Greavswasthegreatest
Vital Football Legend
Glad I sold my property in Cyprus a few years ago! They are up the proverbial 'Bail out' swanee ....if you have any money in Cypriot banks, you are in a bit of a fix at the mo!
Cyprus
- Thread starter Greavswasthegreatest
- Start date
Spursex
Alert Team
No, you can bring this latest problem firmly and squarely back on the Euro once again...
The Euro is choking the recovery everywhere at birth - but that's what artificial currencies do....the ECB are taking ever desperate measures to shore it up and it's worth noting that this has been expected for months...
Cypriot bank deposits tapped as part of €10bn eurozone bailout
International lenders agreed to a €10bn bailout of Cyprus early on Saturday morning after 10 hours of fraught negotiations, which included convincing Nicosia to seize €5.8bn from Cypriot bank deposits to help pay for the rescue, a first for any eurozone bailout.
The cash from Cypriot account holders will come in the form of a one-time 9.9 per cent levy on all deposits over €100,000 that will be slashed from their savings before banks reopen Tuesday, a day after a Cypriot holiday. An additional 6.75 per cent levy will be imposed on deposits below.
Cypriot finance minister Michalis Sarris said his government had already moved to ensure deposit holders could not make large withdrawals electronically before Tuesday’s open; Jörg Asmussen, a member of the European Central Bank executive board, said a portion of deposits equivalent to the levies would likely be frozen immediately.
“I am not happy with this outcome in the sense that I wish I was not the minister that had to do this,” Mr Sarris said. “But I feel that the responsible course of action of a minister that takes an oath to protect the general welfare of the people and the stability of the system did not leave us with any [other] options.”
While the levies fell short of the full-scale “bail-in” of all deposits larger than €100,000 that had been advocated by some bailout lenders, particularly the International Monetary Fund, it was still sweeping in its scale and unprecedented in the three-year-old crisis.
Even Ireland, whose banking sector was about as large relative to its economy as Cyprus’ when it was forced into a bailout in 2010, never considered such a measure. Cyprus becomes the fourth eurozone country to receive a sovereign bailout after Greece, Ireland and Portugal. Spain has also required €40bn in EU aid to shore up its teetering banking system.
Officials who had resisted imposing losses on bank accounts, which included leaders in the European Commission and the Cypriot government, had feared forcing losses on ordinary deposit holders could spur panicked withdrawals in Cyprus and, potentially, in other eurozone countries with shaky financial sectors, like Spain.
Mr Asmussen said the Cypriot government and the ECB were closely monitoring deposit flows, including on an intraday basis, for signs of a bank run and insisted those with accounts in other bailout countries need not fear for their holdings since the rescue programmes are already fully funded and would not need to dip into deposits for more cash. The eurozone has said it is prepared to spend up to €100bn to recapitalise Spanish banks, for example.
Mr Asmussen justified the measure by saying it broadened the number of people who will shoulder the burden of the bailout. Without the measures, he said, much of it would fall on Cypriot taxpayers; by going after all large deposit holders – many of whom are Russian or British – outsiders would help fund the rescue.
One senior EU official involved in the talks said Mr Asmussen was crucial to securing the deal, which at several points during the night appeared close to collapse. “Without Jörg, we would have no deal,” said the official. “He was excellent in and out of the meeting.”
Cypriots hit by the levy will be granted shares in their banks of equivalent value to their losses, something Mr Sarris said he believed would give depositors an incentive to stay put.
Much like they did one year ago when eurozone leaders forced losses on private holders of Greek sovereign bonds, officials Saturday morning insisted the Cypriot banking sector was unique and required drastic action.
While Jeroen Dijsselbloem, the Dutch finance minister who chairs the group of eurozone finance ministers that hashed out the deal in all-night talks, declined to categorically rule out hitting depositors in future bank bailouts, he insisted that it was not being currently considered for any other country.
“The challenges we were facing in Cyprus were of an exceptional nature,” Mr Dijsselbloem said. “Therefore, unique measures were determined to be necessary.”
Without the losses imposed on Cypriot depositors, the bailout would have been close to €17bn, about the size of the entire Cypriot economy. The IMF insisted such a programme – which would have increased Cyprus’ sovereign debt to 145 per cent of economic output – would overburden Nicosia and hinted it would not participate in the rescue unless its size was reduced.
Christine Lagarde, the IMF managing director who participated in the marathon talks, said she would now recommend to the fund’s board that it contribute to the programme, though she said it was too early to say whether it would chip in one-third of the cost as it has in Ireland, Portugal and the first Greek bailout.
Other measures to bring the cost of the bailout down to €10bn include a €1.4bn privatisation programme and an agreement to raise Cyprus’ corporate tax rate from 10 per cent to 12.5 per cent, Cypriot officials said. Mr Asmussen said the measures put Nicosia on a path where its debt is projected to come down to 100 per cent of gross domestic product by 2020.
Olli Rehn, the European Commission economic chief, said he had been in contact with Russian finance ministry officials who indicated they were willing to ease the conditions of a €2.5bn rescue loan made to Cyprus two years ago when the government first found itself unable to raise money in the bond market. A lengthening of the repayment schedule and reduction in interest rates would also help lower the bailout’s cost. Mr Sarris is due to travel to Moscow for talks next week, Cypriot officials said.
