Nicolas Véron on Cyprus Post author By Kevin O’Rourke Post date March 22, 2013 This piece by Nicolas Véron is well worth a read, even though it was posted yesterday and the situation is fast-moving. Categories In Banking Crisis, EMU 92 Comments on Nicolas Véron on Cyprus ← Spring 2013 Brookings Panel on Economic Activity → IMF Completes Ninth Review Under the Extended Fund Facility with Ireland and Approves €0.97 Billion Disbursement 92 replies on “Nicolas Véron on Cyprus” The Saturday-morning decision-making process leaves an impression of incompetence and groupthink, in which all participating actors including all Eurozone finance ministers, the European Commission, ECB, and IMF are tainted. Leaves an impression?! It’s proof positive that our so called European decision makers couldn’t run a sweet shop. I extend this to their legions of well-payed, equally useless advisers. It’s like the world is being run by a gaggle of teenagers, deciding on appropriate hazing rituals for misbehaving peers. There were no adults in the room on that Saturday night. So the only question you need ask yourself is this: What chance is there, that such a group of immature, impetuous minds can ever cope with a systemic financial crisis? Enough chance to trust your savings to their prudent care? The euro is dead. From this point onwards, only its inertia is keeping it in motion. Considering that Ireland has as large banking problems as Cyprus and we are also a small peripheral and insignificant island nation, the events of last week should have us all worried. The Germans replaced blitzkrieg with mercantilism as a means of destroying Europe (yet again). @ OMF: “There were no adults in the room on that Saturday night.” There were actually, they just had a particular agenda (mindset) and they did what they KNEW, with God-like certainty, that what they were doing was the RIGHT thing – even if it did eventuate a ‘bad’ outcome. They will rationalize the outcome along the lines that – “These people (the refuseniks) do not know what they are dealing with!” “They do not understand what is for their own good!”. Or some such similar guff. The inverse is that they KNEW they were doing the WRONG thing. That would simply confirm that they psychologically disturbed and were completely incompetent. Now, come on, that CANNOT be true – could it? 😎 @ EIS: “… the events of last week should have us all worried.” I believe so. From now on, better sleep with one eye open. fyi NakedCapitalism on Cyprus today: Sarkozy placed under investigation BBC Krugman’s Bad Math on Cyprus While Cyprus Sinks, France and Slovenia Start to Founder More Cyprus: ‘Euro is a house of cards waiting to topple’- Nigel Farage RT Central Bank says to keep 2nd largest lender in business Cyprus Mail. Handelsblatt described the scene outside Parliament as crazy. Lots of opposition to the Laiki resolution plan. Cyprus overhauls two biggest banks to stave off collapse Telegraph Walking back from Cyprus VoxEU (Jane R). Lotta people flogging this idea. It’s not on the table and extremely unlikely to get on the table http://www.nakedcapitalism.com/2013/03/links-32213.html Troika now saying they/Cyprus/Kaiser Zoze/ Batman needs 900m more. Just when the cyrpiots were close to a deal. Methinks someone wants Cyrpus to fail out now… Mohamed El-Erian http://www.linkedin.com/today/post/article/20130322134158-204274949-don-t-forget-the-geopolitics-of-cyprus It’s a point not registering with the North European Creditors “The fact that the hit on small depositors was allegedly suggested by Mr Anastasiades does not justify its acceptance by the European negotiators. After all, in November 2010 the Troika refused proposals by the Irish authorities to “burn” the holders of senior unsecured debt in failed banks, in order to prevent damaging contagion in the rest of Europe (or so the thinking was). The rationale for the Troika to refuse hitting small depositors in Cyprus was more straightforward than the one for protecting senior bank bondholders in the Irish case. The Troika could and should have acted accordingly. ” Véron +1 A ‘crisis of stupidity’ within the Troika. The fact that Plan B will not hit deposits <100K does nothing to change this – the damage to depositor confidence in the EZ is done and more capital flows [2/3 trilliion at mo] to Germany and France from the ‘little people’ is certain. The other major error was to ignore the ‘Russian Relation’ with apparently zero communication. The minor error on the myth of ‘paddy pursued’ was to leave snr bonds untouched. result: cypriot economy ruined A CRISIS OF STUPIDITY & FLAWED IDEOLOGY @DOD Mrs Merkel confirmed what you say when she, helpfully, told the German Parliament that the Cypriot Model is Dead. John Waters is not so far off the mark in his Irish Times article today. Meanwhile Slovenia says it won’t need a bailout…now where did I hear that before? Some of the Northern European countries have for decades had the habit of considering how the Russians would react before doing anything. It is said that old habits die hard. It could be that they’ve not bothered to consider how the Russians would react, it could also be that they did consider it and still decided to go ahead. What is the worst that could happen if the Russians decided to give Cyprus 6bn EUR? Russia getting control over another gas-field? Getting a isolated completely surrounded unsupportable military base? The prestige of paying 6bn EUR? There were actually, they just had a particular agenda (mindset) and they did what they KNEW, with God-like certainty, that what they were doing was the RIGHT thing – even if it did eventuate a ‘bad’ outcome. They will rationalize the outcome along the lines that – “These people (the refuseniks) do not know what they are dealing with!” “They do not understand what is for their own good!”