives for the better.

    In more modern times, our UK equivalent Positive Money (www.positivemoney.org) recently published ‘Modernising Money: Why our monetary system is broken and how it can be fixed’

    It describes the effects of the current debt-based system and discusses how we could smoothly transition towards a full reserve banking system. Excellent book.

  188. Presumably some of the angst about Russians and the like could be alleviated by turning any haircut for the little people into a tax credit of some sort, so that the law abiding would not be hit.

  189. @ MH

    At this stage, I think that the Russian involvement has been demonstrated to be the decisive aspect to all with eyes willing to see. However, I venture to suggest that it is, in a way, not that relevant when viewing developments from an Irish perspective.

    The key question, and the subject of dispute between Schaeuble, on the one hand, and the ECB and the Commission on the other, was whether Cyprus had to be dealt with as a systemic risk or not as far as the euro is concerned. Market reaction today suggests that it is Schaeuble who is winning this argument, hence his rather unusual comment distancing himself from the three parties that got the core element wrong viz. the under-estimation of the political reaction to involving small depositors.

  190. Der Spiegel Today

    Saving Cyprus: Tapping Bank Customers Is the Right Move
    A Commentary By Christian Rickens

    The move in Cyprus to apply a one-time levy on all bank accounts is both a fair and pragmatic way of easing the country’s debt burdens. It also marks the start of a new phase in the euro crisis that could have implications for future bailouts.

    http://www.spiegel.de/international/europe/commentary-tapping-bank-customers-is-the-right-move-in-cyprus-a-889476.html

    Cyprus Bailout: Widespread Anger Erupts Over Bank Account Levy
    By Severin Weiland and Philipp Wittrock

    The euro-zone deal to save Cyprus from bankruptcy was hard-fought, and a long time coming. But the conditions placed on the bailout, namely a one-time tax on all bank deposits, have sparked fury in Cyprus and abroad. Parliamentary approval in Nicosia is far from certain.

    http://www.spiegel.de/international/europe/widespread-anger-erupts-over-bank-account-tax-for-cyprus-bailout-a-889439.html

  191. ‘Savings are safe — but only in Germany’

    18 March 2013Presseurop Die Tageszeitung

    Against the background of a photo of Angela Merkel and Peer Steinbrück, the newspaper reminds its readers that in 2008, the Chancellor and her then minister of finance, who is now her social-democratic rival in upcoming elections, announced that all German savings would be “safe” in spite of the crisis.
    http://www.presseurop.eu/en/content/news-brief/3552641-savings-are-safe-only-germany

    Cyprus:
    A rescue plan that will kill us
    18 March 20132615 Cyprus Mail Nicosia

    The EU and IMF have agreed a €10bn bailout of Cypriot banks, but the price to provide rescue funds is a tax on all deposits. This condition has stunned the tiny Mediterranean nation, with the Cyprus Mail accusing the new President and other member states of betraying the island.

    http://www.presseurop.eu/en/content/article/3553111-rescue-plan-will-kill-us

  192. @Do’D
    Blind Biddy’s banking 101 surely has the line “fair does not skip foolish” in it?

  193. I wonder if Cypriot bank deposits held in the name of e.g. the European institutions (e.g. the local bank account of the European Commission’s representative office?) will be subjected to the same trimming … ? Hospital pharmacy budget accounts? “Sinking funds” for apartment building repairs? Local authority “rainy day surpluses”? Political parties fund-raising accounts? Trade Unions’ strike funds?

    There are quite a few interesting examples beyond the oligarch and the little guy…

  194. Can I as a Cypriot, or Cypriot business, be pushed into bankruptcy today if my assets exceeded my liabilities last Friday but my assets – x% on Thursday will now be less than what I owe? Or perhaps my creditor will be made bankrupt first? Lots of interesting questions…

  195. @yoganmahew

    Biddy is as confused as I am by the question: If this is a banking crisis, which it is, why have so few banks been allowed to fail? Banking_101 and other banking related curricula have been torn to shreads … The Blind Biddy Hedge School has substituted Power_101 for Banking_101 and Criminal_Minds_101 for Economics_101 – mirabile dictu, the students grap the correlation within the first week …. btw the elective on lorenzobinismaghiitis is oversubscribed in both the psychology depatment and the postmodernist horror module in the literature department … worth noting that the BBMS has developed an antidote to the LT_103 Virus but the key recipients are so ideologically sick that they refuse to acknowledge it …. these are scary scary times.