The two largest Cypriot banks – Bank of Cyprus and Laiki Bank – also have considerable operations in Greece, but Mr Asmussen said Greek depositors would not be hit. Instead, those branches would be “ring fenced” and sold off to a Greek bank at a later date.
Greavswasthegreatest
Vital Football Legend
Just beware of Greeks bearing gifts when you are out there....if it too good to be true then it is! Prices will undoubtedly go up because the people will try recoup the one time levy on their savings around 9%....
The scandal in Cyprus is that ordinary depositors are being punished. This is still a banking crisis, the residue of the world wide crash five years ago. The banks are being let off the hook again. They were bailed out indirectly by us the taxpayers originally and now directly in Greece by savers and depositors. This is beyond belief!
And a hell of a way to target alleged Russian Mafia money!
And a hell of a way to target alleged Russian Mafia money!
Spursex
Alert Team
I don't have too much sympathy for Cypriot depositors; mainly because they too have been as candid about their taxes as the Greek mainland have - they have a long long history of cheating the state by under-declaring income/cash etc..of course, there are some honest ones, but they're few and far between....
It's a one off hit in exchange for bank shares...which if they weren't in the Euro might actually be worth something.
Their is no banking crisis anymore except in the Eurozone - and that's what you get for forcing a 'one size fits all' approach to vastly differing economies and the condition they are in.
Cyprus like Greece should have left the Euro - devalued and given their exporters a chance to to export once again and for their economy to properly recover, as it is, the EU are forcing them into another decade (minimum) of unmitigated hardships that will in all liklihood explode in violence or extremism if they don't consider the human dimension of their dogmatic actions in their attempts to refuse to admit that the Euro is a total financial disaster.
As Spudon has understood; at this rate, they'll be the cause of conflict and war rather than the 'cure'.
The Cyprus crisis, seen from another 'off-shore island'! This from the Cork Examiner today
Will Irish savers be next to pay as EU targets Cypriot depositors?
Monday, March 18, 2013
By Brian Lucey
At the heart of modern finance is the concept of the risk-free rate.
That is the rate of return on an asset whose repayment is certain.
For many years we have sought this and now we know.
The truly risk-free asset is a senior bank bond in a peripheral bank in a country seeking a bailout.
We know that from the Irish case senior bonds took equality with the deposits in Anglo (except at the very end) and were certainly much more important in the eyes of both governments than mere taxpayers.
We now see in Cyprus that these assets are truly special and rank above even deposits.
Having sustained deep financial wounds from the first Greek bailout, Cyprus needed €17bn. Its banks were financed mainly by deposits but there were some bonds there... so the logical thing was to first burn these.
Instead, and setting a dangerous precedent, the ECB and the Economic and Financial Affairs Council (chaired by Michael Noonan, fresh from lading €25bn of Anglo debt onto the Irish taxpayer) decided to haircut depositors.
All depositors over €100k were to lose 10%, those under, who had been guaranteed, are to lose 6.75%.
Why did Cyprus need a bailout? For one main reason, its banks. They got too large too fast. There is a massive link between the Greek and Cypriot economies, as the Greek situation went from bad to catastrophic, the Cypriot banks were holed badly, having extended credit equivalent to over 150% of Cypriot GDP to Greece.
These private sector loans are now damaged and the Cypriot banks were further weakened by the writedown of Greek official sector debt.
Cyprus is criticised for having an overly large banking sector and, at seven times its GDP, it is too large. Part of the reason it is too large is that Cyprus, like another small island we can think of, operates as an offshore financial centre. And here we see a rancid whiff of racism and xenophobia.
The meme is “Cyprus is stuffed with hot money from Russia,” and so any hit to the banking sector will show Ivan who’s boss — Angela, in case anyone wondered. That this is improbable, and that the data suggest that perhaps €7bn of the total €70bn deposit base of the Cypriot banks is held by Russians from Russia, some of which may be hot, is irrelevant. Anyhow €7bn would hardly get you into oligarch circles nowadays. But the meme persists.
Cypriot banks were seen as safe, and so were attracting large flows from Greek and other depositors. The largest growth in non-EU money came from other financial institutions, not households or corporations. And so, faced with 90% debt GDP ratios and fast out of money fast, the Cypriots have been asking for a bailout since last June. Despite this, it took another 3am meeting, chaired lest we forget by Michael Noonan, to decide on an extraordinary course of action.
A bailout of €17bn would have caused a massive spike in the debt/gdp ratio, and there seems still, five years after Bear Sterns, to be no willingness in the chancelleries of Europe to realise that a union means solidarity. Faced with the requirement to restructure Cypriot sovereign debt to make the total sustainable, Cyprus’ European partners, ourselves included, forced them to raid the savings of the Cypriot people. Although the Cypriot banks have little senior debt this was, and here we are into Alice in Wonderland territory, not burned.
And this was accompanied by the by now familiar hectoring and bullying, with the threats of the ATMs running out and the ECB cutting off liquidity and who knows what. All reports suggest, frankly, a hegemonic Germany run amok and declaring fiscal war on another small state. That should make everyone worried. This is dangerous territory, setting a bad precedent. Its unjust and incoherent.