. Or some such similar guff. This isn’t a description of the behaviour of responsible adults. It’s the behaviour of people who should be treated as some special class of minor. Unfortunately, this behaviour describes the boards and management of a great swathe of the public and private sector in Ireland and abroad. We need maturity checks on persons in power. Failing that, they should be forced to keep note, minutes of meetings, have written agendas, and other such records — though I know I’m asking a lot with that one. @David O’Donnell Ta. Flagging superb links is one of the best features of this blog. Again: http://www.nakedcapitalism.com/2013/03/links-32213.html ******* For the fortunate, German-reading majority of TIE bloggers and commenters: http://www.faz.net/aktuell/politik/europaeische-union/schuldenkrise-ein-wochenende-12124601.html Worth reading for the thought-provoking title alone: Den Zyprern bleibt nicht mehr viel Zeit, den Unterschied zwischen zehn und hundert Prozent zu verstehen. The caption in English for the small, non-German reading, much-suffering minority here: Cypriots do not have much time left to realise the difference between ten percent and one hundred percent. Jawohl. Nice and nasty. Iron Chancellor Returns: Merkel Can’t Contain Anger over Cyprus By Severin Weiland and Philipp Wittrock Angela Merkel is known for her measured approach to even the most controversial issues. The crisis in Cyprus, however, has enraged the German chancellor. In parliamentary meetings on Friday morning, she did little to disguise her fury — though she shoulders some of the blame herself. http://www.spiegel.de/international/germany/chancellor-merkel-angry-with-cyprus-as-euro-crisis-intensifies-a-890453.html Search for a Solution: Troika Reportedly Rejects ‘Plan B’ in Cyprus Greek media outlets reported early Friday afternoon that an alternative bailout package proposed by Cyprus has been rejected by the troika. “The coming hours will determine the country’s future,” a government spokesman in Nicosia said. http://www.spiegel.de/international/europe/troika-rejects-plan-in-cyprus-to-tap-pension-funds-a-890394.html Cypriots now getting really hot and bothered with ‘the Germans’: Zwischenfall auf Zypern: Randalierer reißen Fahnen vom Bundeswehrcamp (EN: Incident in Cyprus: rioters tear down flags from Bundeswehr camp) http://www.spiegel.de/politik/ausland/randalierer-reissen-fahnen-vom-bundeswehrcamp-auf-zypern-a-890492.html Why is a bundeswher camp in Cyprus at all..? On capital controls..I think I’ve gotten the answer to the question I pose here a few times from the Telegraph. “17.52 Jeremy Warner, assistant editor at The Telegraph, has blogged on the Cyprus situation. He argues that if capital controls are introduced in Cyprus, it is the end of the single currency in all but name: The point is that if capital controls are introduced, it basically makes Cypriot euros into a national currency, rather than part of wider monetary union. The capital controls will severely limit your ability to get your euros out of Cyprus, rending them essentially worthless in the wider eurozone. It would be a bit like telling Scots they can’t spend their UK pounds in England. Monetary union is many things, but above all it is about free movement of money and a uniform value wherever it is spent. When these functions are disabled, then you cease to be part of a single currency.” What next? Cyprus: The Russian saviour is taking his time 22 March 2013 Nezavissimaïa Gazeta Moscow Russia, despite owning a large chunk of the cash deposited in the island’s banks, is resisting the increasingly desperate pleas for aid from the Cypriot government. Instead of rushing in, the Great Bear is sitting back and awaiting the Europeans’ next move. Excerpts. http://www.presseurop.eu/en/content/article/3578121-russian-saviour-taking-his-time The Big Bear stood back in Warsaw and watched. They never did like plucky natives. Plus la change… “Azerbaijan and Turkey to start gas pipeline Azerbaijan and Turkey plan to start work this year on a gas pipeline that would form the first leg of a new supply route that Europe hopes will reduce its dependence on Russian energy. The ambitious $7bn pipeline across the length of Turkey will be finished by 2017, said Natiq Aliyev, energy minister of gas-rich Azerbaijan.” http://www.ft.com/intl/cms/s/0/9ca8dbc2-0187-11e2-81ba-00144feabdc0.html When can Cyprus start supplying gas? http://brianmlucey.wordpress.com/2013/03/22/capital-controls-in-europe-past-present-and/ Capital Controls…some union. Paul W, Cyprus is at the cross roads of a bad neighbourhood and it seems strange that it would be let move from the NATO orbit to the Russian orbit. This far neither the US, NATO,, Israel seem to care. Very strange. Somebody pointed out to me today that Ireland was leaned on not to burn Bondholders as the Germans were the principal owners while the Cypriots were leaned on to burn 100k plus deposits cos there was no money involved. I respectfully suggest Goodwins Law be repealed. Tull Goodwins Law gets streeeeeetccccheeeed in the Zamminer/blog tomorrow….:) I’ve read a lot about how the Cypriot model is irresponsible just like other countries in the EU were irresponsible. Hearing how the entire orthodoxy