Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Live blogging the Cyprus deposit situation

by Migeru Sun Mar 17th, 2013 at 09:00:08 AM EST

Bringing over the discussion in the Weekend open thread.

The biggest news out of the European Council last Thursday and Friday is the "resolution" of the Cyprus banking crisis. The Cypriot President, Nicos Anastassides, issued the following statement explaining the situation on Saturday, March 16:

In the extraordinary meeting of the Eurogroup, we faced decisions that had already been taken and came across faits accomplis through which we were faced with the following dilemmas:
On Tuesday, March 19 we would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis, which would put a definitive end to the uncertainty and restart our economy.
A possible choice of the catastrophic scenario option would have the following consequences:
  1. On Tuesday, March 19, immediately after the holiday weekend, one of the two banks in crisis would cease to operate, since the European Central Bank, following the decision already taken, would terminate the provision of liquidity. The second bank would suspend its work, and neither could avoid collapse. Such a phenomenon would instantly lead 8.000 families to unemployment.
  2. The State would be obliged to compensate depositors in response to the obligation regarding guaranteed deposits. The capital required in such a case would amount to about 30 billion euros, which the State would be unable to pay.
  3. A proportionate amount corresponding to the deposits of thousands of depositors for deposits over 100.000 Euro, would be led to a vicious cycle of asset liquidation, and these depositors would suffer losses of over 60%.
  4. Such an uncontrolled situation would push the whole banking system into collapse with all the attendant consequences.
  5. Thousands of small and medium enterprises, and other businesses would be driven to bankruptcy due to their inability to trade.
As a result of the above, the service sector would be led to a complete collapse with a possible exit from the euro. That, in addition to the national weakening of Cyprus, would lead to devaluation of the currency by at least 40%. The second choice was the controlled management of the crisis, through the decisions taken and which can be summarized as follows:
  1. Ensuring the liquidity of the banks and the rescue of the banking system through their recapitalization.
  2. Rescuing 8.000 jobs in the banking sector and thousands of others which would be lost as a corollary of not maintaining the operations of banks.
  3. Total rescuing of deposits, with just the exchange of a small percentage of savings with shares of the two banks. Currently, these shares do not have their full value, but with the economic recovery they will repay most it not all of the amount that will be cut.
  4. This option results in a drastic reduction of public debt, makes it manageable and sustainable and relieves future generations from the burden of repayment.
  5. It saves provident and pension funds and avoids taking other tough measures such as wage and pension cuts that were put on the negotiations table.
  6. It avoids further recession and the risk of the vicious circle of a second memorandum.
We are not aiming to gloss over the situation. The solution chosen may be painful, but it was the only one that would allow us to continue our lives without adventures. It's a decision that leads to the historic and permanent rescue our economy.
To me, the most important bit is the claim that
we faced decisions that had already been taken and came across faits accomplis


In an update to her blog post discussing why this is a big deal, Frances Coppola writes:

It appears that Cyprus came very close to actual default. This tweet from Yiannis Mouzakis shows that the ECB was preparing for collapse of Cyprus's two main banks:

@YiannisMouzakis

Local reports, the blackmail to #Cyprus peaked at 3.00am on Sat when Asmussen called Draghi, said ECB to prep for collapse of two Cyp banks
The timing of this is exquisite and it is hard not to conclude, as Mouzakis does, that it was done to put pressure on the Cypriot government in order to obtain a deal at any price, regardless of the consequences for the Cypriot economy and for its people.
On the substance, Coppola writes
Plenty of people have questioned why small depositors had to be hit at all. The German financial minister, Wolfgang Schäuble, who appears to have masterminded the bailout plan, wanted large depositors to take a much larger hit so that small depositors could be protected. The IMF took a similar view. It seems that the Cypriot government did not agree. There is considerable speculation as to why the Cypriot government preferred to see small depositors hit. To me it seems most likely that it has to do with the Cypriot government's wish to avoid upsetting Russia, given Nicosia's hope that Russia will contribute to the bailout by softening the terms of its existing sovereign loan, and the considerable amount of money (some of it undoubtedly dirty) from Russian oligarchs that is held in Cypriot banks. But it is also possible that Nicosia is still hoping to maintain its foothold in the international tax haven network. Even with the 2.5% increase imposed as part of this bailout, corporation tax is a very competitive 12.5%, and the Cypriot government has encouraged growth of the financial sector by attracting deposits from overseas investors. Frankly I think this is pie in the sky. A 10% loss may be all in a day's work for corrupt depositors, but that doesn't mean they will continue to deposit funds in a country that imposes losses like that when there are others that don't. The large depositor haircut is a mortal blow to Cyprus's ambitions to be an international financial centre - and that has serious implications for its economy.
On Tuesday, Eurointelligence (quoted in the Newsroom) reported
This is a stunning story. The ECB is hiding the results of a study about the distribution of financial wealth in the eurozone until after the decision about an aid programme for Cyprus, Frankfurter Allgemeine reports this morning, quoting unnamed central bankers. The intention of the delay is to prevent the data being used to question the programme. The ECB has been running these polls since 2006. Some of the national central banks, including those of Italy, Austria, Luxembourg and Spain, have published their own national results, but others have not. The article says the data contain "politically explosive material". For example, Italy's financial wealth, at a median value of €164,000, lies above that of Austria, at €76,000. While the Bundesbank has not published the data, the German median value is thought to be in a similar range - in other words way below that of Italy. The political problem is that financially poorer countries are paying for wealthier countries. The two poorest in the eurozone - Estonia and Slovakia - are part of the group of creditors. (The German median wealth is likely to be shockingly low, because Germany has the lowest rate of property ownership in the EU, as a result of which wealth is highly concentrated.)

Steltzner puts the boot in
In a comment next to the article, Holger Steltzner, the paper's ultra-conservative economics editor, says the ECB is obviously afraid of a protest in the creditor countries since the data show that the poorer countries are bailing out the richer countries. The resolution policies of the euro crisis distribute wealth from those who follow the rules to those who break them. The deep reason why the ECB is withholding the data is because it has become a political actor. This damages the central bank's credibility. He is referring to an independent study by Credit Suisse, which shows that Belgians, Italian, Austrians and the French are richer than the Germans - in the case of the French, the gap is surprisingly large in favour of France, as a result of rising wages, he writes, which are now dogging the country's competitiveness.

So that's the political background to Schaeuble's "martermind" plan for Cyprus. He hopes that with a depositor haircut he'll be able to get the Bundestag to approve the plan later in April.

But it gets better! A day later, again Eurointelligence (quoted in the Newsroom) reported that

Jens Weidmann said he was opposed to proposals that the ECB should take further action to counter, through unconventional policies, to counter the credit crunch in southern Europe. He said this was not a matter for the central banks, but for national investment banks in the member states. He said there were many reasons why interest rates are high in several countries. One factors is the level of national debt. The article [in Börsenzeitung] also quoted Benoit Coeure as saying the ECB is seriously concerned about the broken transmission mechanisms.
And on Friday, after the first day of the Council,
There was not much of any substance on the EU summit beyond the usual fluff. The only thing of note was Angela Merkel’s seemingly failed attempt to get Cyprus off the agenda, as reported by Spiegel Online. Pressure is building up for a solution by the end of today, which she is resisting.
(Eurointelligence, e-mail)

Display:
I put up the story so we can add comments to the thread while I work on the story body.

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 09:00:39 AM EST
I was hoping to see on the front page (link)


I think what happened was the following:

  • Merkel cannot get the bailout passed in the German parliament
  • At the EU Council, Draghi tells the ministers that on Tuesday the ECB will pull the plug on the Cyrpiot banking system
  • Schaeuble offers Cyprus a deposit haircut or a euro exit
  • Anastassides replies: if Im going down, you're going down with me. Let's blow up EU deposit guarantees so there's a nice big panic.

Now the Troika has gone 'oh, shit' and are trying to convince Anastassides to backtrack. The Cypriot parliament vote that was to take place today has been postponed to tomorrow while the Troika descend on Cyprus to strongarm/bribe parliamentarians and Anastassides.


Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 09:55:17 AM EST
[ Parent ]
But that's just speculation on my part...

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 10:05:48 AM EST
[ Parent ]
This will visit all countries before this is over. The idea, "Well, that's Cyprus, who cares." will be the attitude till it comes home.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Sun Mar 17th, 2013 at 09:26:50 AM EST
When would a few governments start thinking: let's take a stand together?
by das monde on Mon Mar 18th, 2013 at 12:10:37 PM EST
[ Parent ]
Honest answer: NEVER! Governments of elites only care about the 1% that they answer to and who they would love to join. An economic war is on. Wait till they pull this crap with the food or water supply. That's when things will get interesting. Get out your favorite boogie shoes and prepare to dance.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Mar 18th, 2013 at 12:26:21 PM EST
[ Parent ]
The Avatar movie was so naive.

Napoleons and Genghis Khans should envy today's masters.

by das monde on Mon Mar 18th, 2013 at 12:55:04 PM EST
[ Parent ]
Weapons-grade stupid.

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 09:49:11 AM EST
Plan to avoid banking system collapse:

(1) Seize deposits,
(2) Cause runs on banks,
(3) ?????
(4) Profit!

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 09:51:32 AM EST
[ Parent ]
I think you need to expand on step 3 a little

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Sun Mar 17th, 2013 at 11:48:05 AM EST
[ Parent ]
It's Step 4 that's the problem.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Mar 17th, 2013 at 11:54:07 AM EST
[ Parent ]
Europe is about to get a painful lesson in what happens when the market mood swings decisively from greed to fear. No one has a primary goal of profit. The first thought of all is loss avoidance. The collective effects of this swing are catastrophic.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 02:34:05 PM EST
[ Parent ]

Anger as Cypriots wake up to savings grab

Cypriots have reacted angrily to news that a one-off levy would be charged on all bank deposits as part of a €10bn bailout deal agreed in Brussels with international lenders.

(...)

But on the streets of Nicosia, hundreds of people gathered outside branches of Cyprus's co-operative banks, which normally open on Saturdays, after emptying ATM machines of cash at the start of a three-day holiday weekend.