European banks are funded by approx €5tn bonds, €21tn deposits and €3tn capital. They need to increase the reliance on deposits, and this makes them deeply unattractive outside the core. Plus, for all the fine talk on breaking the bank-sovereign link, this reinforces it. If this doesn’t cause a bank run in Cyprus it will be astonishing.
Its unjust in that even the smallest saver in Cyprus is forced to participate. But in a Europe that is happy to see Greek cancer patients suffer on the altar of ordoliberalism, I guess the widow’s mite counts for little.
Most of all it is a bad precedent. It is one that should worry any depositor in any eurozone country that is or might be in a bailout. 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. While we laud ourselves for having re-entered the market, our bond yield is depressed by a flood of cheap money and an attractive carry trade. The fundamentals are still shaky and our banks still face large losses from mortgages and there is still a chance they will seek additional funds.
So, if a future Irish or Spanish or Italian government seeks some assistance from Europe the precedent has been set to seize deposits while saving bondholders. This is crackers, and is driven solely by domestic German political considerations. Angela Merkel may have destroyed the euro by making it clear that a Cypriot euro is 90% of a German one. We await developments to see how much of a German euro an Irish, or Spanish or Italian one is.
* Brian Lucey is professor of finance at Trinity College Dublin
Will Irish savers be next to pay as EU targets Cypriot depositors?
Monday, March 18, 2013
By Brian Lucey
At the heart of modern finance is the concept of the risk-free rate.
That is the rate of return on an asset whose repayment is certain.
For many years we have sought this and now we know.
The truly risk-free asset is a senior bank bond in a peripheral bank in a country seeking a bailout.
We know that from the Irish case senior bonds took equality with the deposits in Anglo (except at the very end) and were certainly much more important in the eyes of both governments than mere taxpayers.
We now see in Cyprus that these assets are truly special and rank above even deposits.
Having sustained deep financial wounds from the first Greek bailout, Cyprus needed €17bn. Its banks were financed mainly by deposits but there were some bonds there... so the logical thing was to first burn these.
Instead, and setting a dangerous precedent, the ECB and the Economic and Financial Affairs Council (chaired by Michael Noonan, fresh from lading €25bn of Anglo debt onto the Irish taxpayer) decided to haircut depositors.
All depositors over €100k were to lose 10%, those under, who had been guaranteed, are to lose 6.75%.
Why did Cyprus need a bailout? For one main reason, its banks. They got too large too fast. There is a massive link between the Greek and Cypriot economies, as the Greek situation went from bad to catastrophic, the Cypriot banks were holed badly, having extended credit equivalent to over 150% of Cypriot GDP to Greece.
These private sector loans are now damaged and the Cypriot banks were further weakened by the writedown of Greek official sector debt.
Cyprus is criticised for having an overly large banking sector and, at seven times its GDP, it is too large. Part of the reason it is too large is that Cyprus, like another small island we can think of, operates as an offshore financial centre. And here we see a rancid whiff of racism and xenophobia.
The meme is “Cyprus is stuffed with hot money from Russia,” and so any hit to the banking sector will show Ivan who’s boss — Angela, in case anyone wondered. That this is improbable, and that the data suggest that perhaps €7bn of the total €70bn deposit base of the Cypriot banks is held by Russians from Russia, some of which may be hot, is irrelevant. Anyhow €7bn would hardly get you into oligarch circles nowadays. But the meme persists.
Cypriot banks were seen as safe, and so were attracting large flows from Greek and other depositors. The largest growth in non-EU money came from other financial institutions, not households or corporations. And so, faced with 90% debt GDP ratios and fast out of money fast, the Cypriots have been asking for a bailout since last June. Despite this, it took another 3am meeting, chaired lest we forget by Michael Noonan, to decide on an extraordinary course of action.
A bailout of €17bn would have caused a massive spike in the debt/gdp ratio, and there seems still, five years after Bear Sterns, to be no willingness in the chancelleries of Europe to realise that a union means solidarity. Faced with the requirement to restructure Cypriot sovereign debt to make the total sustainable, Cyprus’ European partners, ourselves included, forced them to raid the savings of the Cypriot people. Although the Cypriot banks have little senior debt this was, and here we are into Alice in Wonderland territory, not burned.
And this was accompanied by the by now familiar hectoring and bullying, with the threats of the ATMs running out and the ECB cutting off liquidity and who knows what. All reports suggest, frankly, a hegemonic Germany run amok and declaring fiscal war on another small state. That should make everyone worried. This is dangerous territory, setting a bad precedent. Its unjust and incoherent.
European banks are funded by approx €5tn bonds, €21tn deposits and €3tn capital. They need to increase the reliance on deposits, and this makes them deeply unattractive outside the core. Plus, for all the fine talk on breaking the bank-sovereign link, this reinforces it. If this doesn’t cause a bank run in Cyprus it will be astonishing.
Its unjust in that even the smallest saver in Cyprus is forced to participate. But in a Europe that is happy to see Greek cancer patients suffer on the altar of ordoliberalism, I guess the widow’s mite counts for little.