regards the bailed out countries as delinquent doesnt it just show how irresponsible the group think was that even created the circumstances. If half the EZ was incapable of being involved in a monetary union why in god’s name did the establishment groups pressure for it. Yeah but hey its Cyprus’ fault and not the people who wanted an EZ no matter what. Wow Its simple German Model = Responsible. Others = Irresponsible. simples.com We’re going to cover this on my show tomorrow on Newstalk. There are SO many implications from this week’s events I’m not sure how much ground we’ll cover but we’ll make a stab at it anyway. I did ask Karl to come on but Claire Byrne got their first. [bites knuckle/stifles sob]. But you can listen to him at 1. I’m for the breakfast brigade… I’ll read your article Brian! got THERE first. sigh. @ Sarah Carey You might find this of interest. http://ec.europa.eu/internal_market/capital/third-countries/treaty_provisions/index_en.htm @wow Wow writes: Yeah but hey its Cyprus’ fault and not the people who wanted an EZ no matter what. Nail. Hit. Head. Brillo ooooh nice one! tx. BL, I think the appropriate phrase is “untermenschen”. That said, the Cypriot banks made a tactical error in 2011, if they had hit the SMP bid things would have been different. simples.com seems to have crashed! I’m getting notjing from the link if we have a EU Special Action Group sent to Cyprus Tull, im buying beans and a bank in the bog.. RF simples.com redirects to ECB.int now. well not sure how clever the German model is. They have created a society where having kids is utterly disregarded. The Germans are so clever that soon there wont be any Germans. When you look at it like that its simples.com that the Germans were/are idiots, rich, but idiots. If thats responsible then irresponsible seems to make more sense 😉 Night all. See the Greeks were expecting a bank run on Tuesday so they bought the cypriot branches in Greece for a euro. Pity they had to lob 1.5 billion into them to make them solvent. I thought they had no money. http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_22/03/2013_489494 @Brian Lucey re: ‘capital controls past and present’. Yes! Carolus recommends this posting … photo of the year … worth a million words! Honest. Here it is again: http://brianmlucey.wordpress.com/2013/03/22/capital-controls-in-europe-past-present-and/ I guess it’s clear to Irish people but what are we looking at in that photo? @Tull Mcadoo I think the appropriate phrase is “untermenschen”. Bad boy. Here we go again. Untermensch voelkisch Gauleiter Lebensraum Gleichschaltung Endsieg etc. etc. Day in, day out, reductio ad Hitlerum: http://en.wikipedia.org/wiki/Reductio_ad_Hitlerum CG, You don’t even have to go there to compare the behaviour of the Germans with the Nazis. An unfair comp IMHO. It is much more accurate to invoke earlier comparisons- the invasion of Belgium in 1914 or the Franco- Prussian war of 1870. As Thomas Mann said if asked to choose between honour and order, Germany will always choose…. @Wow [The Germans] have created a society where having kids is utterly disregarded. The Germans are so clever that soon there wont be any Germans. Ekshelly that statement is true not only of Germans but also of Italians, Greeks, Spaniards, francais de souche, Danes, the Dutch, Czechs, Poles, Lithuanians — indeed it applies to all EC countries with the exception of the island of esses and esses. Oswald Spengler has some good stuff on this: “Children do not happen, not because children have become impossible, but principally because intelligence at the peak of intensity can no longer find any reason for their existence … now emerges the Ibsen woman, the comrade, the heroine of a whole megalopolitan literature from Northern drama to Parisian novel. Instead of children, she has soul-conflicts; marriage is a craft-art for the achievement of ‘mutual understanding’. It is all the same whether the case against children is the American lady’s who would not miss a season for anything, or the Parisienne’s who fears that her lover would leave her, or an Ibsen heroine’s who belongs to herself – they all belong to themselves and they are all unfruitful.” (Decline of the West — one of the few readable passages) “what are we looking at in that photo?” I thought it was a rationing book from the war, and a not so subtle dig at the Germans..otherwise I dont have a clue..glad I could be of help! Jesus you’d swear this was the hangout for WW2 vets @Tull It is much more accurate to invoke earlier comparisons- the invasion of Belgium in 1914 or the Franco- Prussian war of 1870. Oh dear, let’s just read the 101254 history books, articles, op-eds, essays and pamphlets on who started it, and we can come back and discuss the blame game again in the year 2346. Alas! In vain historians pry and probe: The same wind blows, and in the same live robe Truth bends her head to fingers curved cupwise; And with a woman’s smile and a child’s care Examines something she is holding there Concealed by her own shoulder from our eyes. (from the immortal Vladimir Nabokov’s The Gift http://www.rulit.net/books/the-gift-read-273781-59.html @Carolus Galviensis If most of Europe is now undergoing a demographic decline, bar ourselves and the Scandinavians then isnt it time to do something about it. Maybe you know create socieites that are child friendly and focussed. Course on one side thats opposed because that lunatic Hitler wanted lots of kids so its a reduction ad hitlerum and for the other side its just too damn costly to try to