The Special Case of Cyprus

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.

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.

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

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

The view from Cyprus

‘Savers forced to bear costs in Cyprus bailout’

http://www.cyprus-mail.com/bailout/savers-forced-bear-costs-cyprus-bailout/20130316

Worth a look at the comments at the bottom.

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 …..

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.

Note also they have to raise the corporate tax to irish level. It’s a festivus miracle!

I assume the e20,000 Deposit Guarantee Scheme doesn’t kick in because the banks aren’t actually being wound up. Is that right?

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

@ 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).

@ 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.

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

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?

@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.

@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/

@Grumpy
Ollie is calling it a stability tax…..wonder if little old Ireland will introduce one shortly…..
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_16/03/2013_488173

This guy is looking more and more sensible:
http://www.independent.ie/irish-news/hospital-staff-shocked-by-patient-who-had-60000-strapped-to-body-26727808.html

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.

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

“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…

@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.

“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

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?

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.

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.

One UK perspective that could have momentum — it’s an attack on the Single Market.

http://sharonbowles.org.uk/en/article/2013/671744/the-cyprus-bailout-deal-is-a-disaster-for-eu-rules-and-single-market-principles-bowles

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.

@ All

Off topic but still relevant as an indicator of the relevant strengths of the parties involved.

http://www.guardian.co.uk/world/2013/mar/15/plan-arm-syrian-rebels-eu

“Off topic but……”

I certainly agree!

I don’t think anyone over the age of 17 thinks that

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.

@ 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.

..although I guess you can’t have degrees of truth..so it seems true, without the very

So no link to that research?

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

@ 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’.

@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

@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.

@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)

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.

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.

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.

LT_123 has to be destroyed are we are done. WWIII.

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.

It’s not clear the thing can pass — vote is later today

http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus-idUSBRE92E02220130317

For the day that’s in it……

Euro Finance Ministers Grant Ireland, Portugal Eased Debt Terms
http://mobile.bloomberg.com/news/2013-03-16/euro-finance-ministers-grant-ireland-portugal-eased-debt-terms.html

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.

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

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

Fat Lady declines to appear. May return later in the day.
http://www.cnbc.com/id/100560801?utm_source=twitterfeed&utm_medium=twitter
No vote today . Guess some more pressure has to be put on those waverers. Imagine if this happened here ? With our whipped baa baas of baaa baaackbenchers the vote would be a foregone conclusion.

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.

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…..

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

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.

@ 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?

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

It will pass – but is another major major crack in European policy

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?

@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

@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.

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

@ 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.

Now the Cypriots have declared Tuesday a bank holiday. Seems they are expecting a massive run on deposits.
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_17/03/2013_488273

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.

@ 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.

@ All

FYI

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

Docm
Instant collapse if banks suffer massive run…

He has a Nobel Peace prize don’t you know.

Apparently it was all predetermined by Thursday when eu officials contacted the Attorney General and the Central bank of Cyprus….
http://www.cyprus-mail.com/bailout/money-will-be-cut-accounts-tuesday-morning/20130317

Are the banks going belly up on Wednesday in Cyprus?

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.

Well worth a read.

‘Cyprus depositors’ fate sealed in Berlin’

http://www.ft.com/intl/cms/s/0/f890566a-8f24-11e2-a39b-00144feabdc0.html#axzz2NpPNaC00

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?

@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

@ Flj

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..

and our banks have just lost their guarantee. Timing could not be better..!

Well done Europe.

@ Eureka

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

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

@DOCM
Strengthen the hand of the Cypriots to do what?

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.

@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.

@ 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.

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.

@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.

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.

@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” ??

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.

Cyprus could vote tomorrow to leave the euro…
http://blogs.telegraph.co.uk/finance/matspersson/100023412/tomorrow-cyprus-could-vote-to-leave-the-euro-this-is-political-dynamite/

@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.

@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.

@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?

@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.

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

@ 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.

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.

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.”

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.

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.

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

@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

@ 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.

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.

oh and DOCM
Thats “duairt bean liom gur duairt bean lei” as we say. (http://www.faz.net/aktuell/wirtschaft/europas-schuldenkrise/notenbankbericht-daten-ueber-reichtum-erst-nach-zypern-rettung-12110625.html)
It will be very interesting to see the data, on which coauthors of mine are going to attend a conference in Dol Guldur this week…

@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.

@ 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.

@Carolus Galviensis

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

@ 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?

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

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.”

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

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 …..

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…

Sonderfall Zypern . Special case Cyprus

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

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?

“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 …

John Corcoran what possible relevance has that for this thread?

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.

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…

@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.

@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.

A long thread, just like back in 2010. The Euro crisis- it just gives and gives

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

@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.

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

“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.

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.

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

‘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

@Seafoid
They also filled up the ATMs…withdrawal limit?
http://www.cyprus-mail.com/cyprus/atms-working-normally-says-central-bank/20130318

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…

@PF: Thanks for that reference. I’ll follow it up.

@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!

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.

@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.

Cypriot banks closed all week !

@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.

The British government freezes pension payments to their Cypriot residents and advises them to switch accounts online.
http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_18/03/2013_488425

@Fiat no one is getting ‘nervous’ over the pond,for fecks sake most people cant find ‘cypress’ on a map ..is it a band or wha
Larry’s take…”cypress” thats like part of Greece or no…ah ruskie hot money roight then back work-no one cares in NY no one !!
http://www.washingtonpost.com/opinions/europes-work-is-far-from-over/2013/03/17/d2e85d8a-8da4-11e2-9f54-f3fdd70acad2_story.html

@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.”

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.

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

@BL a little bit dramatic no…it’s still under negotiation….it’s not a big deal in NY or DC- it’s not done yet….lender last resort and all that…possibly below 100 exempt.
http://m.youtube.com/#/watch?v=ifKm5S4rZf4&desktop_uri=%2Fwatch%3Fv%3DifKm5S4rZf4

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.”

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.

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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.

@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.

@ 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.

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

Much ado about nothing.

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.

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.”

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

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.

Cyprus debate on bailout terms underway:

Guardian reporting:

“Cypriot government MPs expected to abstain

“It appears certain that the Cyprus parliament will reject the bailout package as it stands.”

http://www.guardian.co.uk/business/2013/mar/19/eurozone-crisis-cyprus-bailout-government-vote

Obsessives can read a twitter stream here:

https://twitter.com/EfiEfthimiou

Other EU govs do have smarter ministers. They also do better than Ireland in the Olympics and for the same reason.

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

@ GK

He is singing from a different hymn sheet now. Economic “Nobel” laureates have talents for many things but politics is not one of them.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_19/03/2013_488633

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

Watch the troika back down….

@ GK

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

@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?

@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!

@ 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.

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

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

Not everybody thinks this was a mistake. Our own TeaShock said it was a great idea.

@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.

@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.

@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?

@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.

@ 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.

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.