"They've cheated us, they said they'd never allow a haircut on deposits," said Andreas Efthymiou, a taxi driver, referring to a government pledge to seek alternative ways of rescuing the island's banks.

Christos Pappas, a financial services worker, said: "I tried to transfer cash online as soon as I heard the news, but the account had already been blocked."

(...)

There were fears of a run on deposits by Russian, Greek and British account-holders who are estimated to control almost half the €68bn of deposits in the Cypriot system when the system reopens.



Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 09:52:36 AM EST
And:


UK to compensate troops hit by Cyprus bank tax

British military personnel and government officials in Cyprus would be compensated for the loss of their savings in the Cypriot bailout, chancellor George Osborne said on Sunday.

Mr Osborne said the situation in Cyprus was "extraordinary" and a warning to countries - including Britain - of the need to sort out the mess in the public finances and the banking system.

The chancellor woke on Sunday to see front-page headlines warning that up to 60,000 British savers could be hit in the grab on Cypriot bank accounts - one of the conditions of the £10bn EU bailout.

Britons are thought to have about £1.7bn of deposits in Cyprus; account holders will lose 9.9 per cent on all deposits over €100,000, with a separate 6.75 per cent levy on deposits below that level.

Mr Osborne said Britain was not part of Cyprus bailout and that Cypriot banks in the UK would not be included in the "bailout tax".

This could quickly have some pretty big geopolitical implications if countries like the Uk and Turkey (and Russia) are drawn in...

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 12:09:33 PM EST
[ Parent ]
Surely the UK government would wish to recover the money it will have to pay out from the Eurozone countries that made this deal?

And surely some of the Russian depositors will complain to their government? Indeed, some of the depositors are likely influential figures in the Russian government.

by Metatone (metatone [a|t] gmail (dot) com) on Sun Mar 17th, 2013 at 12:13:32 PM EST
[ Parent ]
Britain used terrorism legislation against Iceland, why not against Cyprus?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Mar 17th, 2013 at 12:22:04 PM EST
[ Parent ]
They should use it against Schäuble.

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 12:45:15 PM EST
[ Parent ]
The problem is that from the reports so far, it seems like Stasi 2.0's proposal - screw the non-senior, unsecured, non-guaranteed creditors - was actually a very sensible sort of proposal. Which was shot down by the Cypriot government, because they didn't want to lose their money laundering business.

Now, that reading makes me a little bit suspicious that there's something we're not being told. Because noway-nohow is Stasi 2.0 the most sensible guy in the room. You can lay odds on that almost no matter who else is in the room.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Mar 17th, 2013 at 12:56:39 PM EST
[ Parent ]
In times such as these the next to worst definitely WILL NOT DO. Only the very worst option is acceptable.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 02:37:03 PM EST
[ Parent ]
Reuters: Germany would have protected insured deposits: Schaeuble (March 17, 2013)
The decision, announced on Saturday morning, stunned Cypriots and caused a run on cash points. Electronic transfers were stopped.

"It was the position of the German government and the International Monetary Fund that we must get a considerable part of the funds that are necessary for restructuring the banks from the banks owners and creditors - that means the investors," German Finance Minister Wolfgang Schaeuble told public broadcaster ARD in an interview.

"But we would obviously have respected the deposit guarantee for accounts up to 100,000," he said. "But those who did not want a bail-in were the Cypriot government, also the European Commission and the ECB, they decided on this solution and they now must explain this to the Cypriot people."



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 06:41:18 PM EST
[ Parent ]
Because noway-nohow is Stasi 2.0 the most sensible guy in the room. You can lay odds on that almost no matter who else is in the room.

FLIGHT OF THE CONCHORDS - THE MOST BEAUTIFUL GIRL IN THE ROOM LYRICS

Looking round the room,
I can tell that you
Are the most beautiful girl in the...room.
In the whole wide room
Oooh.

And when you're on the street
Depending on the street
I bet you are definitely in the top three
Good looking girls on the street
Depending on the street



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

by eurogreen on Mon Mar 18th, 2013 at 05:01:44 AM EST
[ Parent ]
will the fact of their sizeable deposits in cyprus will be looked on favourably by putin's tax authorities?

they might want to let it go quietly.

cheaper in the long run...


'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 Sun Mar 17th, 2013 at 09:53:27 PM EST
[ Parent ]

A stupid idea whose time had come

A "one-off" often isn't. Calling something after "stability" isn't very stable. Saying that something is not a precedent usually makes it one.

(...)

The move by the Eurogroup will also hit resident and nonresident depositors alike. We see no sign of a floor to protect the savings of the average Limassol widow or Larnaca house-buyer. Carsten Schneider, a German politician of the SPD, hooted this month about burning "Russian black money". Rather less about the little people. What a socialist.

Still, note that it is what it is: a tax, not a haircut or a sign of banks blowing up. That's the whole point.

OK, you'd best start off by reading Pawelmorski, really. Meanwhile our headline comes from Karl Whelan. As for myself, I'm actually quite shocked that they've gone ahead and levied the depositors below the €100k level. And I thought I was jaded about a) the malleability of domestic law for eurozone states to carry out things like this b) the sheer scale of the problem, and the lack of easy options, for financing Cyprus' bank rescue.

The spin that this is about spanking money-launderers is rubbish. The 9.9 per cent levy will be the cost of doing business for the average CIS corporate shell, as Pawelmorski notes. More to the point, someone clearly balked at increasing the rate above 10 per cent for big-ticket depositors -- because why else distribute pain to small holders to make up for it. Someone has an eye on Cyprus somehow maintaining a future as an offshore banking centre.

Lots more analysis in this one, worth a read.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 12:15:49 PM EST
[ Parent ]
Excellent article with lots of good data, thanks.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Mar 17th, 2013 at 12:46:03 PM EST
[ Parent ]
" a) the malleability of domestic law for eurozone states to carry out things like this"

All of this hasn't been tested in the courts yet.

by IM on Sun Mar 17th, 2013 at 02:41:28 PM EST
[ Parent ]


Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Mar 17th, 2013 at 02:53:32 PM EST
[ Parent ]
More a Justice delayed is justice denied problem.
by IM on Sun Mar 17th, 2013 at 03:44:49 PM EST
[ Parent ]
You have more confidence than I do in the judicial system's ability to provide redress.

Practically, how are the < € 100k depositors going to get their money back if a court rules that the decision is void? In what currency are they going to get their money back, given that the Euro is odds-on to not exist by the time the court case is over?

This will be swept under the carpet, and any suits will accomplish nothing more than allow the gangsters to leverage the mistreatment of widows and orphans into a larger sum of hush-money.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Mar 17th, 2013 at 03:54:41 PM EST
[ Parent ]
This is just insanity. What happened to seniority? Equity is wiped out first, then unsecured bonds, then senior bonds.

What happened to rights issues? SOP when a bank is in trouble is to force it to increase its equity by having the shareholders inject capital. If this isn't possible, the bank is instead nationalised and the capital supplied by the state. If the state can't afford it, the money is borrowed from the Central Bank. Instead of injecting cash, the ECB instead blackmailed Cyprus. What is the ECB up to?

Why would they rather undermine deposit insurance(!!!!!), the one thing that helps against lethal bank runs? This is bound to provoke a massive cash surge from the periphery into the core, or out of the Eurozone entirely.

Madness. Madness! If people had been told that Eurozone membership equaled the arbitrary elimination of deposit insurance, not a single refendum would have resulted in Euro membership.

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

by Starvid on Sun Mar 17th, 2013 at 09:53:53 AM EST
From the thread:
European Council: Council Conclusions - Ecofin Council of 7 October 2008 [PDF]
In the current troubled situation in the financial sector, and building on our Heads of State and Governments' declaration of 6 October, we agree that the priority is to restore confidence and proper functioning of the financial sector.

We have agreed to support systemic financial institutions. We all commit to take all necessary measures to enhance the soundness and stability of our banking system and to protect the deposits of individual savers. EU authorities and Member States will remain in daily contact through the EFC in order to share information and ensure a comprehensive and coordinated response to the current situation and our continued effort to work on our common principles, ahead of the European Council.

Yet another European Council resolution that is not even good as toiled paper.
European Council: BRUSSELS EUROPEAN COUNCIL 15 AND 16 OCTOBER 2008 PRESIDENCY CONCLUSIONS [PDF]
The European Council met on 15 and 16 October 2008, against a backdrop of international economic and financial crisis. The European Council expressed its resolve to act in a concerted and comprehensive manner to protect the European financial system and depositors.
I guess we're back to September 2008, ladies and gentlemen. The month of Lehman Brothers, Icesave, Dexia, Fortis, and the Irish banking guarantee.

Woo fucking hoo! Go Europe!



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 10:12:33 AM EST
[ Parent ]
I guess we're back to September 2008, ladies and gentlemen. The month of Lehman Brothers, Icesave, Dexia, Fortis, and the Irish banking guarantee.

That is a realistic assessment. Once people, particularly those with large and therefore mobile deposits wake up to the implications and shift their money out of the eurozone.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Sun Mar 17th, 2013 at 11:53:45 AM EST
[ Parent ]
If the state can't afford it, the money is borrowed from the Central Bank.
Not in the Eurozone, it isn't.
The most important consequence of running the state like a private firm is that the state should not be in the business of providing free or implicit guarantees of any kind, as these are large "contingent liabilities" threatening to bankrupt the state. The threat of bankruptcy is real, as the state must fund itself by borrowing from private lenders, unable as it is to create money to fund necessary expenses deriving from the exercising of implicit guarantees. One alternative to bankruptcy is default, but this is considered unthinkable as defaulting on obligations to fellow EU member states is "uneuropean". In addition, countries with a large primary trade deficit may find it impossible even to default.