encourage Europeans to have kids. This is not the Europe we envisaged is it but then we didnt envisage it we just got told what was in our best interest. But the world’s overpopulated as is, wow @Wow If most of Europe is now undergoing a demographic decline, bar ourselves and the Scandinavians then isn’t it time to do something about it? Sorry to be a fact-checking bitch but even Oirland’s fertility rate at 2.07 is below the replacement rate of 2.10 and Sweden’s is an estimated 1.90 for 2011. Ditto for the other Scandanvian countries. AFAIK these figures include non-aboriginals and are based on citizenship with no breakdown by ethnic origin — predictably TPTB don’t want to ‘frighten the horses’ or provide ‘ammunition’ to the anti-immigration advocates. As to creating a ‘child-friendly’ society and promoting a replacement-level birth rate, I’m a total futilitarian. Recreational sex has been replacing procreational sex ever since Mellors made the earth move for Lady Chatterley and gave her a night to remember: “We came ‘arf together tha’ time,’ he said, their juices comingling. … [omit smutty paragraph, I don’t want to make you guys and gal blush] … “I love you, Mellors,” she whispered. “You complete me.” Or even ever since H.G. Wells gave Rebecca West the legover. Or since the Vatican approved the Ogino-Knauss birth control method. I could go on and on here but the single malt beckons. Nice fun-loving soft-spoken European people like us are done for. Spoilt rotten. The book to read is: Shall the Religious Inherit the Earth?: Demography and Politics in the Twenty-First Century (Answer: they shall) http://www.amazon.co.uk/Shall-Religious-Inherit-Earth-Twenty-First/dp/1846681448 To wind up the night, a bit of self-promotion here: http://www.ft.com/intl/cms/s/1/6827547a-430b-11d9-bea1-00000e2511c8.html#axzz2OJcmp59h re: my self-promotion Oops, those besterds at the FT have put it behind a paywall. November 30, 2004 9:20 pm Brussels’ lonely hearts club “Do you enjoy your work? Are you proud to be helping build a better world?” The European Commission is asking its staff. If so, according to Commission en Direct, the body’s house organ, you could appear in a promotional video showcasing the beauty of the European Union. “We want to show that the ‘faceless bureaucrats’ are real people with faces, personalities, skills and useful jobs,” says the paper. They are indeed. Take Charles Copeland, a translator whose prose graces the paper’s letters page. Here is a man with an eye-catching idea: an EU-wide referendum on polygamy. Copeland sees it as the answer to another reader’s proposal to set up a singles club among the staff of EU institutions. Given that there are more single women than men “a singles group would largely consist of unmarried and divorced females pushing 40 and 50, with the occasional predatory, sociopathic or gold-digging male”. All the alpha males are already married, or seeking a Russian internet bride. After all, as he says, citing the Stuckist anti-art artist Charles Thomson: “A single woman is never more than six inches from the nearest rat.” While polygamy is the answer “females in western societies are incredibly and incurably self-centred when it comes to sharing their partners with other, less fortunate women” he muses. So a referendum is necessary, which will be won once the majority of Europeans are Muslims. Editor Denis Mc Gowan says Copeland’s views have generated a huge postbag. Though most took the letter as a spoof, he was right about one thing: of those wanting to join a singles club, 90 per cent were women. Gute Nacht. The British gov’t is flying a team of bank restructuring specialists to Nicosia. Headed by Tom Scholar, Second Permanent Secretary to the Treasury. I assume the Cypriot gov’t asked for assistance after the roughing up their Finance Minister got at his last Eurogroup meeting. Clearly they expect difficulties with their offer of 15% levy over $100,000 and nationalisation of pensions plus Greek Orthodox Church funds. Russia is holding back since any Russian offer would be rendered void when it would be subtracted from the Eurogroup offer. This could end with Cyprus in the EZ after some whimpering over the next couple of weeks. I admire how they brought in experienced restructuring specialists, actual hands on people. No fools dem Cypriots. http://www.cyprus-mail.com/opinions/has-eu-now-finally-opened-pandora-s-box/20130322 The Cypriot guys don’t stand a chance. Believe me, there’s an army of PR Guys putting all the threats out all over the world tonight. They (the MP’s who actually need to vote on stuff in Cyprus) will be scared 5hitless by the potential consequences they are going to be reading about in the next 24 hours. All part of turning the screw from the Troika. They have so much money to throw at threats by PR guff you wouldn’t believe it. Er, here’s my invoice Mr Draghi/Ms Lagarde/et al. Thanks for that bit of freelancde work over the weekend – will pay for my next holiday in France. Cyprus is well and truly phuqued I can assure you. They’re damned if they do and they’re damned if they don’t. I take no pride in that – I just take the money (like we all do if we’re honest). There’s no doubt that Germany had a specific goal to destroy the Cypriot banking model as part of the bailout negotiations. For proof you just have to look at the numbers and contrast the treatment with that given to Greece. Before the meeting, the Cypriot president thought he had agreed with Merkel a 7%/3% split on the levy. This raises 3.5bn. Presumably he