Most of all it is a bad precedent. It is one that should worry any depositor in any eurozone country that is or might be in a bailout. 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. While we laud ourselves for having re-entered the market, our bond yield is depressed by a flood of cheap money and an attractive carry trade. The fundamentals are still shaky and our banks still face large losses from mortgages and there is still a chance they will seek additional funds.
So, if a future Irish or Spanish or Italian government seeks some assistance from Europe the precedent has been set to seize deposits while saving bondholders. This is crackers, and is driven solely by domestic German political considerations. Angela Merkel may have destroyed the euro by making it clear that a Cypriot euro is 90% of a German one. We await developments to see how much of a German euro an Irish, or Spanish or Italian one is.
* Brian Lucey is professor of finance at Trinity College Dublin
Spursex
Alert Team
There is no evidence to support our potential annual year end collapse, so we'll let them off with that one.. LOL!
As for our triple dip - I predicted exactly this and it still won't be over until Eurozone economies are allowed to break out and have a currency that actually reflects the state of their economies....every single Southern Europe bailot has underestimated the impact it would have on growth....
The Central bankers in the Eurozone are just misleading everyone, just as I said they would and just as the facts are now proving...
They are forcing these countries into decades and decades of pain instead of taking the short(er) sharper painful hit they should have taken by now...
The view of Cyprus from Social Europe - well, it's a sort of therapy after the devastations of yesterdays result!
.....................................................
Social Europe Journal
debating progressive politics in Europe and beyond
Cyprus: Risking The European Ship For Ten Euros Of Tar
18/03/2013 by Andrew Watt
I come from a nautical family. One expression I learnt as a child was: “Don’t sink the ship for a ha’penny worth of tar”.
The weekend agreement on a rescue of the Cypriot banking system flagrantly disregards this sound advice. The ship in question is not the banking system of that Mediterranean island, which is to be ‘saved’ with the provision of about EUR 10 billion in EU and IMF funding. It is the entire euro area economy. Accordingly the missing tar – a thick resin used to seal the hull of wooden ships in olden times – in this case costs a bit more than half a penny: EUR 5.8 billion to be precise. That is the sum that holders of Cypriot bank accounts will be forced to stump up in the form of a one-off levy: 6.75% on all deposits up to EUR 100,000 and 9.9% above that.
That may sound a lot. Well, it is a touch over ten euros for every EU citizen. More relevantly, it represents less than 0.05% (one two-thousandth) of euro area annual GDP. And it is a safe bet indeed that the knock-on damage on economic output of this deal will be far higher, with a substantial tail-risk of a renewed lurch into crisis. Why is that?
All advanced capitalist economies provide state-run deposit insurance, up to a certain limit. It is the single most important element in preventing devastating bank-runs. (Banks only ever hold a relatively small proportion of the money deposited with them. The rest is lent out. If doubts arise about the safety of those deposits, customers will seek to withdraw them. Once they start to do so the risk becomes a self-fulfilling prophecy.)
In the wake of the 2007/2008 financial crisis all European Union countries committed to a common ceiling of EUR 100,000. Account-holders with less were never to suffer losses. This is key to underpinning confidence in the banking system and thus the normal flow of credit in the economy. (If you are wondering why the the deposit insurance will not be paying out in this case, the answer is that such insurance covers actual financial losses by the bank. The levy is a form of tax on account holders that any government with a majority in Parliament can impose on its population. This explanation will satisfy lawyers, but there is no real economic difference given that the levy is being used to stem bank losses, and there is no reason to expect that such a distinction will placate irate account holders.)
For the sake of a paltry EUR 5.8 billion, then, this crucial principle of sound economic management has been effectively scrapped. At the very most a levy on accounts above EUR 100,000 should have been imposed. (Although given the orders of magnitude involved, even this I would consider an unnecessary risk to take.) Depositors, particularly in countries with shaky banking systems such as Spain and Italy, but very likely in other countries as well, are certainly asking themselves this morning whether their money is safe. If they start making substantial withdrawals, a shadow will be cast once again over the whole European banking system and thus over the prospects of emerging from the crisis. Of course, policymakers have assured voters that Cyprus is a special case requiring special measures. But we have heard this before, when holders of Greek sovereign bonds suffered a haircut – of which more in a minute.
In recent weeks the Cypriot banking sector has been subjected to a barrage of criticism which will go a long way to placating all those Europeans who do not hold accounts there, and are tired and suspicious of taxpayers having to stump up for the failings – so the perception – of undeserving others. Indeed, reporting seemed to have an element of a concerted campaign to soften up public opinion. At the very least it pandered, in an uninformed way, to popular restments and clouded the issues at hand. For many of the arguments made are very largely either specious or irrelevant or both.
The island’s banking system is supposedly awash with Russian money that the Cypriot banks have been happily washing for a handsome profit. It seems that in fact only around 15 out of EUR 68 billion is held by non-residents, mostly Russians and Britons. So domestic account-holders will take by far the biggest hit. In any case: so what? Cyprus is a Mediterranean island. It is not the Ruhr area or the Emilia Romana. It is no surprise that it seeks to pay its way in the world with tourism and financial services. It has a large number of ex-patriat residents, not coincidentally including many Russians and Brits with whom there are cultural and linguistic/historical ties.