  196. @otto, michael h

    ““Imagine 240+ posts on the Irish government’s 4-year tax levy on knackered private pension fund savings??”

    What is there to say about it, beyond the yelping by/commiserations for those whose otherwise tax-advantaged investments were so taxed? Taxes of that sort don’t raise the possibility of systemic collapse of banking systems, but instant levies on deposits have at least the potential to do so via bank runs.”

    Ireland led the way in unlimited guarantees for bank bond holders and depositors.

    I suggested above that it could be regarded as a “thought leader” with regard to the subject of this thread. Thus far, no takers. See first line:

    http://www.irisheconomy.ie/index.php/2013/03/16/the-special-case-of-cyprus/#comment-395019

  197. @grumpy

    I posted this above:

    Saving Cyprus: Tapping Bank Customers Is the Right Move
    A Commentary By Christian Rickens

    The move in Cyprus to apply a one-time levy on all bank accounts is both a fair and pragmatic way of easing the country’s debt burdens. It also marks the start of a new phase in the euro crisis that could have implications for future bailouts.

    http://www.spiegel.de/international/europe/commentary-tapping-bank-customers-is-the-right-move-in-cyprus-a-889476.html

    Are you inclined to agree with Rickens? Across the EZ? Here in Ireland? What type of box is opening up here? Would I object to such a ‘tax’ here if it lessened the cruxifiction of the lower_echelons?_NO!

  198. Having read the posts pro and con, I conclude thst one would be mad to hold a depo in any EZ Bsnk, at least you get share with this confiscation but the next version will be a solidarity tax to bail out public pay or welfare followed by a levy to fund a fiscal stimulus or some other lefty boondoggle. Better to take your chances with your legit after tax savings in another jurisdiction.
    Of course, I suspect the hot money has already come to the same conclusion and has moved to Geneva. BTW if I was in Latvia, I would rethink euro membership.

  199. Secret german reports and articles in the establishment geeman press hardly a convincing transparent decision making process i suggest. In fact on the contrary

  200. @Otto, grumpy, Tull

    As Otto rightly points out the effects of this sequestration of assets will be far reaching. As I said above the policy makers seem to have ignored the Doctrine of Unintended Consequences.
    Take for instance trustees holding cash on behalf of beneficiaries…charities, pensions,vulnerable people.
    Tull has it right. Holding cash in EZ banks is no longer prudent. If it ever was.

  201. You’d think the Russian Mafia caused the financial crisis, such is the enthusiasm to make them pay.

    Maybe there should be a 50% levy on savings of economists who supported bank deregulation , since they are far more guilty than the Russian Mafia. There should of course be a 100% levy on economists who got to be bank directors.

  202. @Tull: “…the next version will be a solidarity tax to bail out public pay or welfare followed by a levy to fund a fiscal stimulus or some other lefty boondoggle.”

    “… lefty boondoggle” … I suppose it just might result in a partial equilibration with the many neo-liberal boondoggles we have had to endure since 2008. 😎

    Speaking of Left. Anyone paid a visit to that other site recently? Where Left statistics is ‘better’ than Right statistics (seriously!). The one with Null Commentators?

    @All: Thank you all for a very entertaining week-end.

  203. US treasury weighs in to cyprus debacle calling for a fair solution.
    Someone is getting nervous.

  204. @Ahura Mazda et al.

    Where does this leave the esm bank thingy announced last June? If enda rocks up looking for cash for bank shares, are our deposits in play?

    The Cyprus debacle raise all sorts of questions about how an ESM-owned back would operate. Would you want to put your deposits in an ESM-owned AIB or into BOI? Which option has the greater chance of some of your money disappearing? What would the governing law be for an ESM-owned bank? Would the pre-existing law matter anyway when push came to shove, or would it have the same status as the pre-existing deposit guarantee in Cyprus?

    At this point I’d say an ESM-owned AIB would be a riskier bet than BOI. You can’t be sure of much, except that any critical decisions will be made at 3.00am in a highly charged environment. Anything could happen.

  205. @John Gallagher
    Not so sure. White House spokesman says they are monitoring the situation closely.
    So that little blip in the ocean does matter. I’m sure Obama has more important things to monitor.