thought that the finance sector as a whole could take a hit at that level without falling apart. The remaining gap was thus 2.3bn. Look at the range of options that were possible, (with a little creative accounting in some cases, as done all the time with Greece) (1) (a) Deposit interest revenues for the next 3 years (i.e. “DIRT” tax of 100%) (actually offered by Cyprus but rejected by Germany) (b) Income from privatization receipts (an old reliable for Greece to fill its gaps) (c) Securities based on future oil/gas revenues (d) Pension fund contributions (e) Rollover of SMP profits (if any were purchased) (f) Cyprus debt buy back (2) Now look at the other half of the deal – the 10bn. This figure is not cast in stone, but based on such precise measurements as expected GDP growth in 2019 etc etc. Also the bank loss figure insisted on by Germany was the worst PIMCO case of 9-10bn. The expected PIMCO losses were lower at 6bn. Blackrock also had lower figures. So there’s no reason why this figure could not have become 11bn or 12bn say, reducing the Cypriot “cash” contribution by 1 or 2bn. Furthermore the figures never added up for Greece. The target 120% in 2020 was never met. Instead the figure was 124%, but everyone figured it was close enough (for something with a huge margin of error anyway). So with the same approach that was taken in Greece there are (1) half-a-dozen sources of revenue, a number of which were used in Greece and (2) scope for changing the 100%/2020 target which appears to have been used for Cyprus, to say 120%/2020 or 100%/2022, thus allowing the 10bn portion to be higher. So why the different treatment? Germany wanted the Cypriot banking model taken out, and it succeeded by taking a totally intransigent line. Furthermore Cyprus was humilated in a very public manner. (Would Junker ever have let things get so out of hand?). It was an act of economic warfare. The finance industry in Cyprus is over 40% of GDP and no matter what happens is now irreparably damaged. A double digit drop in GDP is inevitable and the deficit/debt targets will never be hit, and further restructuring will be needed later. Germany’s Dilemma – Sacrifice Cyprus or Make Sacrifices Itself… http://wp.me/p1xJaL-GG We know what it chose I see the odd comment depicting the lone schaf against 16 wolves in the German right wing press. This is used to counter charges of German domination of the EZ. By no means a majority attitude but certainly appeals to the CDU and FDP base. Germany as the victim imagery has led to serious problems in Europe over the past century. However the 16 castrati without a voice had better find one or they will be depicted as siding with the bully. @Brian Lucey Great link which led me to this link which is well worth reading. Actually must reading as the New Statesman which does uniformly good political analysis has surpassed itself in this one. http://www.newstatesman.com/world-affairs/europe/2013/03/cracked-heart-old-world @David O’Donnell [blockquote]A CRISIS OF STUPIDITY & FLAWED IDEOLOGY[/blockquote] @Bryan G [blockquote]Germany wanted the Cypriot banking model taken out, and it succeeded by taking a totally intransigent line.[/blockquote] Much of the crowd here seems to be torn between explaining the botched rescue by the intellectual shortcomings of the decision makers and seeing it as part of a cunning, sinister plot. Of course, neither explanation is right. The people around the negotiation table were all quite capable human beings, and by and large motivated by completely legitimate and understandable aims. Nobody wanted to tax small depositors, and all the concerns about undermining trust in deposit guarantees were voiced in the table. The tragedy was that, as often happens in negotiations with a large number of parties with differing interests (think of the Doha round, etc.), every other conceivable alternative was blocked by a red line for some party. By now it has become clear that the idea of hitting the small deposits did not come from the creditor countries, which instead favored winding down the two large failing banks in a regular resolution process. So now the criticism seems to have shifted to something like “even though the idea came from elsewhere, the creditors should never have accepted hitting small savers, so they must bear the responsibility”. But what were they to do? Since the bank resolution route was rejected by Cyprus, fudging the numbers or increasing the loan package were rejected by the IMF, and sending a plain gift of a few bn € to Cyprus would have been rejected by the creditor country parliaments, the only feasible alternative was to have no program at all and to see the whole Cypriot financial system implode in a puff of smoke. @Bryan G +1 When I was asking if they would do the old good bank/bad bank routine on another thread nearly a week ago, I thought I was being light-hearted…. Gun to head time: http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_23/03/2013_489519 And for those who want the local view of things (Cyprus Mail): http://www.cyprus-mail.com/ @ Brian Lucey Brian, Powerful material here for the mob…civilised Christians fighting gallantly against savage Turks…Hitler and Czechoslovakia…modern day Cypriot Turks trespassing in a country that is not theirs. If this is to be a union then it must be a union of equals. Germany must sacrifice…Germany must pay up….but Lord protect us from tax harmonisation…protect our tax haven…protect our job guarantees and protect our unfunded pensions! So let’s next have some history