It may well be that some of the money brought in by wealthy Russians has a nasty smell about it. But the origin of such money is primarily an issue for Russian lawmakers. If it was legally brought into an EU country then it offers no ground for retribution. It certainly cannot be laundered simply by paying it into a Cypriot (or any other) bank account and taking it out again. To the extent that any fraudulent activities have taken place, this is a matter for the financial authorities and individuals guilty of wrongdoing should receive appropriate punishment: this is no justification for an across-the-board levy, particularly one that hits the very smallest savers.
More fundamentally, I have seen not a scrap of evidence that the inflow of Russian capital has been the Achilles’ Heel of the island’s banks. In fact it is very obvious what critically weakened the Cypriot banking system: the haircut on Greek bonds which was decided by, yes, the same European governments and and EU and international institutions that are now imposing a haircut, this time called a levy, that is once again sending shockwaves through the financial system. The Greek haircut was a bad idea for slightly different reasons (for the prediction see here, for the impacts here), but it was inevitable that the value losses (around half) on such bonds would cause massive problems for those banks holding Greek public debt. It is quite understandable and normal that the banks in (Greek-speaking) Cyprus have relatively large holdings of Greek government bonds. This is not speculation: holding the bonds of your own government – or if you are a small island those of a government with which you have close relations – is a hum-drum essentially risk-free affair: or rather, it is supposed to be.
Greek bond-holders last time (unique!), Cypriot deposit-holders (unique!) this time. Who’s next? That is the question reverberating around Europe this morning. Even if a major renewed crisis is avoided, this agreement will cost growth and jobs, and not just in Cyprus. Once again the weaknesses of a primarily intergovernmental approach to running the monetary union have been exposed. (From what I have garnered from the media about the negotiations, this is one case where the EU Commission is entirely blameless.) The urgent need is to press ahead with banking union and to back up the fine words on “doing what it takes to save the euro area” (Draghi) with equally firm action. Instead, onec again policymakers will be manning the pumps.
The ship, in other words, needs new steering gear and a new set of sails. The risk is that the ship might sink while those are being put into place – for a ha’penny worth of tar
.....................................................
Social Europe Journal
debating progressive politics in Europe and beyond
Cyprus: Risking The European Ship For Ten Euros Of Tar
18/03/2013 by Andrew Watt
I come from a nautical family. One expression I learnt as a child was: “Don’t sink the ship for a ha’penny worth of tar”.
The weekend agreement on a rescue of the Cypriot banking system flagrantly disregards this sound advice. The ship in question is not the banking system of that Mediterranean island, which is to be ‘saved’ with the provision of about EUR 10 billion in EU and IMF funding. It is the entire euro area economy. Accordingly the missing tar – a thick resin used to seal the hull of wooden ships in olden times – in this case costs a bit more than half a penny: EUR 5.8 billion to be precise. That is the sum that holders of Cypriot bank accounts will be forced to stump up in the form of a one-off levy: 6.75% on all deposits up to EUR 100,000 and 9.9% above that.
That may sound a lot. Well, it is a touch over ten euros for every EU citizen. More relevantly, it represents less than 0.05% (one two-thousandth) of euro area annual GDP. And it is a safe bet indeed that the knock-on damage on economic output of this deal will be far higher, with a substantial tail-risk of a renewed lurch into crisis. Why is that?
All advanced capitalist economies provide state-run deposit insurance, up to a certain limit. It is the single most important element in preventing devastating bank-runs. (Banks only ever hold a relatively small proportion of the money deposited with them. The rest is lent out. If doubts arise about the safety of those deposits, customers will seek to withdraw them. Once they start to do so the risk becomes a self-fulfilling prophecy.)
In the wake of the 2007/2008 financial crisis all European Union countries committed to a common ceiling of EUR 100,000. Account-holders with less were never to suffer losses. This is key to underpinning confidence in the banking system and thus the normal flow of credit in the economy. (If you are wondering why the the deposit insurance will not be paying out in this case, the answer is that such insurance covers actual financial losses by the bank. The levy is a form of tax on account holders that any government with a majority in Parliament can impose on its population. This explanation will satisfy lawyers, but there is no real economic difference given that the levy is being used to stem bank losses, and there is no reason to expect that such a distinction will placate irate account holders.)
For the sake of a paltry EUR 5.8 billion, then, this crucial principle of sound economic management has been effectively scrapped. At the very most a levy on accounts above EUR 100,000 should have been imposed. (Although given the orders of magnitude involved, even this I would consider an unnecessary risk to take.) Depositors, particularly in countries with shaky banking systems such as Spain and Italy, but very likely in other countries as well, are certainly asking themselves this morning whether their money is safe. If they start making substantial withdrawals, a shadow will be cast once again over the whole European banking system and thus over the prospects of emerging from the crisis. Of course, policymakers have assured voters that Cyprus is a special case requiring special measures. But we have heard this before, when holders of Greek sovereign bonds suffered a haircut – of which more in a minute.
