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The three options for Cyprus

This story is true, but somewhat hyped. The FT has seen the memo for today's eurozone group, which includes the bail-in of uninsured depositors in Cyprus as one of three options under consideration. The reason for this option is the reluctance by Germany to fund a bailout without inflicting losses on bondholders and depositors, but others are warning that such action might be risky, and might rekindle the eurozone crisis. The article only lists this as an option under consideration, not as something that is about to decided. If this option were triggered, the size of the bailout would fall from €16.7bn to only €5.5bn, and it would reduce the country's outstanding debt to a more sustainable level of 77%, compared with 140% under a full bailout. It would also shrink the Cypriot financial sector by one third. A more moderate version of this proposal is the bail-in of junior debt holders, but not depositors.

(The reason they list this as an option is the politics of Germany, with no majority for a Cyprus bailout in sight. But we consider this more of a fallback option, rather than the most likely outcome. The most likely option in our view is option two, a bail-in of unsecured bondholders, but not of depositors. That would be consistent the bailout agreement for the Spanish banks as well.)

Let me say that again:
reluctance by Germany to fund a bailout without inflicting losses on bondholders and depositors.


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Feb 11th, 2013 at 04:21:16 AM EST
[ Parent ]
Time to start up the old money in the mattress system then?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Mon Feb 11th, 2013 at 04:41:08 AM EST
[ Parent ]
I'm flabbergasted.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Feb 11th, 2013 at 05:21:11 AM EST
[ Parent ]
Germany is looking for an excuse to create and continue the crisis.

I think this has gone far beyond any reasonable expectation of irrational action based on some wrong-headed notion of fiscal prudence.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Feb 11th, 2013 at 05:58:26 AM EST
[ Parent ]
I don't know. MMT, THE EURO, AND THE ROAD TO RECOVERY: Interview with L. Randall Wray
Q: Is MMT necessarily linked to a certain macroeconomic policy or even a political ideology?

A: Narrowly speaking, no. I've written pieces on "MMT for Austrians". At one level, MMT describes how things actually work, with no ideology and no policy prescription. However, I do subscribe to the view that the goal cannot be to just understand the world. We try to understand it so that we can change it. Some Austrians do understand MMT and they are horrified; they want to go back to an imaginary past in which we used gold as money, and would use such a system to stop all progressive policy. I'm a progressive and I want to go forward, to use the monetary system to mitigate problems such as unemployment and poverty. I'm not shy about my political ideology and my use of MMT to further the agenda.

(My emphasis)

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Feb 11th, 2013 at 06:16:15 AM EST
[ Parent ]
ThatBritGuy:
Germany is looking for an excuse to create and continue the crisis.

they are using the euro-morality play to distract their own electorate from their own banks' malfeasance, in case the confidence fairy decides to take a long hike.

nothing like righteous indignation to unite an aggrieved populace...

merkel depends on fast footwork to keep reality at bay, but it's creeping ever closer even though all europe's 'leaders' are her bitches.

if the euro crashes, she wants to disclaim responsibility, dem lazy swarthies not being as industrious and obedient responsible.

without the benign radiance of the banks we are but dust in the wind...


'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Feb 11th, 2013 at 12:47:45 PM EST
[ Parent ]
Ouch.
(Do Grecians and Spaniards have natural rhythm?)

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sapere aude
by Number 6 on Tue Feb 12th, 2013 at 04:58:35 AM EST
[ Parent ]


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Tue Feb 12th, 2013 at 05:01:44 AM EST
[ Parent ]
I'm not quite understanding this, and for once it's not snark: Are they saying that those who have money in Cypriot banks will immediately lose some of it in the case of a bailout?
If so, how it it a 'rescue plan'?


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sapere aude
by Number 6 on Mon Feb 11th, 2013 at 06:58:22 AM EST
[ Parent ]
FT.com: Radical rescue proposed for Cyprus (February 10, 2013)
By "bailing in" uninsured bank depositors, it would also involve more foreign investors, especially from Russia, some of whom have used Cyprus as a tax haven in recent years. That would answer criticism from Berlin in particular, where politicians are calling for more drastic action to stop the island being used for money laundering and tax evasion.

Senior EU officials who have seen the document cautioned that imposing losses on bank depositors and a sovereign debt restructuring remain unlikely. Underlining the dissuasive language in the memo, they said that bailing in depositors was never considered in previous eurozone bailouts because of concern that it could lead to bank runs in other financially fragile countries.

...

Cyprus's bailout, while small compared to Ireland, Portugal and Greece, has proven unexpectedly difficult because its size relative to the country's gross domestic product would increase debt to levels considered unsustainable both by the International Monetary Fund and the German government.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Feb 11th, 2013 at 09:10:51 AM EST
[ Parent ]
is to burn the Russian depositors if possible? So what's the downside?

I've been idly wondering how/why the EU should rescue the oversized Cypriot banking sector which seems to function primarily as a laundry for shady Russians. At a minimum, a clean-up would seem to be necessary. Or is it taboo for some reason to mix this with a bail-out?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Feb 11th, 2013 at 09:26:39 AM EST
[ Parent ]
So who is bailed out if the depositors are optional? The only thing saved is the central position of the financial aristocracy in the power structure.

I don't think the liberal democracy frame is still of much use here.

by generic on Mon Feb 11th, 2013 at 11:10:21 AM EST
[ Parent ]
Assuming there's a distinction between insured and uninsured depositors, this would appear to be an attempt to limit the size of the bailout. Also, if you burn everyone except insured depositors, and Cyprus still needs a bailout, this can only be because the size of the Cypriot banks' balance sheets is so large (about 8 times Cyprus' yearly GDP, apparently).

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Feb 11th, 2013 at 12:07:25 PM EST
[ Parent ]

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