lessons on France. It was interesting to observe a few years ago on this blog when some who were calling for mortgage debt forgiveness were asked would they pay a tax levy to fund it. Of course not…hadn’t BlackRock provided sufficient capital buffers for that? @MH We are a conniving bunch. For decades we yearned for a level playing field. Then we found it in the EU. Immediately we started to game it with our 12.5% corporate tax rate. Then we used cheap money in the EZ to blow one of the largest property bubbles on earth. Then rather than let the worst run bank in the country go under we got loans from the ECB and IMF to rescue said bank and all of its bondholders. Having got what we wanted we then complain bitterly and continuously that the ECB and EC have screwed us and continue to screw us. We would make a good George Carlin skit. If he was still around it would be highly entertaining. @Bryan G Excellent post. It seems that all options, available for other countries, were taken off the table for Cyprus. No, Juncker would not have allowed this to happen. Schaeuble was not acceptable as head of the eurogroup. So much so that they persuaded Juncker to extend his tenure. Yet the critical Eurogroup meeting allowed to following decision making process: From the FT http://blogs.ft.com/brusselsblog/2013/03/the-cyprus-bailout-blame-game-begins/ “But when Rehn and Anastasiades met in the early morning hours in a small group with Schäuble; Moscovici; Asmussen; Dijsselbloem; and Christine Lagarde, the IMF managing director, Schäuble was unwilling to play ball. He wanted to move forward with a full bail-in, and had the backing of Finland and Slovakia. ” It also looks to me as if Draghi has been comprehensively beaten into the role of a functionary. @PRguy ‘Cyprus has the wrong business model’ That is now the latest spin on why the country needs and deserves to be being imploded. How does Ireland’s business model stack up to Teutonic thinking. PS: ‘I think Germany has the wrong business model. It produced too many cars and engineering products for the size of its economy. That production should be resized to fit its own economy’ @Michael Hennigan Cyprus has the ‘wrong business model’. Ergo, it must be taught a lesson. Its banks have been shut for week now. Schaeuble said they might never again open. This fight has now gone way beyond tax rates and tax havens. Cyprus has a right of existence on this plant, but only it appears if it willing to fight for it. Ireland is in, or will be soon, in the same position. [We ran from the fight last time, but the war is not certainly not over] I have no problem with Germany leaving the euro. None whatsoever. I have every problem with Germany destroying nations to force them to remain within the euro. One wonders what it is about the euro that Germany likes so much! Speaking disdainfully of German population trends is pot and kettle talk! Every decade since 1660, the population of the 32 counties of Ireland has declined. Despite the highest fertility rate in Europe? We gained some migrants when Strongbow visited and then the Scots Dissenters were expelled from their homeland. HMG are greatly pleased by the greed of easily bribed Irish politicians. They used John Law in the 18th Century to destroy France. In 1840, Ireland had 8 million souls and England had 10 million. England has 60 million now. Looking forward to another million migrating from Ireland due to political blindness and greed. The expected influx of Poles, Bulgars and Romanians settling into the nest really acts to dilute the population. Looks like they will inherit the 32? @JR As far as I could see Jutta and Olli from Finland were quite sympathetic to Cyprus’s plight and went along with Eurogroup against their better judgement. In the Bucheit-Gulati blog comment 109 Die Welt 3rd paragraph from the end there is reference to Dijsselbloem (Dutch) being chosen because he is a lightweight. Sometimes German news reporting has all the fortrightness that is possessed by 4 year old boys. Cyprus is another Falklands: Merkel talks tough, gains votes and then in June, the real fun starts! @Mickey Hickey I did see that comment re Dissselbloem. There seems to be a lot of truth in it. Obviously all the other ‘castrati’ as you have called them also ‘went along’ with the German view. Cyprus will be beaten into submission but it will be a Pyrrhic victory, both for the Euro and German. http://www.lefigaro.fr/conjoncture/2013/03/22/20002-20130322ARTFIG00600-trois-jours-a-haut-risque-pour-nicosie-et-la-zone-euro.php Brian L. good articles but one little tiny bone to pick, one usually writes names of countries with a capital first letter 😉 as in “Cyprus” not “cyprus”, or has the propaganda machine of the new Reich which is busy belitelling and smearing Cyprus somehow subcontiously implanted itself in your mind? Ah no edit button to fix my typos! anyways “Cypriot” vs “cypriot” 😀 Talking about George Carlin. This is a bit raw but you can see how he would describe the present situation in the EZ. “Panama becomes tax haven for German uber rich – report” http://rt.com/news/panama-german-tax-haven-584/ You know something is wrong, when you get better news from RT than Euronews over your evening cupp-a-tea @Bryan G Good post. A third option, of course, would be to write down or reschedule existing Cypriot government debt. But the creditors are different, aren’t they. One of the amazing features of this debacle is the hauteur that people adopt. The same people who insisted that government debt would never be