In recent weeks the Cypriot banking sector has been subjected to a barrage of criticism which will go a long way to placating all those Europeans who do not hold accounts there, and are tired and suspicious of taxpayers having to stump up for the failings – so the perception – of undeserving others. Indeed, reporting seemed to have an element of a concerted campaign to soften up public opinion. At the very least it pandered, in an uninformed way, to popular restments and clouded the issues at hand. For many of the arguments made are very largely either specious or irrelevant or both.
The island’s banking system is supposedly awash with Russian money that the Cypriot banks have been happily washing for a handsome profit. It seems that in fact only around 15 out of EUR 68 billion is held by non-residents, mostly Russians and Britons. So domestic account-holders will take by far the biggest hit. In any case: so what? Cyprus is a Mediterranean island. It is not the Ruhr area or the Emilia Romana. It is no surprise that it seeks to pay its way in the world with tourism and financial services. It has a large number of ex-patriat residents, not coincidentally including many Russians and Brits with whom there are cultural and linguistic/historical ties.
It may well be that some of the money brought in by wealthy Russians has a nasty smell about it. But the origin of such money is primarily an issue for Russian lawmakers. If it was legally brought into an EU country then it offers no ground for retribution. It certainly cannot be laundered simply by paying it into a Cypriot (or any other) bank account and taking it out again. To the extent that any fraudulent activities have taken place, this is a matter for the financial authorities and individuals guilty of wrongdoing should receive appropriate punishment: this is no justification for an across-the-board levy, particularly one that hits the very smallest savers.
More fundamentally, I have seen not a scrap of evidence that the inflow of Russian capital has been the Achilles’ Heel of the island’s banks. In fact it is very obvious what critically weakened the Cypriot banking system: the haircut on Greek bonds which was decided by, yes, the same European governments and and EU and international institutions that are now imposing a haircut, this time called a levy, that is once again sending shockwaves through the financial system. The Greek haircut was a bad idea for slightly different reasons (for the prediction see here, for the impacts here), but it was inevitable that the value losses (around half) on such bonds would cause massive problems for those banks holding Greek public debt. It is quite understandable and normal that the banks in (Greek-speaking) Cyprus have relatively large holdings of Greek government bonds. This is not speculation: holding the bonds of your own government – or if you are a small island those of a government with which you have close relations – is a hum-drum essentially risk-free affair: or rather, it is supposed to be.
Greek bond-holders last time (unique!), Cypriot deposit-holders (unique!) this time. Who’s next? That is the question reverberating around Europe this morning. Even if a major renewed crisis is avoided, this agreement will cost growth and jobs, and not just in Cyprus. Once again the weaknesses of a primarily intergovernmental approach to running the monetary union have been exposed. (From what I have garnered from the media about the negotiations, this is one case where the EU Commission is entirely blameless.) The urgent need is to press ahead with banking union and to back up the fine words on “doing what it takes to save the euro area” (Draghi) with equally firm action. Instead, onec again policymakers will be manning the pumps.
The ship, in other words, needs new steering gear and a new set of sails. The risk is that the ship might sink while those are being put into place – for a ha’penny worth of tar
Spursex
Alert Team
It's not a bad read; technically the writers inaccurate on the consequence of the haircut on Greek bondholders, (but put that to one side as the actual numbers in respect of holding of sovereign debt bonds doesn't support his argument).
The part that he misses the point on is the ability to launder from Cypriot banks - it's NOT about what overseas deposits they're holding now and is ALL about how they've behaved previously (IN much the same way as Irish banks in the UK built themselves reps for being safe-havens for under the counter cash, hiding cash or just depos to get away from the UK taxman)...
The Cypriot economy and the locals have behaved just as the Greeks did - running up massive debt based on largely fraudalent figures and with an inability to properly collect tax (when declared!)...
But the writer is right, this agreement will cost growth (probably for at least a decade) and jobs, and all in the name of 'saving the Euro'.
What a mess, I dispair at the Eurozone's central banks and the EU's policy makers self-serving self interest stupidity.
The Germans will if they are not careful now, will end up being the most hated people in Europe....unfairly so too.
The part that he misses the point on is the ability to launder from Cypriot banks - it's NOT about what overseas deposits they're holding now and is ALL about how they've behaved previously (IN much the same way as Irish banks in the UK built themselves reps for being safe-havens for under the counter cash, hiding cash or just depos to get away from the UK taxman)...
The Cypriot economy and the locals have behaved just as the Greeks did - running up massive debt based on largely fraudalent figures and with an inability to properly collect tax (when declared!)...
But the writer is right, this agreement will cost growth (probably for at least a decade) and jobs, and all in the name of 'saving the Euro'.
What a mess, I dispair at the Eurozone's central banks and the EU's policy makers self-serving self interest stupidity.
The Germans will if they are not careful now, will end up being the most hated people in Europe....unfairly so too.
D
Departed
Guest
LOL. The whole Eurozone crisis may have been triggered by the banking crisis but it was a house of cards prior to that. Many small economies were forced into ridiculous spending measures in order to "meet" EU entry requirements. Larger economies that were experiencing structural changes due to manufacturing relocating because labour costs were out of control also had to spend. Bankruptcy is the only way out. What is currently happening will only delay the bankruptcy....likely by about 10-15 years as Ex alluded to.