So, what kinds of implicit guarantees are Eurozone governments providing that they shouldn't be in the business of providing? I can think of half a dozen off the top of my head:

  • deposit insurance for banks
  • granting limited liability to businesses
  • disaster relief
  • access to health care
  • access to education
  • access to legal redress
  • public safety

All of these are implicit guarantees that every citizen in Europe expects to enjoy relatively free of charge. These are large contingent liabilities of the state. Any and all of them could not be undertaken by a private entity that didn't charge hefty fees up front and wasn't adequately capitalised in case a particularly large claim presented itself. Would you pay a savings deposit insurance premium to an inadequately capitalised insurance company? (not that "sophisticated investors" didn't do exactly that when they bought CDS "protection" over the past 10 years) Would you incur risks with a full-liability entity having less capital than your potential loss? Would you trust you can be rescued from a disaster by an entity without the capital and operating income to actually fund a rescue operation? How about health insurance from an entity without the resources to pay for the treatment? How about your right to file a complaint to an entity without the necessary money to operate a grievance handling system? How about contracting physical security or firefighting services from an entity without the operating income to actually deploy security or firefighters?


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 10:15:57 AM EST
[ Parent ]
Not in the Eurozone, it isn't.

Remind me never to join the Eurozone. Oh yeah, I already knew that.

Quite frankly, I'm shocked. When I first heard this on the radio I just couldn't believe it. It had to be some kind of misunderstanding. While I'm no expert, to me this feels like the fucking stupidest thing since Lehman was allowed to fail.

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

by Starvid on Sun Mar 17th, 2013 at 10:20:49 AM EST
[ Parent ]
Would you pay a savings deposit insurance premium to an inadequately capitalised insurance company?

Events demonstrated that this is just what I and millions of home buyers were forced to do in the USA over the last several decades when we bought Private Mortgage Insurance for our home loans. The problem is that, without having a Central Bank as a willing backstop, the amount of liquid reserves that would have been required to be held to protect against what, in fact, happened in September-October 2008 would be so large that having them in the form of liquid reserves would probably tank the economy all by itself. At least the FED did what it had to do. Now we are seeing the consequences that can result from pretending that neither the reserves nor the willing Central Bank are necessary.

And this is all over €30 billion and being able to maintain the pretense necessary for the existing political paradigm, especially in Germany. Merkel et al need to think very seriously and very quickly just how much the Euro and the Eurozone are worth to Germany as the resulting shit storm is likely to sweep both away, along with who knows what else.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 02:12:44 PM EST
[ Parent ]
What to do? When will Weideman take your money as well?

Swiftly move your money to the best bank in the world, a bank which has never been in trouble even when crises have dragged down fellow banks. You'll also improve international financial stability, as the Swedish banks due to their large size and the huge Swedish wealth gaps traditionally suffer from a dearth of deposits. Call now!

</end of commercial>

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

by Starvid on Sun Mar 17th, 2013 at 10:16:40 AM EST
I thought this is exactly why the EU harmonised deposit guarantees in October 2008?

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 10:18:40 AM EST
[ Parent ]
You know, so did I. Seems the idiots in charge forgot that declaration. These people just can't be trusted. Confidence bye-bye...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Mar 17th, 2013 at 10:22:13 AM EST
[ Parent ]
That was in 2008, more than an election cycle ago...

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 10:22:58 AM EST
[ Parent ]
Isn't this policy basically in conflict with that? Might someone take this to the the ECJ?
by Metatone (metatone [a|t] gmail (dot) com) on Sun Mar 17th, 2013 at 11:58:54 AM EST
[ Parent ]
Here are a couple of Brits suggesting it is actually illegal:

@SharonBowlesMEP

Uber cross over #Cyprus bail-in of guaranteed deposits. Anyone up for the ECJ on this. Breach surely of Deposit Guarantee legislation.
@CharlesCrawford
On what basis is the #Cyprus bank deposit manipulation and seizures NOT a catastrophic breach of the most basic human rights under #ECHR?
But who cares? The economic damage will be done well before the legal challenges are even lodged.

What possible redress is there here?

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 12:44:40 PM EST
[ Parent ]
Well, hard to argue with that.

I guess I hoped that if a number of challenges were brought forward quickly, it might force a rethink of the policy.

Because, as Starvid notes, this policy is really dangerous and likely to promote bank runs across the periphery...

by Metatone (metatone [a|t] gmail (dot) com) on Sun Mar 17th, 2013 at 12:56:19 PM EST
[ Parent ]
"Might someone take this to the the ECJ?"

I would. Arguing falsa demonstratio non nocet and that this is a tax in name only.

by IM on Sun Mar 17th, 2013 at 02:45:02 PM EST
[ Parent ]
@joannakakissis
#Cyprus declares Tues a bank holiday to slow fallout from troika-imposed tax on deposits. Banks could close Wed too: http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_17/03/2013_488273 ...


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 10:21:48 AM EST
eKathimerini: Nicosia declares Tuesday a bank holiday, but ECB urges for action (March 17, 2013)
The Cypriot cabinet has declared Tuesday a bank holiday, for fear of capital flight, and this may even be stretched to Wednesday, as depositors are certain to withdraw huge sums from the Cypriot banks after the haircut imposed.

Nicosia postponed from Sunday to Monday the tabling in Parliament of the bill including the measures for the Cypriot bailout - including a bank account haircut and a tax hike on interest and corporate earnings - but the European Central Bank insists on a rapid voting because there are already signs a domino effect will follow across European lenders and markets from Monday.

...

Skai radio reported on Sunday that the Bank of Greece has sent between 4 and 5 billion euros to Cyprus in order to help Cypriot banks respond to cash requirements by their clients.

The ECB "urges for action", the Bank of Greece sends €5bn to help with deposit withdrawals.

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 10:25:09 AM EST
[ Parent ]
That's buying time to allow the ECB to wake up to the implications of what they're doing and reverse course.

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Sun Mar 17th, 2013 at 11:58:09 AM EST
[ Parent ]
Is there anyone there willing to admit theyre being stupid? or will it be full speed into the iceberg?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Mar 17th, 2013 at 02:24:56 PM EST
[ Parent ]
They appear convinced the only course of action is to aim directly for the center of the iceberg at maximum speed with the intent to split the iceberg and cruise through unharmed.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 02:41:42 PM EST
[ Parent ]
Thinking more, it's the Wylie Coyote school of Financial thinking, and the cliff is well behind us isn't it

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Mar 17th, 2013 at 03:02:25 PM EST
[ Parent ]
If only we all could show Wiley's resilience.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 04:23:14 PM EST
[ Parent ]
How would you reverse on this? The public declaration has been made. Either you implement the plan and there may be a bank run or you don't implement the plan and there will be a bank run for sure.

And you cannot freeze banking in a country for more than a few days. The dice are cast.

by oliver on Sun Mar 17th, 2013 at 04:55:48 PM EST
[ Parent ]
You declare a bank holiday to deploy a credible solution to a banking problem. That's what FDR did in 1933 with his Emergency Banking Act. What they're doing in Cyprus is a non-solution, as in Argentina in 2001.

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 06:00:11 PM EST
[ Parent ]
Who would believe you now?
by oliver on Sun Mar 17th, 2013 at 06:12:33 PM EST
[ Parent ]
If the solution requires belief, then it's not credible.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Mar 17th, 2013 at 06:23:07 PM EST
[ Parent ]
Then we have a fundamental problem. We are talking about fiat money.
by oliver on Mon Mar 18th, 2013 at 04:06:35 AM EST
[ Parent ]
Fiat money gains its value through the power of the state to visit unpleasantness upon those who do not hand it over in payment of obligations to banks or tax collectors.

If your fiat currency requires belief to be valuable, then you're Doing It Wrong (and about to experience a very nasty currency crisis).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 18th, 2013 at 04:35:45 PM EST
[ Parent ]
I think we agree that now it's like trying to put Humpty Dumpty together again.

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 06:30:32 PM EST
[ Parent ]
Poltical incorectness alert! The BBC uses the ending:
All the King's horses and all the King's men

made Humpty happy again

by gk (gk (gk quattro due due sette @gmail.com)) on Sun Mar 17th, 2013 at 06:37:11 PM EST
[ Parent ]
WTF?

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 06:38:24 PM EST
[ Parent ]
@NickMalkoutzis
As things stand, Anastasiades seems to lack necessary votes to pass deposit tax. Meeting party leaders soon http://ekathimerini.com/4dcgi/_w_articles_wsite1_1_17/03/2013_488277 ... #Cyprus


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 10:35:32 AM EST
eKathimerini: Nicosia to armtwist parties for Parliament to pass measures (March 17, 2013)
President Nicos Anastasiades is hosting another emergency meeting of Cypriot party leaders at 5 p.m. on Sunday in yet another attempt to secure parliamentary majority for the bill that will be discussed on Monday.

Anastasiades also will make his televised statement to the Cypriot people at 9 p.m. on Sunday.

Leftist AKEL, social democratic EDEK and the Ecologists, as well as the European Party, that had sided with Anastasiades in the presidential runoff three weeks ago have expressed their intention to vote against the bill, which would mean there will be not be enough votes for the government's side.



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 10:36:39 AM EST
[ Parent ]
From a confidence perspective it doesn't matter if the law passes or not. The taboo is broken. Pandora's box has  been opened. The nuclear option has been seriously suggested. Eurozone deposits are not secure.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Mar 17th, 2013 at 10:38:46 AM EST
[ Parent ]
Yep.

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 10:51:47 AM EST
[ Parent ]
To me this seems true - it seems an obviously insane action. Why can't the collected finance ministers of the Eurozone see it?
by Metatone (metatone [a|t] gmail (dot) com) on Sun Mar 17th, 2013 at 12:11:52 PM EST
[ Parent ]
Because Draghi tells them there's no alternative and he's the Archeconomist.

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 12:48:11 PM EST
[ Parent ]
So Draghi is insane now?
I'd been under the impression that he was steeped in Seriousness, but occasionally made contact with reality...
by Metatone (metatone [a|t] gmail (dot) com) on Sun Mar 17th, 2013 at 12:54:43 PM EST
[ Parent ]
Draghi's the one that spoke at the Council on Thursday evening.

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 12:55:34 PM EST
[ Parent ]
Thus Spoke Draghithustra: Euro area economic situation and the foundations for growth (slides from the presentation): Presentation by Mario Draghi, President of the ECB, at the Euro Summit, Brussels,14 March 2013.