  206. @Fiat yanks dont give a flying feck bout rest of world,generally,can it happen here….eh no.
    end.
    Summers has spoken….no one cares link above.
    “The controversy surrounding the decision by the European authorities to bail out Cypriot bank depositors suggests the degree of fragility in Europe. The idea that converting a small portion of deposits into equity claims in an economy with a population of barely more than 1 million could be a source of systemic risk suggests the hair-trigger character of the current situation.”

  207. The Russian deposits in Cyprus are being depicted as illegal for obvious reasons. Reminds me of the story out of Washington about the Iraqi soldiers pulling babies out of incubators and sending the incubators to Iraq. All blatant lies to influence a gullible American public.

    Any Russian oligarch engaging in illegal activity as viewed by the Russian gov’t of the day goes to jail. It would be safe to assume that Russian deposits in Cyprus are legal.

    While it is recognised that Russians are the largest foreign depositors the British are not far behind. This is not surprising given the number of Cypriot owned businesses in Britain. There was a time in London where the only cheap decent meals could be found in Cypriot owned restaurants.

    Cheap and sleazy propaganda dominates as the future of Cyprus hangs in the balance. An opportunity is opening for Putin to get his Eastern Mediterranean aircraft carrier.

  208. MH eile,
    According to C4 news,there is a nice new marina for see yachts in Limasol. I would think the CIA and Mossad know all about it. Expect more noises from DC and from GOP senators. One senses that there will be changes to the offer to the Cypriots. If I was Cypriot govt chief whip, I would be tempted to ensure a one vote defeat.

  209. @Do’D & Biddy
    Sorry for the confusion – shortage of time and attention…

    What I meant was:
    Fair does not necessarily equal smart.

    Searching for a solution based on fair is a bad idea. What you do is search for a smart solution (i.e. one that has a good chance of working) and then try and make it fair.

  210. Reuters reporting a RBS strategist as suggesting spain next in line for a deposit trim……

  211. Jeremy Warner doesn’t mince his words…
    “As it happens, haircutting savers is in fact only the logical endgame in the “internal devaluation” already being imposed on weaker eurozone economies. If countries are already deflating wages and prices to regain competitiveness, it’s but a small step to thinking that national wealth should be similarly subsumed to pay for bad debts. What’s happened to Cyprus should therefore serve as the strongest possible warning to savers in Spain, Ireland, Greece, Portugal and Italy.
    To state this truth is not to invite panic, but merely to point out the likely response. What applies to one must logically apply to others. A precedent has been set, and investors cannot be blamed for acting on it.”

  212. It looks like all bets are off…this is a classic from the president of Cyprus

    According to Mega TV, Anastasiades is reported to have said to Rehn and Brok: “When I warned you that there would not be a parliamentary majority to pass the agreement, you didn’t want to listen. Give my regards to Mrs Merkel.”

  213. @ Brian Lucey

    Reuters reporting a RBS strategist as suggesting spain next in line for a deposit trim……

    Now there’s a group of bastards who ought to have been ‘trimmed’ – with a guillotine!

  214. I have a lot of respect for Willem Buiter when I do not agree with him.

    http://ftalphaville.ft.com/2013/03/18/1427662/buiter-get-in-there-cyprus/?

    Buiter: ‘Get in there, Cyprus!’
    Paul Murphy
    Paul Murphy is the founding editor of FT Alphaville.

    Learn more
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    | Mar 18 16:23 | 21 comments | Share
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    Part of the A CYPRIOT PRECEDENT SERIES
    The Cyprus bail-in is qualified good news, in the eyes of Citi’s chief economist Willem Buiter.

    Sure, it would be better if insured depositors on the island had been spared and it would have been nice if losses of uninsured depositors had reflected the recapitalisation needs of each individual bank. But first and foremost Buiter sees this as a decisive step in restructuring excessive debt across Europe, which is a necessity if the euro area wants to grow again.

    Further restructurings — both OSI and PSI — should now follow, he says.

    What about bank runs? No problem, says Buiter. The ECB can provide substitute funding. A taste (our emphasis):

    In a euro area where any kind of bold initiative is a rare bird indeed, this senior bank creditor bail-in is important because it creates a precedent that we expect to be emulated many times in the next few years, despite the assertions of the troika that Cyprus is unique and the senior unsecured bank creditor bail-in will not be repeated.