written down in the euro zone, eventually had to accept the inevitable in Greece, which blew a euro 4.5-5 billion hole in the Cypriot banks (according to the ex governor of the Cypriot Central Bank on Radio 4 this morning), and now insist that the problems in Cypriot banks are due to their sleazy business practices. Truly amazing! And, by the way, the Troika have gone for the option that will most damage the Cypriot economy and undermine the value of Cypriot government debt such that it is now liable to be written down anyway. EIS. blame early morning blogging w a snotty 19m old! Ich habt it gefixened now… Amazing is not the word! There are multifarious aspects to this affair as covered by the FT in a lengthy piece today. To take the “business model” under discussion, this piece gives a good explanation, especially in its use of the phrase that Cyprus served as a “back office to Russia”. http://www.cyprus-mail.com/cyprus/our-moneys-not-cyprus-oligarchs-say/20130323 According to the FT, the family legal business of the current president has at least two oligarchs on its books. It is also clear that the previous president delayed a deal that should have been done two years ago but instead negotiated a bailout with Moscow. The question of who had the best interests of the ordinary Cypriot taxpayer in mind remains unanswered. What is clear that in attempting to mix it in this company, the country was out of its depth. Cypriot politicians must therefore bear a very heavy responsibility. Incidentally, Richard Curran made a very interesting point on RTE just now that prior to joining the euro (2008), the authorities had a rule that only a certain percentage (30%) of the inflow of deposits could be used to fund lending by the banks. This rule then went out the window. Another example of the ECB being asleep at the wheel! @EIS re: Cypriot versus cypriot in Brian Lucey’s article. Now, now — it’s not the done thing in civilised blogs (titter) to correct other people’s spelling, partly because in many cases English is not the commenter’s mother tongue, partly because it unfairly intimidates mother-tongue contributors who might have something of relevance to say but fear the wrath of Argus-eyed schoolmarms with have nothing better to do but cheque people’s spelling (groan, though we know that they really want, nudge, nudge) — but chiefly because, honest, spelling doesn’t matter a damn. Nor does style, except from the entertainment perspective. It’s — its – potatos – potatoes – disleksia. The sky is falling in all over Europe and there we are still varnishing out toenails. Six of the best for EIS. Unless your a gal. I mean unless you’re a grrlll. A mild spanking will do instead. Now that the UK is sending banking advice to Cyprus, some recent developments in economic thinking there possibly need to be considered. http://www.telegraph.co.uk/finance/budget/9949318/Budget-2013-Wealthy-house-buyers-look-to-take-advantage-of-mortgage-aid.html @DOCM Since the Medicis’ introduced fractional banking in the 14th century the reserve fraction has been kept low because the lower the reserve fraction (3% to 8%) the more profitable the bank. I do not see where Curran got his 30% of deposits not loaned out. RTE needs George Lee back @ Mickey Hickey Where have you been? http://www.rte.ie/radio1/the-business-with-george-lee/ He said it – although I am subject to correction – on this morning’s programme. The podcast is worth checking as the coverage – as an introduction to a programme coming from Derry – was excellent. Ie.ie really comes into its own at times like this. Thread den scoth. Einzigartig really. @ fungus England had a similar population to ireland in 1500 or so. The empire brought in more resources so the population grew but now I think it is more like an IBM or Nokia whose markets are shrinking. Huge swathes of the North are in trouble. Have you ever been to Stoke? Ireland is probably better positioned population wise for a future of reduced resource consumption. @Joseph Ryan Your 9.05 post @’ing me. It wasn’t me who said ‘Cyprus has the wrong business model’ It may have been one of the posters either side of my last entry or the previous one – MH?). I have a great deal of sympathy towards the Cypriots and the way they are being treated. They’re/their financial services industry is being crucified to satisfy other agendas. This has the fingerprints of the man in the wheelchair all over it. Ruthless. @DOCM linked piece on “Reuters ” tread,for you! @MH/ DOCM Richard may have read this … “Before joining the euro, the Central Bank of Cyprus only allowed banks to use up to 30 percent of their foreign deposits to support local lending, a measure designed to prevent sizeable deposits from Greeks and Russians fuelling a bubble.” http://www.reuters.com/article/2013/03/22/us-cyprus-banks-idUSBRE92L0CQ20130322 Cyprus gdp is 0.2% of ez. Maybe the treatment of the island is a sort of financial punishment beating such as a kneecapping that would never be the fate of a spain which had a more respectable banking crisis ie based on property rather than on dirty Russian money. Maybe this is how the markets will see it. Crisis mgt has been appalling. Steve Staunton would have handled the pr better. This crisis is going to run and run and it is one hell of a game. Duinn is eigean Conai a dheanamh In arais o dhaoine A leagfadh cios Ar an mbraon anios. I think the EZ needs more duthracht. @Brian Lucey The question we face now is this: how can the Federal Republic, which is prosperous and secure as never before, be