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 01:09:59 PM EST
[ Parent ]
And that's all he really had to say:
Conclusions
  1. Review of product and labour markets to see whether they are compatible with participation in monetary union
  2. Reform contracts for countries with pressing competitiveness problems.
  3. Full implementation of Single Market legislation
Oh, and "LTRO and OMT worked" (which they did).

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 01:13:51 PM EST
[ Parent ]
Oh, and
Draghi Doctrine photo DraghiDoctrine20130314_zps901232e9.png

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 01:19:18 PM EST
[ Parent ]
Note that "supportive monetary policy" is not supportive of fiscal policy. It's supportive by keeping inflation down.

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 01:21:32 PM EST
[ Parent ]
being, of course, wage inflation (asset inflation seems much less worrisome to these guys - although to be scrupulously fair to the ECB, they were the only ones to worry about in the 05-07 period - if not to the point of doing much about it)

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 01:24:24 PM EST
[ Parent ]
Belgians, Italian, Austrians and the French are richer than the Germans - in the case of the French, the gap is surprisingly large in favour of France, as a result of rising wages, he writes, which are now dogging the country's competitiveness.

And there we see that high median wealth is damaging to 'competitiveness.'

Who'd a thunk it?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 18th, 2013 at 07:22:45 AM EST
[ Parent ]
The solution to Europe's economic woes is to make us all as poor as Germans!

No wonder they're trying to hush it up.

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

by eurogreen on Mon Mar 18th, 2013 at 08:42:37 AM EST
[ Parent ]
until someone tells the Germans, it's the EU or the ECB (and by then it'll be too late, all the damage will have been done)

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 12:17:20 PM EST
[ Parent ]
They're not going to listen until the continent lies in ruin.

More baffling is why no country has yet had enough of listening to them to tell them to pound sand.  Four years this has gone on, and it's only gotten worse.  At some point, surely some government has to wake up and say, "Fuck this shit, we're out."

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 12:33:56 PM EST
[ Parent ]
At some point, surely some government has to wake up and say, "Fuck this shit, we're out."
Allegedly that's what Schäuble wanted: "fuck this shit, either you tax deposits or you're out".

Comprador elites don't want out. At least not before they have had a chance to send their money to Düsseldorf.

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 12:38:36 PM EST
[ Parent ]
Well, also, Cyprus is the ideal case for Schäuble's blackmail - a small real economy, currently overbalanced by a financial sector that exists in part as a way-station into the the Eurozone...
by Metatone (metatone [a|t] gmail (dot) com) on Sun Mar 17th, 2013 at 12:46:12 PM EST
[ Parent ]
Right, but at some point surely someone ought to call his bluff.

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 12:53:08 PM EST
[ Parent ]
You need a primary government surplus, and no psychological hangups about being inadequately European.

Therefore, it has to be Italy or France.

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 12:54:50 PM EST
[ Parent ]
(as the only one with a surplus)

But neither has a rightwing government right now, so there's going to be a hang up about being "serious" (and you see the permanent pressure by the establishment to explain that whatever they're doing not serious enough).

(I'd be willing to bet that Harz IV, praised by all serious people today, was seen as much too weak back then...

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 01:08:32 PM EST
[ Parent ]
So we're waiting for Berlusconi to win an election and ride to the rescue?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Mar 17th, 2013 at 02:27:29 PM EST
[ Parent ]
This is the most plausible thing in the whole thread!
by paving on Mon Mar 18th, 2013 at 11:16:15 PM EST
[ Parent ]
Mr. Anastasiades, meet Ms. Merkel.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 02:42:30 PM EST
[ Parent ]

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 ]
Follow up to a comment I made long ago (should've listened to Mig):

The goal appears to be to make people on the periphery poor enough to not get uppity, but wealthy enough to buy Skodas.

VWs are out of reach at this point.

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 12:56:04 PM EST
I suggest buying Dacias. They're cheaper than Skodas and they're owned by Renault, a French company.

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 01:25:06 PM EST
[ Parent ]
Successors to the Yugo?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 02:44:17 PM EST
[ Parent ]
No, Dacia (as the name indicates) was the Yugo's Rumanian cousin. They make very decent entry-level cars, destined for central and eastern Europe. Renault didn't used to offer them for sale in France, but due to the pressure of parallel importing, they are now obliged to. They correspond to what most people want : solidity and fewer frills, and cheaper than western European models.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Mon Mar 18th, 2013 at 06:18:39 AM EST
[ Parent ]
It sounds like a joke, but it isn't. The Cypriot Central Banker is called Panicos.

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 01:24:06 PM EST
That is exquisite.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 18th, 2013 at 10:45:43 AM EST
[ Parent ]
CNBC: Cyprus Finance Minister: We Hope People Will Believe Us (17 Mar 2013)
Cyprus Finance Minister Michael Sarris told CNBC that there will be no capital restrictions and that people will be able to move their money out of the country on Tuesday after banks re-open.

The Cyprus government announced a bank holiday on Monday and temporary halted all electronic bank transfers after a euro zone bailout imposed a levy of as much as 10 percent on bank deposits. The levy is due to go into effect on Tuesday.

...

"Absolutely, there is no capital restrictions, people can move. We hope people will believe us, believe the collective leadership of the European Union, that this was a necessary step, but a single shot at the problem, and that from now on they can be very confident that nothing will happen to their savings," Sarris said in Brussels.



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 01:28:17 PM EST
Yeah, I feel like totally confident in Mr. Panicos and co.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Mar 17th, 2013 at 01:29:17 PM EST
[ Parent ]
No capital restrictions?

I expect Cyprus banks to be empty by Wednesday then...

by Metatone (metatone [a|t] gmail (dot) com) on Sun Mar 17th, 2013 at 01:32:36 PM EST
[ Parent ]
You guys are freaking me out.

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 01:36:21 PM EST
[ Parent ]
The real fun starts when people in Italy and Spain realise this means that they are due for a haircut sometime soon and start trying to move all their money into Swiss and German banks...
by Metatone (metatone [a|t] gmail (dot) com) on Sun Mar 17th, 2013 at 02:46:53 PM EST
[ Parent ]
the poor and middle class (wage earners) need local bank accounts and don't have a lot of savings (or net positive cash) anyway. It's the upper middle class and the rich who have liquid assets in banks to worry about.

This could have interesting political repercussions...

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 02:56:04 PM EST
[ Parent ]
The guillotine might be pulled out of storage...

[according to Wiki, it has been used in Germany too...]

by Bernard on Sun Mar 17th, 2013 at 05:27:48 PM EST
[ Parent ]
JaP
It's the upper middle class and the rich who have liquid assets in banks to worry about.

Que Business Insider: ZERVOS: 'This Is A Nuclear War On Savings And Wealth'

What happened to Cyprus on Friday evening was one of the most significant developments in the Eurozone since the Greek election last summer. To tax the bank deposits of savers sends an ominous message to the entire global investment community. All of us should really take a moment to consider what the governments of Europe have done. To be clear, they initiated a surprise assault on the precautionary savings of their own people. Such a move should send shock waves across the entire population of the developed world. This was not a Bernanke style slow moving financial repression against risk free savings that is meant to stir up animal spirits and force risk taking. This is a nuclear war on savings and wealth - something that will likely crush animal spirits. This is a policy move you expect from a dictatorial regime in sub-Saharan Africa, not in an EMU member state. If the European governments can clandestinely expropriate 7 to 10 percent of their hard working citizen's precautionary savings after the close of business on a Friday night, what else are they capable of doing? Why even hold money in a bank account? Are they trying to start a bank run?

....

...if the Cypriot parliament agrees to the tax, we should also see some serious instability develop at peripheral banks. Why keep your money at a Spanish or Italian bank when you can jump to Germany or France. And why even keep money in the Euroarea banking system at all. We should see huge outflows. Maybe I'm wrong and deposits stay sticky, but the risks here are HUGE and SCARY.

Right now, I would argue that the risk of an EMU exit by Cyprus is real. And this is much more of a clear and present danger than anything happening in Italy or Spain. And even without passage of the tax, the potential for a bank run is very real. As a consequence, these events are MUCH MORE important than the Italian election results, or frankly any other issue in Europe. (Emphasis from BI)




"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 10:58:38 PM EST
[ Parent ]
The poor and the middle class (wage earners) will take their money out and put it under the mattress. Losing 10% is all the more damaging for them.

If European leaders are lucky it will be a while before people work this out, but if not, the bank runs will be vicious.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Mar 18th, 2013 at 05:22:35 AM EST
[ Parent ]
I'm interested in the speculation that this is simply a sign of condescending impatience with the rest of Europe's spendthrift lazy socialist ways in Germany, and it's a prelude to a grand fuck-you foot-stomping exit by Berlin.

Which doesn't actually make any economic sense at all, and would be ruinous for everyone, including the German establishment.

But it's axiomatic that crazy people are crazy. So I suppose anything is possible.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 18th, 2013 at 03:01:44 PM EST
[ Parent ]
from La La Land.

...people will be able to move their money out of the country on Tuesday after banks re-open.

They are INSANE.  With electronic transfer systems Cypriot banks will face a run by depositors 2.5 seconds after they open on Tuesday and will be insolvent 10 seconds after they open.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Mar 17th, 2013 at 02:02:04 PM EST
[ Parent ]
Illiquid.

If they are insolvent, then they already are.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Mar 17th, 2013 at 02:09:03 PM EST
[ Parent ]
How about illiquid and insolvent?

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Mar 17th, 2013 at 02:14:16 PM EST
[ Parent ]
I suppose that the rational response in the southern parts of the Reich would be a bank run. But I very much doubt that will happen in a large scale.

I often times wonder if people are not getting what they deserve: with their complacent behaviour towards the gangsters that are in power. Not to say the belief that "that will not happen here" (maybe the Greeks will relate to Cyprus, but west from there? I doubt).