    The Cypriot bank creditor bail-in is a net positive for the euro area, first, because it paves the way for more extensive debt restructuring of excessively indebted banks as well as other private sector entities and sovereigns. Such accelerated debt restructuring is necessary for the euro area to return to sustainable growth soon – without risking a lost decade to follow the lost half decade since 2008. Second, the Cyprus depositors bail-in is also good news politically, as it will limit additional bail-out fatigue in EA creditor countries and avoids putting the burden of bailing out investors to an even more unbearable extent on taxpayers and beneficiaries of public spending in debtor countries. Third, the bank creditor bail-in improves the creditworthiness of the Cypriot sovereign compared to the alternative where an additional €5.8bn worth of bank recapitalisation demands were to land on the public sector balance sheet. Other sovereigns in Europe will find their creditworthiness improved (at the same time that banks’ creditworthiness is further impaired) if markets perceive a greater likelihood of unsecured bank creditor bail-ins rather than taxpayer rescues of unsecured bank creditors.

    However, there are also likely some near-term costs. Some of these will stem from investors correcting mistaken beliefs about how far crisis resolution had gone in the euro area. In addition, the approach taken in Cyprus is not ideal, both by applying the same losses to depositors of institutions with different capital needs and by involving insured deposits and also contrasts with previous protestations about protecting depositors. Investors may see a lack of predictability in some aspects of the approach of EA policymakers to resolve the crisis, which may, at the margin, hurt their appetite for investment, until more clarity emerges.

    In our view, more bank debt and sovereign debt restructuring are needed in the EA. To make that process as speedy and orderly as possible, institutional progress is needed. In particular, national and EA/EU-wide special resolution regimes for banks should urgently be implemented, including an EA-wide bank resolution fund. To prepare for the likely future cases of sovereign restructuring, a statutory sovereign debt restructuring mechanism should also be developed. Giving the ESM the option to recapitalise banks directly would also be a welcome ingredient to making the process of restructuring the insolvent parts of the European banking sector more orderly.

  215. @Mickey
    So what Buiter is essentially saying is get your money out of any troubled EZ Bank or country as “restructuring” is coming down the line….and that is a good thing…especially for Citibank.

    JW.

  216. What makes him worth reading is that he has broad international experience in debt restructuring. Most of his experience and background is European (Dutch) with only the last few few years in the jaws of the beast. He is not likely to throw away his hard earned reputation for a few US shekels.

  217. @ Otto

    “beyond the yelping…”

    In 1993, the ‘New Yorker’ published a famous cartoon with a dog sitting in front of a PC, saying to another dog: “On the Internet, nobody knows you’re a dog.”

    From behind your veil, your yelp possibly betrays a sensitivity about losing your own insider privileges.

    Yes the Cyprus situation maybe systemic; the euro and financial world may collapse after surviving much bigger earthquakes.

    However, the targeting of small depositors could still be compared with the lopsided burden sharing in other countries.

  218. “What about bank runs? No problem, says Buiter. The ECB can provide substitute funding. A taste (our emphasis):”

    Much ado about nothing.

  219. Must be a record score. Leading scorers:

    Flatluxjnr 32
    Brian Lucey 25
    DOCM 23
    Gavin Kostick 16
    Tullmacadoo 15
    PR Guy 13
    David O’Donnell 13
    Eureka 12
    Gtfawayloleymoley 11
    Frank Galton 10

    selected others: Michael Hennigan, Mickey (9) BWII (7) (ignoring this, also one disallowed); Bond.E.Bond 0,

  220. Bond. Eoin Bond … 0

    Rumour that the BAU has taken a certain professor to the Bridewell for questioning; Blind Biddy is concerned.

    @all

    The IMF was the leading driver.

    Messing with the 100K guarantee was the major error in EZ context.

    Messing with Putin the major error in geopolitical context.

  221. @yoganmahew

    I’m all for ‘smart’ solutions – considering our own recent economic history we could certainly do with more ‘smart’. ‘Fair’ is rare these days.

    How many PhDs in the Dáil & Seanad? How many with experience of running a sizeable business? How many are capable of writing their own speeches?

  222. Smart solutions?

    “Earlier Cyprus President Nicos Anastasiades told Swedish television that there is an alternative plan that the Nicosia government will follow should the bill be voted down. “We have a Plan B,” he said.

    According to state broadcaster CyBC, the alternative plan concerns the nationalization of social security funds and the creation of a state property company that will offer guarantees to battered sectors of the economy, with the involvement of both the European Union and the Russian government.”