The lesson is simple. Don't spend money you don't have....or even simpler....spend less than you make. Financial prudence in government will beget financial prudence in the citizens of that country. And tighten up lending practices even more. If everyone is financilly responsible the economy is sustainable. Any economy that budgets on perpetual growth will eventually fail.
Spursex
Alert Team
You mean you didn't believe our wonderful Gordon Brown and his 'end to boom and bust'...and of course his utter nonsense of justifying ever increasing goverment lending and spending from 2001 as he broke his 'golden rule'....
Good grief, so the bastard was a lying buggar then, who would have thought it? :10: LOL!
D
Departed
Guest
They are all bastards and lying buggers looking to get re-elected. Bring in term limits for all of them and restrict their perqs appropriately. 8 years should be a maximum amount of time anyone is allowed to serve.....oh sorry...serve is the wrong word....rape the taxpayer is a better description. Serve is what they SHOULD be doing.
Spursex
Alert Team
You have to wonder why the Russian state, Banks and individuals have so much money in such a small economy..
I wonder if it has anything to do with Cyprus being their strategic shipping point for Russian arms to Syria and their backdoor to Iran...
http://www.bbc.co.uk/news/world-europe-21832187
I wonder if it has anything to do with Cyprus being their strategic shipping point for Russian arms to Syria and their backdoor to Iran...
http://www.bbc.co.uk/news/world-europe-21832187
D
Departed
Guest
You want to know something even funnier....only it isn't funny really. The effing EC has just MANDATED that deposit holders give up savings in return for shares in the bank. Just watch what happens now as the Russians go around to all the other account holders and offer them 50 cents on the dollar for their shares and start to build their ownership in the Cypriot banking system. The stupid bastards at the EC have just let the fox into the henhouse. Within 10 years the Russian mafia will control the banks on that poor unsuspecting island.
Stupid stupid stupid stupid.
Stupid stupid stupid stupid.
Spursex
Alert Team
Cyprus: risk of new 'cold war' as Putin threatens loan pull-out
Ordinary Cypriots are sympathetic to the Russians, who have boosted economy during the recession
BY COLIN BROWN LAST UPDATED AT 10:33 ON TUE 19 MAR 2013
THE CYPRUS banking crisis is threatening to spin out of control into a new cold war between Russia and the EU. As my ex-pat friends work out how to get through until Thursday without being able to withdraw cash - and wonder what will happen if and when the banks do re-open - the government in Nicosia is under pressure to rethink its cack-handed bank levy.
Sadly, the rethink is unlikely to mean scrapping the plan altogether. Instead, smaller investors like me with with less than €20,000 in a Cyprus bank could be spared any levy, but those with more than €100,000 in their accounts will still have 9.9 per cent of their savings removed - possibly more. (The rate for those between €20,000 and €100,000 will likely remain at 6.5 per cent.)
This will hit those British ex-pats who, as I described yesterday, have sold up in the UK, bought much cheaper properties in the sun, and put the difference in the bank to live off.
More crucial in terms of world peace, it will also hit those wealthy Russian companies and individuals who keep small fortunes in Cyprus banks – as much as £12.5 billion in total, according to some estimates.
The threat to raid their accounts has provoked a furious outburst from the Kremlin, with Vladimir Putin calling the levy "unfair, unprofessional and dangerous". Now the Russian president is threatening to withdraw a loan of €2bn already given to Cyprus.
Cyprus occupies a strategically important place in Nato and the EU – it is a secret listening post for the CIA and GCHQ for North Africa - and it has been the centre of a Russian stand-off with the West in the past, before the Turkish invasion which divided the island in 1974.
The past Cyprus president - a pro-Russian Communist - encouraged warm relations with Moscow to the alarm of European leaders. The recently elected right-wing President Anastasiades wants to turn Cyprus to the west.
But ordinary Cypriots taking to the streets have their sympathies firmly with the Russians, who have boosted the Cyprus economy during the recession. One woman screamed: "It is a Third World War." They see it as a raid by the Germans on their money. Protestors are carrying placards saying: "Merkel go home."
Small wonder when Germans like Jorge Asmussen, a member of the European Central Bank's governing council, says without any sympathy: "If Cyprus's president wants to change something regarding the levy on bank deposits, that's in his hands. He must just make sure that the financing is intact."
The Germans, in short, are unapologetic, with commentators saying German taxpayers will not allow their money to be used to bail out Russian tax dodgers who have salted their "hot money" away in Cyprus banks.
It is true the Russians are everywhere. Limassol has been dubbed Limagrad. There is a local Russian radio station and the town is building a vast marina with housing and shops for the Russian nouveau riche who want to bring luxury yachts to the harbour. On my local beach in Pissouri, 20 kms west of Limassol, a house for a Russian oligarch is nearing completion. It is as big as a hotel.
The Russian oligarchs are attracted not just by the sun. The tide of alleged "dirty money" has been flowing from the former Soviet bloc to Cyprus for years, because of the loose banking regulations on the island.
Cyprus has based its economy on international banking to supplement its income from tourism – banking is a massive seven times its GDP. And the discovery of vast gas reserves increased the interest of Russia, which offered to help Cyprus exploit its new-found wealth.