For various reasons, I would LIKE to see a bank run in the South: that would suggest people are thinking and being pro-active. Also, it would force a change in the policy of destruction currently ongoing. Granted, in the short run it would be bad, but I am not sure in the long run...

by cagatacos on Sun Mar 17th, 2013 at 02:25:25 PM EST
[ Parent ]
The small depositors aren't the immediate Trigger Point problem. ECB is risking Capital Flight:

...occurs when assets or money rapidly flow out of a country, due to an event of economic consequence.

by a small number of trans-national large depositors which could have serious (Read:  ah-YEE!) negative  effects and impacts on the $700 TRILLION global derivative market.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Mar 17th, 2013 at 02:44:05 PM EST
[ Parent ]
 
the $700 TRILLION global derivative market

The tail that wags the world could get rather active next week.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 02:53:45 PM EST
[ Parent ]

There were fears of a run on deposits by Russian, Greek and British account-holders who are estimated to control almost half the €68bn of deposits in the Cypriot system when the system reopens.

All if which had good reason to keep their money in Cyprus (as opposed to, say, in Germany) and no obvious other place to go (although the inconvenience of the other places will be less when compared to Cyprus itself, now, presumably)

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 02:52:43 PM EST
[ Parent ]
If you need to say
We hope people will believe us, believe the collective leadership of the European Union
you're doing it wrong.

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 06:32:58 PM EST
[ Parent ]
The Botching of the Cyprus Bailout: Worse Than Lehman Brothers - Forbes

Although they had years to consider their options (Cyprus's problems are closely related to those of Greece and have long been almost as obvious), they have opted for a "solution" that amounts to probably the single most inexplicably irresponsible decision in banking supervision in the advanced world since the 1930s.

As my colleague Tim Worstall has pointed out in a well argued contribution yesterday, they have weakened - perhaps catastrophically - the principal pillar sustaining modern banking. This pillar is deposit insurance. Ordinary savers who had received a solemn assurance that deposits up to 100,000 euros were safe are now being asked to take a haircut. This raises questions about deposit insurance throughout the EU and invites runs on banks not only in the most "financially-challenged" nations such as Greece and Spain but even in Italy and France.

by Metatone (metatone [a|t] gmail (dot) com) on Sun Mar 17th, 2013 at 01:31:40 PM EST
In Neo-Classical Economics there are no such things as Feedback Loops.  Thus there are no such things as Cascade Failures.  

Classic case of Cognitive Capture aka "inattentive blindness."

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Mar 17th, 2013 at 02:54:06 PM EST
[ Parent ]
This is so plainly obvious that it is a bad idea, that one has to wonder: Maybe there is some (difficult to understand) reason to do this? Who stands to benefit? I could see capital flight to Germany, but even so, the potential chaos of a Euro-periphery bank run could be catastrophic to everyone (incl Germany).

I know lunacy is the most obvious explanation, but can anyone try to find a rational perspective on this?

by cagatacos on Sun Mar 17th, 2013 at 01:51:55 PM EST
Malice. You do not reach that level of power while being genuinely this stupid. So they must be deliberately trying to destroy the european economy and the european project.

Fuck.

Saying that makes me feel so very paranoid.

But just because it is paranoid does not mean they are not out to get you.

 I highly suggest looking into the personal finances of the ECB board. Also if they are being blackmailed. Anyone here a reporter or otherwise in a position to investigate this professionally?

by Thomas on Sun Mar 17th, 2013 at 03:06:03 PM EST
[ Parent ]
It's a combination of malice, sociopathy, ignorance, stupidity, willful blindness, short term self-interest, epistemological psychosis, and a rooted inability to cognize reality based on an Economic Model that does not Model the Phenomena.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Mar 17th, 2013 at 03:16:40 PM EST
[ Parent ]
Malice is not needed as an explanation, neither, at this level, stupidity: arrogance and hubris are a much more likely cause. Such willful blindness behavior from those in power has already caused catastrophes throughout human history.

The Greeks and the Romans (poetic justice) had nailed it out yonks ago: Those the gods seek to destroy, first they make mad...

by Bernard on Sun Mar 17th, 2013 at 05:57:31 PM EST
[ Parent ]
Also path-dependency. Once you start following the austerity route, promising "painful but necessary change", you can't change tune, not without losing all your credibility. Because that means saying "I caused you all this pain for no good reason, I was just really stupid".

I think Cameron and the other people in the UK government are starting to understand they have screwed up very badly, but there is no going back any longer. There is no alternative.

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

by Starvid on Sun Mar 17th, 2013 at 06:09:07 PM EST
[ Parent ]
And I was fine with that reading of events until they illegally - and this move blatantly is illegal under european law-  destroyed deposit insurance. There are no economic theories they could be operating under that could justify that, not even in their heads.

There were many other options on the table, and all of them - up to and including "Let the Cyprus banks go under, pay out deposit insurance" were much, much less likely to cause bank runs. Obviously so.

So this is a deliberate attempt at causing a bank run. Logically, it has to be. Please, someone explain to me a more likely goal served by this? Because thinking that the central bank is either run by outright villains or alternatively, is in thrall to a hostile power is not a pleasant place to be.

by Thomas on Mon Mar 18th, 2013 at 02:41:52 AM EST
[ Parent ]
A bank run in the periphery will be the likely outcome. So that leads to money flowing to Germany, Switzerland and out from existing banks in the periphery. In addition to profit motives, this weakens the governments in the periphery as bank restructuring is one of those things they can not afford while staying in the eurozone. And leaving the eurozone means quick and painful rebalancing of the current account plus that the previous austerity was for nothing. All of which the governments in the periphery is trying to avoid. So essentially we have a re-start of the eurocrisis.

Now, lets look at the actors. If (and that is a big if) Schäuble is to be believed it was the Cypriotic governemtn, the EC and the ECB that wanted this. The Cypriotic government has not much of a negotiating position, so I think they can be ignored here. Leaves the EC and the ECB, two legs of the Troika. Restarting the crisis and putting more countries under Troika managment will mean that the Troika - and in particular the ECB - will gain in power.

So both class warfare per TBG and an ongoing coup to gather the real power under the ECB fits.

If one wants to put a narrative on it, it is the ECB doubling down after being scared by the Italian election result. They can't attack Italy directly at the moment so they weaken the periphery collectively hoping for bank runs in Italy to scare the politicians there into forming a pro-austerity caolition. But that is just guessing.

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

by A swedish kind of death on Mon Mar 18th, 2013 at 04:11:16 AM EST
[ Parent ]
They can't attack Italy directly at the moment so they weaken the periphery collectively hoping for bank runs in Italy to scare the politicians there into forming a pro-austerity caolition.

Italian parliamentarians are perhaps as likely to be scared into forming a Euro-exit coalition : if we're going to be fucked over, let's do it ourselves rather than being done by the ECB.

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

by eurogreen on Mon Mar 18th, 2013 at 05:55:10 AM EST
[ Parent ]
Politically speaking bailing out Russian gray money in a tax haven is not possible. The German elections are too close. There simply is no majority. If Schäuble's behavior indicates that it is so, it is so. That man is smart.

That would mean risking letting Cyprus drop out of the Euro. They lacked the balls for that either. Hence a compromise that combines all of the disadvantages of the various options with none of the advantages.

by oliver on Mon Mar 18th, 2013 at 04:26:33 AM EST
[ Parent ]
The Russian money is a smokescreen. What's really politically unspeakable is the following: (quoted in the story body)
The ECB is hiding the results of a study about the distribution of financial wealth in the eurozone until after the decision about an aid programme for Cyprus, Frankfurter Allgemeine reports this morning, quoting unnamed central bankers. The intention of the delay is to prevent the data being used to question the programme. The ECB has been running these polls since 2006. Some of the national central banks, including those of Italy, Austria, Luxembourg and Spain, have published their own national results, but others have not. The article says the data contain "politically explosive material". For example, Italy's financial wealth, at a median value of €164,000, lies above that of Austria, at €76,000. While the Bundesbank has not published the data, the German median value is thought to be in a similar range - in other words way below that of Italy.
The German government cannot allow a discussion of wealth inequality and household savings in Germany which would demonstrate that the German working class has not only been shafted over the past decade with the much-touted "competitive reforms", but that they are also being shafted now.

And from Zervos in Business Insider (quoted by ARGeezer)

All of us should really take a moment to consider what the governments of Europe have done. To be clear, they initiated a surprise assault on the precautionary savings of their own people. Such a move should send shock waves across the entire population of the developed world.
In "less developed" parts of the world - and I think nobody will be offended if it's pointed out that the rule of law is probably more reliable in Germany than in Cyprus, and that the country is wealthier, people need much smaller "precautionary savings".

What this is doing is, at least in Cyprus, sending people on an "all cash" position (and I mean cash under the mattress, not cash in the bank as "all cash" would be understood by "investors") if not entirely off the Euro, into gold or other currencies.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 05:57:10 AM EST
[ Parent ]
Got myself into a tangle there...
In "less developed" parts of the world—and I think nobody will be offended if it's pointed out that the rule of law is probably more reliable in Germany than in Cyprus, and that the country is wealthier—people need much smallerlarger "precautionary savings".


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 06:19:23 AM EST
[ Parent ]
One thing that would interest me in these cross-country comparisons of private wealth is the degree to which the differences are accounted for by differences in home ownership patterns. In Ireland for example, home ownership is extremely high, resulting in both hish figures for private wealth and huge figures for private indebtedness.

This is mainly for historical reasons. There is a huge historic antipathy towards renting, because it was always about an Irish tenant class paying rents to a British landed gentry - even during the famine when most people were starving. Owning your own property, be in house or farm, became a key symbol of national and class independence from Britain and the British ruling class.

In more recent times the inadequacy of public pensions and the rapaciousness of the private pensions industry meant that a key way of providing for your old age was to own your own house/farm and perhaps one or two other properties as well from which you could draw a small "pension" or income.

My point is that all of this makes it look like Irish people are relatively wealthy when in fact they are heavily leveraged and reliant on property ownership to provide basic income security. In Germany, I suspect, by way of contrast, there is no comparable insecurity about the reliability and adequacy of public pensions/health provision and thus no need to build up a comparable equity base in property or other assets.