  223. Today’s LINKS from NakedCapitalism

    More Cyprus:

    Report: Anastasiades tells Rehn: ‘I told you tax wouldn’t pass. Regards to Mrs Merkel’ ekathimerini

    How German fears of underwriting Russian oligarchs pushed Cyprus to crisis Christian Science Monitor (furzy mouse)

    Europe’s Reckless Raid on Cyprus’s Savings Bloomberg. Official editorial disapproval

    Deauville Zombie Strikes as Cyprus Tax Inflames Crisis Bloomberg

    The Cyprus bailout fiasco Columbia Journalism Review

    Financial Markets Haven’t Freaked Out over Cyprus (Yet?) Mark Thoma

    Cyprus Crisis: Protestors Take to the Streets Bloomberg

    Cyprus bailout – live Telegraph. Cyprus working on Plan B, which is basically finding another way to get €5.8 billion from depositors. Latest idea is sparing deposits under €20,000. Not going well.

    Read more at http://www.nakedcapitalism.com/2013/03/links-31913.html#QCMu7Hhjwekaqlkb.99

  224. Yves Smith:

    Tuesday, March 19, 2013
    Gaming the Cyprus Negotiations (Updated)

    […]
    even getting a deal still will have a big, negative economic impact in Cyprus. Deposits are certain to flee, so the bank crisis that was hoped to be averted is still a real possibility. After all, it is not clear that Cyprus will be out of the woods with this rescue; many experts expect further restructuings are in the works. Why sit around and let your ox be gored a second time? The Prodigal Greek (hat tip Guardian) notes:

    No matter what today’s outcome, Cyprus’ banking system will not be the same ever again. If Germany’s intention was to reduce the size of it – closer to the eurozone average – they managed to achieve that with a masterful stroke in just one weekend.

    Deposits flight combined with the sale of the Greek operations will probably leave the Cypriot banking system half the size it was on Friday night, even left with one systemic bank after restructuring.

    Cannot see a smooth transition period without some form of capital controls.

    By the time the dust settles, the Cypriot economy will sink and PIMCO’s adverse scenario will materialise. Many people did their best to make this a reality.

    Read more at http://www.nakedcapitalism.com/2013/03/gaming-the-cyprus-negotiations.html#HBulsbswYV46zV2y.99

  225. And DoD

    I wouldn’t be concerned about the PhDs really. How many policies are implemented on the basis of evidence and data ? That is far more important . Imagine a joined up policy for Limerick, for example.

  226. Dr Merkel has a PHD
    Herr Schauble is a Lawyer and an Economist
    M. Hollande has never had a job in his life
    Monti is a professor who could not get himself elected
    Cameron was in Central Office as a researcher

    Have a look at the Chancellories of Europe and you will see that most of them have never “had to make payroll” in their life.

    Prez Obama was a community activist

  227. From DOCM’s link waaay back at St Patrick’s Day 4,21pm

    “Instant collapse for Cyprus if bailout not accepted”

    Interview with Economic/Peace prize winning Christoforos Pissarides.

    Quote:

    “If the law is not approved tomorrow [yesterday] the consequences will be much worse. There will be large scale bankruptcies and most small Cypriot bank depositors will lose everything, because they will discover that their banks will not open again.”

    And this, he stressed, “will not happen in some vague future date; it will happen now, this week. Our economy will collapse”.

    Let’s write off the extra day and see what happens now.

    http://famagusta-gazette.com/instant-collapse-for-cyprus-if-bailout-not-accepted-p18557-69.htm

  228. Der Spiegel

    Broken Levy: Parliament in Cyprus Set to Reject Bailout Plan
    The Cypriot parliament will almost certainly reject the bailout plan calling for a one-time levy on savings accounts in the country. According to media reports, not a single lawmaker is planning to vote in favor of the package. The country’s central bank says capital flight is a risk.

    http://www.spiegel.de/international/europe/cyprus-central-bank-warns-of-capital-flight-a-889740.html

    Anger in Cyprus: ‘They Can’t Just Penalize Us Because of the Banks!’
    By Nicolai Kwasniewski in Nicosia
    Changes are coming to the bailout package for Cyprus, but people in the country are furious nonetheless. A forced levy on savings accounts in the country has enraged depositors and brought protesters onto the streets. Germany is the focus of their anger.