All this has gone over the heads of my friends, like Lou, the poolman, who used to be the manager of a small bank branch in Scotland before retiring to the sun.
"I won't shed a tear for the Russians, but it's nothing short of daylight robbery," Lou told me this morning. "I'm lucky – I kept our savings in the UK, because I didn't trust the Cyprus banks."
Bryan, a retired builder, said: "I never trusted the Cyprus banks, so we left all our savings in the UK. If the Russians have to pay more, I can live with that. But we are in limbo a bit. I don't know what will happen when the banks open again on Thursday."
Even if those with €20,000 or less in their accounts are now spared, my friends at the bank in the village square are still likely to find their doors besieged on Thursday with angry villagers wanting their money.
Colin Brown is the former deputy political editor of The Independent. He has a holiday home in Cyprus. His first article for The Week on the banking crisis can be read here.
Read more: http://www.theweek.co.uk/world-news/52056/cyprus-risk-new-cold-war-putin-threatens-loan-pull-out#ixzz2NzMeg4jH
Ordinary Cypriots are sympathetic to the Russians, who have boosted economy during the recession
BY COLIN BROWN LAST UPDATED AT 10:33 ON TUE 19 MAR 2013
THE CYPRUS banking crisis is threatening to spin out of control into a new cold war between Russia and the EU. As my ex-pat friends work out how to get through until Thursday without being able to withdraw cash - and wonder what will happen if and when the banks do re-open - the government in Nicosia is under pressure to rethink its cack-handed bank levy.
Sadly, the rethink is unlikely to mean scrapping the plan altogether. Instead, smaller investors like me with with less than €20,000 in a Cyprus bank could be spared any levy, but those with more than €100,000 in their accounts will still have 9.9 per cent of their savings removed - possibly more. (The rate for those between €20,000 and €100,000 will likely remain at 6.5 per cent.)
This will hit those British ex-pats who, as I described yesterday, have sold up in the UK, bought much cheaper properties in the sun, and put the difference in the bank to live off.
More crucial in terms of world peace, it will also hit those wealthy Russian companies and individuals who keep small fortunes in Cyprus banks – as much as £12.5 billion in total, according to some estimates.
The threat to raid their accounts has provoked a furious outburst from the Kremlin, with Vladimir Putin calling the levy "unfair, unprofessional and dangerous". Now the Russian president is threatening to withdraw a loan of €2bn already given to Cyprus.
Cyprus occupies a strategically important place in Nato and the EU – it is a secret listening post for the CIA and GCHQ for North Africa - and it has been the centre of a Russian stand-off with the West in the past, before the Turkish invasion which divided the island in 1974.
The past Cyprus president - a pro-Russian Communist - encouraged warm relations with Moscow to the alarm of European leaders. The recently elected right-wing President Anastasiades wants to turn Cyprus to the west.
But ordinary Cypriots taking to the streets have their sympathies firmly with the Russians, who have boosted the Cyprus economy during the recession. One woman screamed: "It is a Third World War." They see it as a raid by the Germans on their money. Protestors are carrying placards saying: "Merkel go home."
Small wonder when Germans like Jorge Asmussen, a member of the European Central Bank's governing council, says without any sympathy: "If Cyprus's president wants to change something regarding the levy on bank deposits, that's in his hands. He must just make sure that the financing is intact."
The Germans, in short, are unapologetic, with commentators saying German taxpayers will not allow their money to be used to bail out Russian tax dodgers who have salted their "hot money" away in Cyprus banks.
It is true the Russians are everywhere. Limassol has been dubbed Limagrad. There is a local Russian radio station and the town is building a vast marina with housing and shops for the Russian nouveau riche who want to bring luxury yachts to the harbour. On my local beach in Pissouri, 20 kms west of Limassol, a house for a Russian oligarch is nearing completion. It is as big as a hotel.
The Russian oligarchs are attracted not just by the sun. The tide of alleged "dirty money" has been flowing from the former Soviet bloc to Cyprus for years, because of the loose banking regulations on the island.
Cyprus has based its economy on international banking to supplement its income from tourism – banking is a massive seven times its GDP. And the discovery of vast gas reserves increased the interest of Russia, which offered to help Cyprus exploit its new-found wealth.
All this has gone over the heads of my friends, like Lou, the poolman, who used to be the manager of a small bank branch in Scotland before retiring to the sun.
"I won't shed a tear for the Russians, but it's nothing short of daylight robbery," Lou told me this morning. "I'm lucky – I kept our savings in the UK, because I didn't trust the Cyprus banks."
Bryan, a retired builder, said: "I never trusted the Cyprus banks, so we left all our savings in the UK. If the Russians have to pay more, I can live with that. But we are in limbo a bit. I don't know what will happen when the banks open again on Thursday."
Even if those with €20,000 or less in their accounts are now spared, my friends at the bank in the village square are still likely to find their doors besieged on Thursday with angry villagers wanting their money.
Colin Brown is the former deputy political editor of The Independent. He has a holiday home in Cyprus. His first article for The Week on the banking crisis can be read here.
Read more: http://www.theweek.co.uk/world-news/52056/cyprus-risk-new-cold-war-putin-threatens-loan-pull-out#ixzz2NzMeg4jH