I would be interested in whether a similar phenomenon is at work in Mediterranean countries, and on whether anyone has any hard data on this.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Mar 18th, 2013 at 06:33:02 AM EST
[ Parent ]
 In Germany, I suspect, by way of contrast, there is no comparable insecurity about the reliability and adequacy of public pensions/health provision and thus no need to build up a comparable equity base in property or other assets.

It is also a tenant law thing. Strong laws protecting tenants give them stability and less desire to own. That said with their low homeownership rate germany is rather the exception in europe.

But of course all of this is well known and I see no direcht relation with the cyprus bailout.

And the russian money in Cyprus is real enough.

by IM on Mon Mar 18th, 2013 at 07:14:00 AM EST
[ Parent ]
I was more commenting on the alleged ECB report showing much higher levels of median wealth in Italy than in Germany and how difficult this makes it for Germans to contemplate bailing out allegedly wealthier countries who don't play by the rules.

Also, as an aside,  it is easy to grasp at a narrative alleging vaguely illicit Russian "grey" money when we don't know much about how this is different from trillions of other "investment" money looking for a home all over the world. If the Russians had put their money in senior bonds (like German banks?) rather than into deposits, would this have made it less grey? Is Russian or German money in Swiss banks any less grey?

It seems to me that individuals with some but not a huge amount of wealth are more likely to put their money into deposits rather than bank bonds - which are more the preserve of the seriously rich - but what do I know... this is a different world to the one which I inhabit.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Mar 18th, 2013 at 07:41:41 AM EST
[ Parent ]
Bonds are often traded at big nominal values, say 100 000 euros. You can buy bond funds, but then you have to live with a management fee, and there is also a long waiting period (like three days) to get out of your position, while both bonds and deposits can be liquidated immediately.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Mar 18th, 2013 at 07:46:44 AM EST
[ Parent ]
But of course all of this is well known and I see no direcht relation with the cyprus bailout.
Ahem
The ECB is hiding the results of a study about the distribution of financial wealth in the eurozone until after the decision about an aid programme for Cyprus, Frankfurter Allgemeine reports this morning, quoting unnamed central bankers. The intention of the delay is to prevent the data being used to question the programme.


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 08:12:11 AM EST
[ Parent ]
That is nonsense. This isn't the first study of this sort. The basic results are well known. Mostly a house owning thing. And there will be resistance to the cyprus bailout anyway.
by IM on Mon Mar 18th, 2013 at 08:25:24 AM EST
[ Parent ]
So the ECB's actions and beliefs as reported by the FAZ are nonsense?

In any case, it might be true that releasing the report int he middle of the Cyprus bailout debate mught have short term political implications. Media narratives, news cycles and all that.

What's extraordinary is that they had been "monitoring the effect of Cyprus on the markets" over 90 days and decided Cyprus posed no contagion risk, while at the same time making decisions about the release of unsurprising economic data based on diffuse fears of BILD Zeitung.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 08:47:55 AM EST
[ Parent ]
I think the politicians were genuinely oblivious to the possibility of causing a bank run. (Yes, despite the European Commission telling them)

Also, it was the Cypriot President that insisted on no deposit haircuts above 10% (for deposits above €100k).

Here are the two most egregious elements of the deal: Schäuble not wanting to touch the senior bondholders, and the Cypriot President willing to renege on the deposit guarantee. Also the ECB saying "we're willing to let your banks fail which will put you on the hook for €30bn in deposit insurance".

So the calculus being presented to the depositors by the ECB is "either you give up €6bn or you lose €30bn", because Germany doesn't want to burn the bondholders and Cyprus doesn't want to burn the oligarchs.

The IMF wanted to leave deposit insurance intact and large losses for senior bonds and uninsured deposits. They also forced the issue because they wouldn't loan to Cyprus if the country's debt-to-GDP would end up above 140%.

Now, involving the IMF in loaning Euros to a Eurozone country is one of the most inexplicable things of this whole 3-year "crisis management" but such is life.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 05:47:24 AM EST
[ Parent ]
I think we have to accept that the people at the ECB and EC operate under a different understanding of reality than we, and most economists, do. They are thoroughly influenced and even blinded by their ideology. It's a bit like the Iraq war. We understood it was absolutely stupid, even I who was just 17 at the time understood that, but all these highly educated and intelligent American officials did not.

The ECB+EC people believe that Europe's return of growth is dependent on investor confidence, because if confidence returs investors will invest and create jobs and hence demand, even if ironically don't admit the problem at the moment is a lack of demand.

Krugman has called this the belief in the confidence fairy. If we just behave virtuosly, she will arrive, wave her magic wand and make all the economic problems go away. They also believe that the one thing which scares investors the most is when bondholders have to take haircuts (in spite of the fact that the reason bondholders get higher rates than you get for deposits at the central bank is that they carry higher risk), followed by bondholders being converted to equity, or equity holders being invited to take part in rights issues.

It is unclear why they believe these things, as they are not in any way supported by evidence. According to surveys, investors currently refuse to invest not because they lack confidence (or because taxes are too high and regulations too paralyzing), but because there is not enough demand for their products. Why build a new factory when your old one is operating at half capacity? Further, why should you worry in the least over bond vigilantes when every country with a central bank which is doing its job can borrow at the lowest rates for several centuries?

Because this is ideology. It is belief. This is a world-view which says the world works in this way, and damn the consequences and evidence. This is the why Olli Rehn tells economists to stop researching this subject, because evidence will show that the current policies are not working, which will undermine confidence and hence stop said policies from working. Pointing out that confidence is not the crucial factor will result in the same kind of answer, in this Kafkaesque world of circular arguments.

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

by Starvid on Mon Mar 18th, 2013 at 07:37:00 AM EST
[ Parent ]
Starvid:
It's a bit like the Iraq war.

The analogy is striking. Untold mayhem and suffering unleashed with cascades of "unforeseeable consequences" (mostly foreseeable), because of a mistaken belief which didn't stand up to serious scrutiny : the existence of WMD.

"Growth through austerity", on the other hand, seems to be much more tenacious as a belief : it only took a few months to deflate the WMD myth, but the ECB are laying waste to one country after another, without comprehending the visible disproof of their doctrine.

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

by eurogreen on Mon Mar 18th, 2013 at 08:57:00 AM EST
[ Parent ]
This read is no longer supportable. Because if belief in confidence was the guiding star, then actions as arbitrary and unforeseeable as illegally bailing in depositories would be unthinkable. It would simply never occur to someone honestly ascribing to such a paradigm to do this.
They are not doing damage because they do not know better. Damage is the point.
by Thomas on Mon Mar 18th, 2013 at 11:40:56 AM EST
[ Parent ]
When they talk about 'confidence' they mean 'investor confidence'. If the 99% are involved in a bank run it is of little consequence as long as 'investors' are 'confident'.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 12:59:23 PM EST
[ Parent ]
The point is the arbitrary and unforeseeable nature of the revocation of the bank guarantee. Why would investors think themselves safe from random and illegal confiscations when the people are not? They cannot. And thus, this move strikes directly at the heart of what they profess to hold most sacred. So they must be liars. The values they profess are not the values they hold, and they are attempting to sow chaos.
by Thomas on Mon Mar 18th, 2013 at 01:11:36 PM EST
[ Parent ]
The Cypriot banking sector was - and is - a cancer. Having a finance sector that pays nine times the interest of everyone else, and is holding assets 8 times your gdp is madness. This move does not end this state of affairs.
It does damage the savings of everyone in Cyprus, makes whole bondholders that should not be made whole, and undermines the faith in deposit guarantees across the continent. It is vile end-to-end. Evil, embodied in accounting.
by Thomas on Mon Mar 18th, 2013 at 01:19:01 PM EST
[ Parent ]
That's what I believe to be at the core of what drives the political classes, especially the German ones. To admit that their wonderful reforms of the German labour market in the previous are at the core of the problem is impossible.
by Colman (colman at eurotrib.com) on Mon Mar 18th, 2013 at 08:10:59 AM EST
[ Parent ]
All the money flees to Germany and Switzerland and probably spikes a rise in bullion?

Why goodness me - whoever could possibly profit from that?

Of course it's deliberate. It's simple profiteering from an easy opportunity.

It's not evidence of idiocy, so much as the Troika being politically and morally out of control by any normal standards of ethical and civilised behaviour.

It's simply the BuBa equivalent of the mortgage thievery in the US, on a national scale.

This is the third time in less than a century that German fascism and greed has destroyed European progress.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Mar 17th, 2013 at 06:18:10 PM EST
[ Parent ]
This is the third time in less than a century that German fascism and greed has destroyed European progress.

For god's sake, stop this nonsense.

by IM on Mon Mar 18th, 2013 at 07:15:35 AM EST
[ Parent ]
Why? It's clear the decision-making at Merkel HQ and BuBa is based on simple greed, contempt for the poor, and racism - all of which add up to as good a definition of financial fascism as you'll find anywhere.

Are you seriously going to pretend that Merkel and her establishment cronies are doing this out of the kindness of their hearts for the good of the poor Cypriots? Just as they trashed Spain for the good of the Spanish, and Ireland for the good of the Irish? (Etc.)

Good luck with that when the famous senior bondholders are basically German banks, with a sizeable French sector and a smattering of other EU and international banks.

There was talk only days ago that they would be the ones taking a haircut.

Now we see what happens when that kind of lèse-majesté is considered.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 18th, 2013 at 07:55:07 AM EST
[ Parent ]
decision-making at Merkel HQ and BuBa is based on simple greed, contempt for the poor, and racism

I don't agree with this, at all. I'd rather say it's a mix of holier-than-thou-ness, misplaced pride in German economic success, warped ideology and a complete misunderstanding of macroeconomics. Possibly flavoured with a little sado-masochism.

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

by Starvid on Mon Mar 18th, 2013 at 07:59:47 AM EST
[ Parent ]
You forgot a strong belief in their own virtue and the redeeming power of (other peoples') suffering.