    http://www.spiegel.de/international/europe/anger-in-cyprus-over-euro-crisis-bank-levy-plan-a-889724.html

  229. Breaking news
    Bailout rejected in Cyprus
    36 no 19 abstain

    First country to reject a bailout and the smallest.
    Was it Albert that said..it’s the little things that get you

  230. Sorry, been travelling. No, not to Cyprus.

    All i can say is that this is a clusterfxck of biblical proportions. Not necessarily the basic decision to haircut depositors (the maths on this simply wont work without depositors taking some sort of hit), but the decision to essentially invalidate the deposit protection scheme, the decision to not even try and bail in bondholders (maybe that happens further on down the line), and the complete washing of hands from all parties involved smacks of a political decision implemented by the Germans trying to make a very expensive point about periphery banking systems. Its crass and dangerous, and suggests solidarity for the euro project has suffered a new potentially fatal blow. This isnt to say i expect any major market blow up or Euro implosion in the short term (they’ll figure this out eventually), but the unintended consequences of what’s taken place this week, and the vindicative nature that appears to be behind some of the political moves, suggets long term problems will fester and get progressively worse rather than better.

  231. @ GK

    I am not extrapolating from this particular instance but from my own observation of the contributions of various laureates over a considerable period.

  232. Ernie,
    Hi there again, we missed your input. Sadly the evidence this week invalidates your first proposition. Your second on about Olympians is spot on.

    Are our academics smarter?

    Making payroll is kind of important. It requires organisational ability to run a business or a not for profit. Moreover, the taxes paid generate the funds to run vital public services and the teaching of Marxist pol sci for 10 hours per week to ex Mount Anville girls in first orts.

  233. @bond spin bond
    Welcome back. I see the boss of the IFF has also called it something similar.
    The finance minister of Cyprus appears to have been fired even before he get back from Moscow. And our MEP has called for Ollie’s resignation.
    Such a monumental c**kup deserves heads to roll. The newly appointed Dutch guy springs to mind.

    The plan B of the Cypriots seems off the walls. Will the Troika back down?

  234. @Tull

    Making payroll may well be important. The ability to do it betokens nothing in particular about the intelligence of the person with the ability. As I say: a moron can do it.

    There was a time, around the time when I immigrated to your country, when Ireland’s universities had every chance of attracting smarter academics (mostly from elsewhere, needless to say). Thanks, alas, to the inability of Ireland’s private-sector boffins to “make payroll”–whether through corruption, stupidity, or both–that time has now passed and the flow is going the other way.

  235. @Fiatluxjnr

    worth noting that ZERO voted ‘yes’.

    @BEB

    Biddy was very concerned!

    Rumour that a certain professor has been released from the Bridewell without charge!

  236. Tut Tut Tull

    ‘…the teaching of Marxist pol sci for 10 hours per week to ex Mount Anville girls in first orts.

    Oh dear. Had some bad experiences with the Mount Anville gurls? Must have been your famous pink bellbottoms and true blue hoodie wot done it. Methinks a public apology to the Mount Anville Gurls is in order; Biddy has tipped off the Reverend Mother ….

  237. @ Tull: “…the teaching of Marxist pol sci for 10 hours per week to ex Mount Anville girls in first orts.”

    Jesus Tull! Its not bad – surely! They do teach a bit of Karl on POL10020 – but its harmless; homogenized, sterilized pap. They also mention Hobbs; (bee in his bonnet poor chap). And the not so harmless Mr Locke.

  238. As games of (political) brinkmanship go…. this is all getting very interesting. One would imagine that with all the real power and threats lined up on the Troika’s side, Cyprus will have to blink first. But what if the Russians have promised them a cast iron backstop?

  239. Ernie,
    We are honoured to still have you and grateful that you chose to stay to ply your trade for such low pay.

  240. It’s lose lose from here on out.
    Scenario 1: The ECB provide liquidity and there’s a bank run to beat all bank runs. The Germans get very p***ed off and make sure the next PIG will pay (…another bank run)
    2: The ECZ don’t provide the liquidity Cyprus folds – the Germans have an example to frighten the other PIGs with but the bank runs happen much the same.