persuaded to take the political initiative and make the necessary economic sacrifices to complete the work of European unity? To ask the question is to answer it: no way whatsoever. Indeed I fear that the very way the question is put may be counterproductive in itself. Firstly, ‘completing the work of European unity’ is about the last thing many Germans want — though admittedly according to the latest figures published by Pew Research for 2012, 68% of the population are broadly in favour of the EU as a whole. But that does not mean that they are hankering after ‘ever-closer union’. More likely what it means is that when the going is good, the ‘summer soldiers and sunshine patriots’ are quite content to leave things as they are. After all, it is those countries which have been cratered by the crisis that are now rapidly losing their faith in the EU. Secondly, even Germans who are in favour of the EU are not willing to “make the neccessary economic sacrifices”. Judging by the German media blogs, most commenters right across the board believe that they have done enough already — apart perhaps from the flagellants of the Green Party who can’t genuflect enough. It is possible of course that the commenters are not a representative sample of the German population but even in the left-of-centre press the percentage in favour of more German financial contributions is dwindlingly small. Let’s sum it up. So far, the following techniques of persuasion have been attempted without much success: (a) Germany is morally obliged to foot the bill (Auschwitz cudgel), but doing so is in the country’s best interest anyhow (a la Timothy Garton Ash). Two birds, one stone. This is considered by many Germans to be an insult to their intelligence, a kind of confidence trick played by the ‘cute hoors’ of the EU establishment. (b) Germany is not morally obliged to foot the bill but doing so is in the country’s best interest. One bird, no stone. Again, an even greater insult to the intelligence. (c) Germany is morally obliged to foot the bill even if doing so adversely affects the country’s economic interests. No bird, one stone. Brian’s approach is certainly (c), because the only way one can persuade somebody to give you something for nothing is to convince him that there exists an ethical obligation to do so — i.e. compensation for some tort or crime committed in the past. That is why I say the question contains its own answer. It is the most honest one, but precisely for that reason it is the most counterproductive. There are SOME voters who are either gullible or sophisticated enough to believe in one of the two versions of ‘jam tomorrow ‘ (techniques (a) or (b)). But there are virtually NONE who are willing both to acknowledge the country’s alleged ‘guilt’ AND pay the price for that acknowledgement. [Footnote to the above comment on Brian Lucey’s article.] There is also a ‘real existing world’ approach, though it is the very opposite to a technique of persuasion: (d) Germany is morally obliged to foot the bill but stuff morals, stuff this suffering-Jesus view of international relations, cut the crap, face the world as it is, STFU, get your act together you pathetic whining losers …. Realpolitik @carolus The thing I always think about Germany reading the Bild is they can always bring the people around in the end to whatever narrative fits the need of the Zeitgeist. If they could get the Volk to accept the loss of Koenigsberg and Breslau they can sell them a few years of inflation if they have no other choice. The German purchasing mgr index is at 51 this month. They need growth too. The sociopaths in charge everywhere are driven by growth. Investors too. Excess capacity can be destroyed if necessary but growth is what matters schlussendlich. @seafoid The sociopaths in charge everywhere are driven by growth. Investors too. Excess capacity can be destroyed if necessary but growth is what matters schlussendlich. Spot on. But the irony is that we are all sociopaths when push comes to shove. I am a libertarian who has been mugged by the entropy law (Hayek +Georgescu-Roegen + the immortal Schumpeter). This is all so depressing. So I’m off for some shopping therapy. Perhaps a 29-gram titanium bottle cage for my ultralight S-works roadbike, cuts off 10 grams and perhaps 4 seconds off my next Paris-Brest-Paris randonnee in 2015 (at approx. 3 euro per gram). I feel better now. @carolus The point of the eu was to reduce the number of occasions on which push came to shove. Beggar my neighbour is often bad policy. It won’t fix the ez. I.like Soros’ idea of periphery civil society speaking to Germany . There is much in common. @PRguy “‘Cyprus has the wrong business model’” My apologies if it appears that the above was attributed to you. It was in fact Russian TV (RT) last night in a discussion which involved a female Greek MP/economist and another female spokesperson, possibly German, who kept insisting that Cyrpus had the ‘wrong business model’, ergo the reason that they had to be re-educated. My point was that ‘the wrong business model’ is the latest anti-Cypriot Pr/spin. On the cypriot business model…. Just how bad was the Cypriot business model ? http://wp.me/p1xJaL-H3 We, the citizens, refuse to allocate our own funds in any form to bailout the gambling debts incurred through the financial speculation of investment banks. Sign : https://www.change.org/fr/p%C3%A9titions/a-tous-les-d%C3%A9put%C3%A9s-chypriotes-chypre-doit-scinder-les-banques-en-deux-cat%C3%A9gories-bonne-mauvaise-banque Comments are closed.