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ECB presses Cyprus to impose bank levy

The European Central Bank is pressing Cyprus to legislate a universal levy on bank deposits before international financial markets open on Monday, after the Cypriot government unexpectedly postponed Sunday's planned vote in parliament amid strong opposition from lawmakers.

President Nicos Anastasiades rejected the demand at a meeting with two ECB officials who flew to the island on Sunday, a government adviser said. The same officials were due to brief Cypriot political party leaders later in the day. The vote was rescheduled for Monday, a bank holiday in Cyprus.

Mr Anastasiades was expected to make a televised address on Sunday evening, in which he would appeal to Cypriots to accept losses on their savings as part of a €10bn bailout by international lenders.

(...)

Cypriots continued to withdraw cash from bank cash machines on Sunday, with banks making a trickle of funding available through the holiday weekend. But a rush to withdraw deposits is expected when banks reopen. It was not clear whether another public holiday would be declared on Tuesday.

"Whether or not the levy is approved by parliament, businesses and individuals will be hoarding cash," said a Cypriot importer who asked not to be named.

Mr Anastasiades faces an uphill task to persuade reluctant lawmakers, after pledging he would "never" accept a haircut of deposits as a condition for a bailout by international lenders.

His governing coalition controls 28 seats in the 56-member parliament, but several members of the Democratic party (Diko), the junior partner, have threatened to vote against the bill.



Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 12:20:23 PM EST
You know, it was pretty controversial when Greenspan spoke out even in mild tones regarding legislation.  Bernanke has tried to do away with that, to the degree one can when one of the two major parties is actively working to sabotage the economy.

The ECB makes Greenspan look like a model of independence by comparison.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Mar 17th, 2013 at 12:26:14 PM EST
[ Parent ]
Willem Buiter: What's left of central bank independence? (May 5, 2009)
I happen to agree with Governor King on the undesirability of a further discretionary fiscal stimulus for the UK.  But why on earth did he say this in public?  This was definitely a sliding tackle, nowhere near the ball, with both feet aimed firmly at sensitive parts of the political anatomy of the Chancellor and, even more, of the Prime Minister.  It politicises the Bank of England and makes it fair game for any government minister or member of the opposition who wants to put pressure on the bank or attack it in public.  Not smart.

President Trichet of the ECB is already so far down the road of telling governments what to do and what not to do in the fiscal and structural reform domains, that one is hardly surprised by yet another lecture on budgetary policy from the Eurotower.  Traditionally, continental European central bankers speak very little about monetary policy in public, and are often unwilling to engage in public debate or answer questions about their monetary duties, but carry on endlessly about budgetary and structural reform matters. It's always easier to speak about things you have no responsibility for, that are not part of your mandate and about which you probably don't know very much.

The opposite problem has been encountered in the US, when Ben Bernanke has been so often seen shoulder-to-shoulder with past and present Secretaries of the Treasury, that it is hard to tell (except for the beard) where one begins and the other ends.  A Chairman of the Fed ought not to publicly endorse or reject fiscal measures, budgets or plans.  It's not his mandate and not his competence.  It also further politicises the Fed and undermines its future independence.

This is not limited to the ECB, every National Central Banker does it.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Mar 17th, 2013 at 12:52:58 PM EST
[ Parent ]
The worst thing is that you can't get rid of the ECB guys, no matter how stupidly they behave. You can't vote them out of office, and you can't vote the guys who name them out of office.

Is there even any democratic path to changing the inflation target, or adding a dual mandate?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Mar 17th, 2013 at 12:31:40 PM EST
[ Parent ]
Is there even any democratic path to changing the inflation target, or adding a dual mandate?
Treaty change.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Mar 17th, 2013 at 12:39:16 PM EST
[ Parent ]
As in multi-year watered down compromise which requires the Germans to get on board?

I suppose we can ignore that opportunity then. But it would be interesting having EZ-wide direct elections, if only to the ECB chairmanship.

How are the members of the ECB board named anyway?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Mar 17th, 2013 at 12:45:10 PM EST
[ Parent ]
How are the members of the ECB board named anyway?
By the Eurogroup. The European Parliament is allowed to voice an opinion to be duly ignored.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Mar 17th, 2013 at 12:47:13 PM EST
[ Parent ]
By the Eurogroup

Collectively? I suppose, if reasonable governments took power in Europe, they should be able to shift the composition of the ECB council over time.

Another thing I've been thinking about: the ECB inflation target is "close too but less than 2%". Does this mean "less than 2%" is a hard roof, or the center of a range?

The Riksbank target is 2%, plus or minus 1%, thus essentially an 1-3% range, but the closer to 2%, the better.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Mar 17th, 2013 at 12:56:48 PM EST
[ Parent ]
Inflation targeting is economic superstition.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Mar 17th, 2013 at 12:58:17 PM EST
[ Parent ]
It's worked well enough for us, but let's stay on topic.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Mar 17th, 2013 at 01:00:13 PM EST
[ Parent ]
The central bank should not telegraph its intentions.  Ideally you'd like to have a steady inflation rate and a solid economy.  In good times that's fine.