    I think the short term risks are higher than people think. By the end of May a lot could have changed

  241. I suppose the EU could always do what they do with Ireland…. keep making Cyprus vote again until they get it ‘right’

  242. Panicos Onisiphorou Demetriades (Greek: Πανίκος Ο. Δημητριάδης; born 19 January 1959) is a Cypriot economist , who is a European Central Bank Governing Council member and the Governor of the Central Bank of Cyprus from 3 May 2012. Prior to his appointment, he was a Professor of Financial Economics at the University of Leicester (hat tip Wiki).

    Panicos?

    You couldn’t make it up.

  243. @Bond Eoin Bond.
    Apologies. The iPad changed your name. Darn thing.

    @Brian Woods 11.
    He is intoxicated with exuberance ….probably as a result of all the shamrocks blown up his posterior today in the White House. I would expect him to come back to earth within days and sort out the darn Cypriots. How dare them reject his carefully crafted plan to rescue the euro zone.

  244. @Bond. Eoin Bond

    Not necessarily the basic decision to haircut depositors….

    Your paragraph captures more or less everything else in the thread – you could have saved us 300 posts.

    Given the unsettling trajectory of Deutsche-bloc politics under the centre-right I think the vindictive, self serving and crass nature of their suggested solutions to the problems of the unter-nations of the Eurozone was eventually going to become too blatant to ignore, even for Europhiles. It could however have been part of a bad humored dialogue and either a synthesis or a truce might have emerged.

    However the inability of the ECB (and the increasingly discredited European Commission) to fairly mediate between the interests of the creditors and debtors in the EU is what has allowed EMU to reach the state it is in now. If the ECB, the Commissioner for Economic and Monetary Affairs and DG ECFIN had not been essentially sympathetic to (and often lobbying for) the German position then perhaps there could have been a mutually agreeable solution to the failings of EMU.

    It has been a perfect shxtstorm.

  245. @BEB

    “..but the decision to essentially invalidate the deposit protection scheme, the decision to not even try and bail in bondholders (maybe that happens further on down the line), and the complete washing of hands from all parties involved smacks of a political decision implemented by the Germans trying to make a very expensive point about periphery banking systems…”

    Eh, terribly sorry to rein on your parade BEB but I do recall many times on this site suggesting that this is exactly what should have happened in the context of Ireland and its relationship with the seniors in bust Irish banks i.e. letting them share the pain of their dire investment decisions. I do recall and nearly every time this was suggested you voicing your opinion to the contrary. Tell me what’s so dufferent about burning seniors in Cyprus but proectecting them in Irish banks?

  246. @ YoB

    “Tell me what’s so dufferent about burning seniors in Cyprus but proectecting them in Irish banks?”

    Cos we’ve decided to burn depositors in Cyprus instead. Fairly certain i never suggested that in the case of any of Ireland’s banks. What i said was that if u burn one type of senior creditor, you have to burn the other too, but i didn’t think it was a good idea to burn any senior creditor at all. Its not exactly rocket science or a radical suggestion.

    by the way – burning Icelandic bank depositors = smart plan, but burning Cypriot depositors is the worst idea in history? Is that the basic outlook from Iceland-fans on here?

  247. @BEB

    Actually fairly certain, in fact absolutely positive, the idea of burning bondholders of any ilk in the Irish context was always a step too far for your goodself. The rationale for burning deposit holders in Cyprus is because they happen to represent the lions share of the funders to the Cypriot banks, which is very different. This was not the case in Ireland and yet we decided not to go this road. This was a drastic error. As a blue blooded capitalist it simply doesn’t compute that those who financed dire business models by way of sophisticated bond instuments in many instances walk away unscathed. The consequences of not allowing the normal loss absorbing capital instruments to to their job has haunted this economy for the past 5 years and will continue to do so for the next 5, at the very minimum.

  248. @ YOB

    You just can’t help politicising the narrative. I can vouch that BEB, like me, always argued the pari passu nature of the bondholder/depositor obligations. In my case it has nothing to do with protecting German and British bondholders at all costs. I will let BEB speak for himself.

    What the Cyprus affair underpins is that we have been absolutely correct. It is very difficult to burn bondholders ahead of depositors. This is for various reasons e.g. the nature of their legal contract which might be under some other jurisdiction. We see that it is possible “legally” to burn depositors rather than bondholders, though I hasten to add I do not think it was a smart move.

    You keep making the mistake that capitalism should have been let had its way. That means letting the bank go bust. It does not mean letting evil speculative bondholders bear losses whilst depositors are protected.

    We have been here before but the decision in every case and again here in Cyprus was not to let a systemic bank go bust. From that the pari passu as well as international law inevitably protects senior bondholders.