Fascism is a bit strong, since it sounds like you're evoking the Nazi regime, but in the sense of government by the corporations for the corporations (which didn't really fit WWII Germany, did it?) it's not that far off.

by Colman (colman at eurotrib.com) on Mon Mar 18th, 2013 at 08:01:44 AM EST
[ Parent ]
Well - people forget that in fascism corporatocracy comes first. Militarism and a cult of physical violence are optional. (Although very popular.)

Nazism was very much a corporate creation, funded by financial and industrial interests in Germany and the US. Without that funding, Hitler would have remained an eccentric extremist.

Of course, some industrialists - Thyssen particularly - discovered trying to buy a creature like Hitler was an expensive mistake.

Other backers did quite well out of WWII.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 18th, 2013 at 09:39:25 AM EST
[ Parent ]
Fine, let me be blunt: Cyprus is basically Ireland². A fucking neoliberal casino/tax haven that is now bust.

The plug should have been pulled much earlier and your new rich friends should lose anything and not just 10% or 15%.

If you think defending that is antifascism you are nuts.

One of the opposition complained that the finance center Cyprus is being destroyed; if only.

If you think defending that is antifascism you are nuts.

by IM on Mon Mar 18th, 2013 at 08:13:33 AM EST
[ Parent ]
Why on earth do you think these people are my friends, or that I'd have anything to do with them?

And you clearly don't understand what fascism is, where it comes from, who it affects, or how damaging it is.

It's fine to write off Ireland and Cyprus as tax havens if you want to. But if they're bust - which is arguable in the case of Cyprus, given its alleged resources - I doubt it's because widows and orphans were spending money they couldn't afford.

I'd be perfectly happy to see the senior bond holders scalped in Cyprus. Unfortunately the senior bond holders seem to believe that one of the benefits of running a country as a tax haven is that the population is on the hook for risky investments the population doesn't profit from.

The ECB - which seems to believe Europe is a German financial colony - agrees with them.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 18th, 2013 at 09:48:40 AM EST
[ Parent ]
"Why on earth do you think these people are my friends, or that I'd have anything to do with them?"

Because you are watching about their interests, and smear the most harmless efforts to let them bear the results of their misguided investments.

And you clearly don't understand what fascism is, where it comes from, who it affects, or how damaging it is.

Oh come on. Compared to your primitive "uh huh corporations" nonsense even Dimitroff had a good fascism theory. No, your fascism is anything I dom't like rhetoric hides perfectly any knpwledge you might have.

"It's fine to write off Ireland and Cyprus as tax havens if you want to."

But that was and is exactly their economic strategy of the last decade, if not longer.

"But if they're bust - which is arguable in the case of Cyprus, given its alleged resources -"

Oh, in this case they can save their banks themselves.

"I doubt it's because widows and orphans were spending money they couldn't afford."

What the hell are you talking about? I didn't say anything about widows and orphans.

 I'd be perfectly happy to see the senior bond holders scalped in Cyprus.

The way I see it we are talking about on ore two insolvent banks. It would be right to pay out the amounts guaranteed by the deposit insurance and let all other creditors - junior bondholders, senior bondholders, depositors, other creditors, suffer the consequences of an insolvency. In other words you get 23.5% of your money

Now an actual insolvency isn't possible because an insolvency of any bank of some size would be to damaging. Then Cyprus should make a law that creditors of rescued but insolvent banks should be treated as if an insolvency has has happened. So losses being borne first by share-holders, then by junior bond-holders, then equally by senior bond-holders and depositors. So that the bigger depositors would get 23.5% in the end. (or 33.6% or 0.2% or whatever)

Now you may call that fascism. I think that is quite just.

Now ECB, EU and the cypriots, being not fascist at all but rather much to soft, will let escape the creditors with 90.1% instead of 34.5% or whatever of their money.  

That the protected smaller depositors are hit too seems to be mostly the fault of the cypriot government, being like you to soft on big creditors.  

 

by IM on Mon Mar 18th, 2013 at 12:17:03 PM EST
[ Parent ]
What on earth are you talking about? And how on earth did you decide that I'm being soft on big creditors when I've said no such thing and have been arguing the opposite?

You're saying that stealing money from that majority of un-wealthy depositors who keep meagre savings in their high street banks is 'harmless'?

Then Cyprus should make a law that creditors of rescued but insolvent banks should be treated as if an insolvency has has happened. So losses being borne first by share-holders, then by junior bond-holders, then equally by senior bond-holders and depositors. So that the bigger depositors would get 23.5% in the end. (or 33.6% or 0.2% or whatever)

Yes of course. As long as smaller depositors are fully protected. (Is there really no independent deposit insurance in Cyprus?)

Now - let me know when someone from the German financial establishment suggests this is the way to solve the problem.

In the meantime there's nothing 'soft' about nuking a cornerstone of modern banking and destroying both investor and depositor confidence in order to backstop the risky investments of financial professionals.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 18th, 2013 at 02:56:18 PM EST
[ Parent ]
>You're saying that stealing money from that majority of un-wealthy depositors who keep meagre savings in their high street banks is 'harmless'?<

Where exactly have I said that?

>Is there really no independent deposit insurance in Cyprus?)<

 >in order to backstop the risky investments of financial professionals.>

As long as you demand that every depositor - deposit one euro, one million euro, a billion euro - is paid out in full you are demanding the backstop.

by IM on Mon Mar 18th, 2013 at 03:32:50 PM EST
[ Parent ]
IM:
That the protected smaller depositors are hit too seems to be mostly the fault of the cypriot government

If our only source here is Schäuble, what he said was:

Germany would have protected insured deposits: Schaeuble | Reuters

"But those who did not want a bail-in were the Cypriot government, also the European Commission and the ECB, they decided on this solution and they now must explain this to the Cypriot people."

And considering it was ECB that set the time table on this, they are a far more important player. So even if we believe Schäuble here, reducing his list to the cypriot government is not very accurate.

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

by A swedish kind of death on Mon Mar 18th, 2013 at 02:59:06 PM EST
[ Parent ]
If our only source here is Schäuble, what he said was:

And you assume that why?

by IM on Mon Mar 18th, 2013 at 03:38:03 PM EST
[ Parent ]
Well, do you have a better source?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 18th, 2013 at 05:02:19 PM EST
[ Parent ]
Look, I understand that this sub-thread has got a bit of tension in it. Still, I don't think why I assume something is likely to carry the discussion forward. But sure I can answer the question: I assume that because he is a source quoted numerous times in this thread.

Now, do we have another source to who pushed what? And more importantly for my remark, do we have any source pointing out the Cypriotic government rather then the EC or ECB as the main agent behind the bail-in for deposits under 100k euros?

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

by A swedish kind of death on Tue Mar 19th, 2013 at 07:50:56 AM EST
[ Parent ]
http://www.eurotrib.com/comments/2013/3/17/908/97754/254#254

Let's see:

"Cyprus could have offered full protection to those with insured deposits up to 100,000 euros and still reached the 5.8 billion euro target by taxing uninsured deposits at a rate above 15 percent.

 ...

 But when the plans were presented to Anastasiades, several participants said, he balked at any suggestion that uninsured depositors should pay more than 10 percent."

I assume they base their reporting on sources other then Schäuble.

"And more importantly for my remark, do we have any source pointing out the Cypriotic government rather then the EC or ECB as the main agent behind the bail-in for deposits under 100k euros?"

We do. Now you could say the other governments want to shift the blame to Cyprus, but it is not just Schäuble.

by IM on Tue Mar 19th, 2013 at 08:06:43 AM EST
[ Parent ]
"And more importantly for my remark, do we have any source pointing out the Cypriotic government rather then the EC or ECB as the main agent behind the bail-in for deposits under 100k euros?"
Let's review some of the sources linked in this thread...

Cyprus Rescue Risks Backlash (WSJ)

Mr. Rehn was the first to make a specific proposal. To raise funds, Cyprus should impose a special levy on deposits, taxing accounts of less than €100,000 at 3%, those up to €500,000 at 5% and those above at 7%. Such a "solidarity levy "--the brainchild of Thomas Wieser, an Austrian who chairs technical discussion among euro-zone finance officials, and Mr. Asmussen-- could avoid a straight "haircut" on deposits, which they feared could be too destabilizing for Cyprus and the rest of Europe. The tax would be applied to all Cypriot banks, not just the two in deep trouble.
CYPRUS DISASTER: Open dissent in Merkel's CDU as Schäuble's attempt to avoid responsibility for Cyprus depositors dismissed as "bare-faced lie". (The Slog. 3-D bollocks deconstruction)
Says a well-placed Berlin source, "It is completely ridiculous for [Schäuble] to suggest that his was a dissenting vote on the question of small customers in Cyprus. In fact, he was from the start enthusiastic when Brussels came up with this `tax levy' scheme as a way round the EU's deposit guarantee. Every German MP will recognise this as classic Wolfgang Schäuble behaviour. The high esteem in which he is held by the German people is in no way reflected inside the Bundestag."


guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Tue Mar 19th, 2013 at 08:18:26 AM EST
[ Parent ]
See also an update on The Slog:

But even as Schäuble continued to defend his position, claiming "The levy on deposits under €100,000 was not an invention of the German government", the Eurogroup begged to differ. Although last Sunday in an interview on public tv ARD, Schäuble directly blamed the European Central Bank, the European Commission and the Cypriot government for involving tax small savers (anyone but him, basically) ECB board member Joerg Asmussen rejected Schäuble's accusations.

He countered: "In the last days it was not the ECB that pushed for this special structure that was chosen, it was the result of the negotiations in Brussels." And pushing hard for 40% in that meeting (with no transcript record of anyone batting for the little guy) was....Wolfgang Schäuble.

Then again, it seems Mr Asmussen himself is being economical with the truth: "One should not, through the wrong actions in Cyprus, put in risk what has been achieved at high political and financial risk in the eurozone in recent years," Asmussen pronounced pompously. But the WSJ writes this morning that Asmussen was the one who, in the early hours of Saturday threatened to cut off Cyprus' two largest banks from the ECB's emergency funding if a deal was not achieved.