In the times in which we live, the central bank ought to maintain flexibility to do what it needs to do to help put the economy back on track and people back to work.  If that means higher inflation for a while, so be it.  Hence the shouts from the Krugmans of the world at Bernanke in recent years.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Mar 17th, 2013 at 01:06:18 PM EST
[ Parent ]
Raising inflation above the target to lower the real interest rate is only needed if the government fails to launch aggressive fiscal policy at the zero lower bound.

That's when you get QE and "responsibly irresponsible" monetary policy. Keep the inflation target, but add a target (business cycle unemployment, or something) which means the central bank can deviate from the inflation goal if there are other pressing issues, like unemployment caused by excessive austerity.

As a matter of fact, the dual mandate of the Riksbank (inflation targeting and financial stability) is currently keeping the divided Riksbank board from cutting rates (currently at 1.25%). The reason being is that there are worries about a housing bubble and private sector overindebtedness. The Riksbank has even come straight out and told the government they will cut rates if certain laws are changed, like demanding bigger down-payments, stricter repayment schedules and an elimination of interest rate deductions for borrowers.

This in turn is making the export companies angry as the relatively high rates are strengthening the krona, making exports less competitive. It would be fun if the Riksbank instead of cutting rates instituted a Swiss-style limit on the appreciation of the krona.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Mar 17th, 2013 at 01:27:33 PM EST
[ Parent ]
As in multi-year watered down compromise which requires the Germans to get on board?
Unless it's Merkel and Sarkozy pushing it, in which case everyone else scrambles to amend their constitutions.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Mar 17th, 2013 at 12:49:37 PM EST
[ Parent ]
Starvid:
How are the members of the ECB board named anyway?

ECB: Executive Board

The Executive Board consists of
  • the President
  • Vice-President and
  • four other members
All members are appointed by the European Council, acting by a qualified majority.

But policy is decided by:

ECB: Governing Council

The Governing Council is the main decision-making body of the ECB. It consists of
  • the six members of the Executive Board, plus
  • the governors of the national central banks of the 17 euro area countries.

And according to the treaties, the governors are appointed by the state CB board that is appointed by parliament.

So:
People -> parliament -> CB board -> governor
And:
People -> parliament and/or president -> finance minister -> ECB executive board

Yes, direct elections would be preferable.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Mar 17th, 2013 at 03:59:03 PM EST
[ Parent ]
you can't vote the guys who name them out of office.

You can't? Why?

by IM on Sun Mar 17th, 2013 at 02:57:30 PM EST
[ Parent ]
Apparently, you can (?), as they seem to be the heads of the national central banks. But there is an extra level of resistance. In the pre-EZ time, the leadership of the national central banks changed whenever the mandate of someone on the board ran out. Now not only need the composition of the national central bank change, but the composition of the ECB governing council as well. This creates a more rigid system.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Mar 17th, 2013 at 03:04:00 PM EST
[ Parent ]
Well, as long as the ECB senior people can be vetoed by Germany, and all German parties support "hard euro" policies, there will be little change in practice.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 03:13:00 PM EST
[ Parent ]
Situation may be slipping out of human control.  There comes a time, and I have no idea if it has arrived (and neither does anybody else,) when a system moves into a phase transition seeking a new state.  When and as that happens, human intervention is as likely to mess things up worse as to make it better.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Mar 17th, 2013 at 03:26:03 PM EST
[ Parent ]
"Well, as long as the ECB senior people can be vetoed by Germany,"

But they constitute only small part of the governing council. The national governments can appoint whom they want to head their national banks.

by IM on Sun Mar 17th, 2013 at 03:40:03 PM EST
[ Parent ]
Karl Whelan on Forbes: The Secret Tool Draghi Uses to Run Europe (7/22/2012)
So it goes without saying that ECB President Mario Draghi is powerful.  He decides how much money is printed in Europe and what the cost of borrowing that money will be.  But dig deeper and you'll find that the ECB exerts far more control over events in Europe than the Fed does in the US.

...

More obscure than the bond-buying program but far more powerful is the little-known "risk control framework".  Normally, the ECB is willing to provide loans to banks as long as they can pledge assets that are listed on its "eligible collateral list".   However, the risk control framework allows the ECB to deny credit to any bank or reject any assets as collateral should it see fit.  Specifically:

the Eurosystem may suspend or exclude counterparties' access to monetary policy instruments on the grounds of prudence
and
the Eurosystem may also reject assets, limit the use of assets or apply supplementary haircuts to assets submitted as collateral in Eurosystem credit operations by specific counterparties.
The ECB has used the risk-control framework to control events at a number of key junctures in the euro crisis.

...

All told, the story of ECB's serial use of its risk control framework raises pretty serious questions about whether it is has been a good idea for Europe to provide this much power to a single unaccountable institution.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Mar 17th, 2013 at 01:01:38 PM EST
[ Parent ]
[No Shit, Sherlock!]


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Mar 17th, 2013 at 03:30:21 PM EST
[ Parent ]

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