  249. @ YoB

    “Actually fairly certain, in fact absolutely positive, the idea of burning bondholders of any ilk in the Irish context was always a step too far for your goodself.”

    As BWII has suggested, I urged protecting senior creditors of all categories, whether depo or bondholder. The fact is that any argument in favour of burning depositors rarely came up (from anyone), but the likes of myself and BWII warned that imposing losses on senior debt was in fact likely to lead to potential losses for depositors as well. So you could justifiably argue that the people supporting senior debt haircuts were in fact risking the very outcome that has come to pass in Cyprus (ie depo losses), and that what i and others werewas proposing has ultimately helped safeguard these deposits!

    So i’m not sure what your point is? If its “why are you willing to impose losses on senior creditors now and not then”, well then my answer is this:

    1. I think they should try and avoid losses on senior creditors of any ilk if at all possible in Cyprus, although u could also argue that an awful lot has changed in the last five years and senior creditors can no longer claim they didnt see it coming or were not aware of the notion of “bail ins”

    2. But with the bailout cost for Cyprus = 100% of GDP, the maths simply will not allow for senior creditors to get away without losses, given that Germany is under no circumstances willing to grant Cyprus’ foreign depositors any easy exit route via a fiscal transfer. The comparable cost for Ireland was 40% of GDP, but which was arrived at over a period of 2-3 years, rather than a one weekend big bang like we saw last week.

    3. Further, the structure of Cyprus’ banking system liabilities is inherently different, from Ireland’s 2008 vintage, it being largely funded by foreign deposits of a questionable and dubious origin. From a practical point of view, given how sticky this money has been in recent months, it would appear some of these depositors would actually be willing to take a one off levy of 10%, if it somehow helped to “launder” the money or mean that they don’t have to transfer it back to the loving arms of Mother Russia.

    So, in summary, i’m not arguing in favour of deposit holders taking the losses, but simply suggesting that it was strange and ill considered, to put it mildly, to not seek to take out senior creditors at the same time too. It is also strange to essentially invalidate the DPS for those under 100k, given the dangers of contagion and bank runs etc across other parts of Europe, as well as a potential collapse of the Cypriot banking system it would cause. The decision seems designed to destroy the Cypriot banking system, and serve as a lesson to oversized banking systems elsewhere in the periphery, and to let the market know that there will be creditor costs for involvement in these banking systems if they get into trouble in the future.

    While there has been suggestions that Ireland was unlucky to be the first banking system to go bust, and so have no “road map” in terms of how to share the burden, i’d argue that the Cypriot experience in fact shows the benefits of being the first to take the hit, when there was far more willingness to take a calm and considered approach to dealing with a failed banking system, rather than the impatient and frustrated attitude we have seen this week. If Anglo had gotten into trouble in 2013 rather than 2008, then maybe the Irish banking system would be facing a collapse right now rather than being given the time to at least stabilise itself. There is no suggestion from the Cypriot experience that somehow the burden of paying for Anglo’s losses would somehow not have arrived at the average Irish person’s door, although it might have arrived via a different route now vs then.

  250. One thing that may or may not be an issue is how the owners of ‘naughty’ money would react if they were to lose a lot. Mafia-types tend to (at least in the movies…) take accountability to another level and personal assurances that their money would be safe might possibly be enforced in unpleasant ways.

    Each parliamentarian in Cyprus is now facing the choice: Anger thousands of compatriots or anger one (or more) mafia-don(s)?

    That being said (conspiracy theories are entertaining), the handling of the situation has been strangely bad and in line with central planners preferred modus operandi.

    ECB is said to be returning profits made on its bond-buying of Greek bonds to Greece, the ECB preferred creditor status in that scenario cost cypriotic banks some money and that cost is now being paid by?

  251. Its an omnishambles. I wouldnt blame the cypriots for walking out of the EU, hangin up a shingle saying “dictators? Money laundered here”, flogging bays to the chinese and the russians and maybe the north koreans, and basically pulling the house down.
    And we , via our government “welcomed” this. What a bunch of idiots.

  252. Does anyone have any insights into how an economic/banking collapse in Cyprus would impact things in Greece? I know that Cyprus accounts for c. 7% of Greek exports but that’s about all I know. I presume there’s some potentially catostrophic link between the two of them if it all goes belly up in Cyprus?

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