Are these meetings really not minuted?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 19th, 2013 at 08:36:46 AM EST
[ Parent ]
If there are minutes they will be released in 50 years' time...

Now seriously, the secrecy of Council deliberations (and even of the results of votes in the Council, given that Governments have made a habit of blamit "Brussels" for decisions they voted for at Council) has been a sticking point for a long time, given the legislative function of the Council.

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper

by Migeru (migeru at eurotrib dot com) on Tue Mar 19th, 2013 at 10:05:58 AM EST
[ Parent ]
Since the important negotations happened in smaller circles anyway, minutes of the big official meetings wouldn't have helped much.

According to this report titled a scapegoat named Schäuble - it happened this way:

http://www.sueddeutsche.de/wirtschaft/belastung-von-kleinsparern-in-zypern-ein-schwarzer-peter-namen s-schaeuble-1.1627975

  • the commission proposed  a tax of 3% up to 100,000 euro, up to 500,000 5%, above that 7%. Netting two-three billion euro

  • Largarde proposed to take 30-40% from accounts higher then 100,000 euro. Same with senior bonds. That would have resulted in seven billion euro.

Schäuble supported Largarde because he wanted the seven billion.

In the end Schäuble did go down to something like higher then 18%.

And then they compromised on the commission proposal just with higher rates, getting the famous 5.8 billion

 

by IM on Tue Mar 19th, 2013 at 10:43:05 AM EST
[ Parent ]
IM, the problem is that the victims in Cyprus had almost no agency in creating the problem. That was done by a political elite who probably had little understanding of what they were doing, but those who voted for them mostly had none. My understanding is the reason the bond holders are being exempt is that they are largely banks in core EMU countries, chiefly Germany. It is for that reason that I would like to see Cyprus reject the bailout. If Russia wants to make German and French bankers whole in return for sparing the Cypriots misery and if the Cypriots agree that would seem fair.

My own preference would be for Russia to not only give tax avoiders hiding in Cypriot banks a huge haircut but also to wipe out the bond holders. If the ECB objected, Russia could offer Cyprus solvency in rubles as a stepping stone to reintroduction of their own currency. But if the ECB isn't coming up with any money what authority do they have to dictate how the banking insolvency is resolved. Converting bond holders to stock holders is traditional. Perhaps Russia could offer the new stock holders rubles for their stock.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 05:54:21 PM EST
[ Parent ]
The reason bondholders are exempt is that senior bondholders represent such a small amount (0.5 bn) so "burning" them would have brought little money and (another) worrying precedent. Given the amount, that seems like a plausible argument, even if the overall package makes it an appallingly bad-looking one.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Mar 18th, 2013 at 06:19:28 PM EST
[ Parent ]
Are there any bondholders other than 'senior' bondholders?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 08:10:29 PM EST
[ Parent ]
From the story linked by Jerome in a top-level comment: Levy plan `bleak day for banking union' (FT.com, March 18, 2013)
There is an added irony to the situation in the fact that, to the casual observer, the Cypriot banking system looked like a model for others to follow in the wake of the financial crisis. The island's banks have about €68bn of deposits, which they use to fund their lending, with only minimal reliance - less than €3bn - on so-called wholesale funding in the bond markets.

People who defend the Cypriot plan say the funding structure was the reason why there was no alternative to hitting depositors - junior bonds, which are being wiped out, amounted to just €2.5bn, while the €0.2bn of senior unsecured bonds have been left alone, on the grounds that to give them a haircut would generate a negligible economic contribution but undermine investor sentiment.

Since Lehman Brothers collapsed more than four years ago, deposit-funded balance sheets like Cyprus's have been the envy of many banks around the world. Burnt by the realisation that in times of crisis bond markets dry up, leaving long-term lending commitments potentially unfunded, banks have frantically shrunk non-essential lending and tried to boost deposits as their core funding mechanism.



guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 08:17:44 PM EST
[ Parent ]
Er - how did the banks lose €68bn in deposits?

Is there a breakdown of lending and other payments anywhere?

And I suppose it's worth pointing out that only two banks are in trouble, but the Troika appear to have decided that for some reason this means the entire economy of Cyprus is in danger of total collapse.

It would be a bit like the Bank of England taking money from all domestic British depositors because Northern Rock was in trouble.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 19th, 2013 at 08:42:18 AM EST
[ Parent ]
Er - how did the banks lose €68bn in deposits?
Just because the banks have €68bn in deposit liabilities doesn't mean they have €68bn in cash assets on their balance sheet.

The main cause of the current troubles is the large losses sustained by the Cypriot banks on their large stock of Greek sovereign bonds. Which, by the way, makes sense if you have a large number of Greek nonresident depositors. You owe the Greek citizens and the Greek government owes you.

eKathimerini: Cyprus deposits yielded more than German ones (March 18, 2013)

"Banks in countries like Cyprus and Greece can pay higher interest rates as they also earn more on loans," Dirk Becker, head of banking industry research at Kepler Capital Markets in Frankfurt, said by phone. "In addition, Cyprus banks invested a lot in high-yielding Greek debt in the past."


guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Tue Mar 19th, 2013 at 10:11:28 AM EST
[ Parent ]
Yes, there are usually unsecured bondholders. Not sure how much they amount to in this case.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Mar 18th, 2013 at 08:27:30 PM EST
[ Parent ]
"Are you seriously going to pretend that Merkel and her establishment cronies are doing this out of the kindness of their hearts for the good of the poor Cypriots?"

As a definition of fascism "everything that isn't done out of the kindness of their hearts" is a tad too simplistic. As a method to heat up a thread it's just fine, of course.

by Katrin on Mon Mar 18th, 2013 at 08:37:36 AM EST
[ Parent ]
It might be if I actually said that.

But you seem to have skipped the rather more important part about greed, etc.

Never mind.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 18th, 2013 at 09:25:30 AM EST
[ Parent ]
It is important to note that the word used here is 'fascism', not Nazism. It is not necessary to fulfill the definition of being a Nazi in order to be a fascist. See Mussolini and Franco and consider the current situation in the USA. When powerful corporations control the selection of the candidates for the presidency, either control or can deadlock the House and Senate and have acquired a majority on the Supreme Court, when we have a domestic surveillance state that puts to shame anything from the first half of the 20th century and when we spend more on 'defense' than all of the rest of the world combined does it really matter that the shot callers have refrained from overtly exercising their power?  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 12:48:59 PM EST
[ Parent ]
That, of course, makes 'our' NATO allies fascist client states.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 12:50:32 PM EST
[ Parent ]
So Germany fascist -> ally Finland fascist client state

USA fascist -> Germany, UK, France etc. fascist client states.

Well and this started with Nixon or what?

But then this crisis didn't change anything anyway.

by IM on Mon Mar 18th, 2013 at 12:58:37 PM EST
[ Parent ]
Well, Eisenhower understood the problem of the Military Industrial Complex and spoke about it in one of his last speeches as President, and then there is the remaining question about why Kennedy was assissinated and LBJ's escalation in Vietnam before we even get to Nixon's presidency, which was brought down.

I see the '70s as the dividing line. It was then that conservative, libertarian billionaires, working through think tanks and owned media, escalated the economic propaganda to make NCE our economic frame. That was sufficiently successful that Democrat Jimmy Carter was the one who began deregulation. Then Reagan was elected and these same interests had a true believer in the White House who advocated a strong version of deregulation and under whom the looting by the financial sector really became airborne.

Better yet, Ronnie knew how to hit his marks and deliver his message as he had been doing since "Death Valley Days" while being only too happy to delegate the messy details to cabinet members such as Ed Meese, ("watch what we do, not what we say",  and Casper Weinberger and the 'Star Wars' Boys, while laying on the "Evil Empire" rhetoric with regard to the Soviets. It was only when Reagan's more human sentiments intruded that he produced problems, as during the infamous Reykjavík summit with Gorbachev, when he was ready to completely eliminate nuclear weapons before others talked him down.

Bush 41 was certainly a 'national defense' insider and allied with corporate power while publicly speaking about the 'invisible hand' of economics and Clinton learned how to be a proper servant of wealth, as demonstrated by his choice of Robert Rubin as Sec. Treasury, Larry Summers as Chairman of the Council of Economic Advisers and his re-appointment of Greenspan to the Fed, as well as by signing off on the repeal of Glass-Steagall and the Futures Trading Modernization Act. The extreme libertarians and the fundamentalists might have hated Clinton but Wall Street certainly did not. (Aspects that thankfully have not become an integral part of the bi-partisan US corporatocracy are white racism and Christian Fundamentalism - yet.)

My own view is that the US REALLY became, effectively, a fascist state after 911. The national security legislation, the invasion of Iraq, the blatant lies served up by Cheney, et al. the trashing of the FBI's program to investigate mortgage lending fraud by reassigning all the agents to 'national security' duties and Rove's overreach in thinking he could make the Republican Party the permanent governing party are all factors.

And the fact that Obama has doubled down on so much of what Bush 43 put in place and refuses to countenance the enforcement of the law against Wall Street fraudsters are indicators that the USA is now a very different country than it was in 1960, when I graduated from high school. I don't like knowing I am living in a fascist state any more than you like being accused of living in a fascist client state, but I like the pretense that this is not the case even less.

I am over 70 and have no job from which I can be fired for saying unpopular things, so it is my duty to be honest about what I see.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 02:39:40 PM EST
[ Parent ]
That doesn't matter. Fascist has a meaning, at least a rough meaning too. Was in your opinion FDR a fascist? Some of his measures in 1933 were legally dubious and violated property rights.

In one of my old school books there was map showing democratic and non-democratic states in europe in 1929 and 1933. You imagine what happened: everything east of the Rhine and south of them mountains switched to dictatorship. And all right-wing dictatorship. But that doesn't means fascist. There were only two fascist states: Germany and Italy.

Now Hungary was traveling down the road to fascism in the mid-thirties and you can quibble about other countries.

But a definition that would have subsumed Germany and Latvia or Estonia as both fascist in the thirties is obviously meaningless.

So yes, fascism is an italian invention and doesn't needs to have all the defining traits of nazism.
But still the term has a meaning and shouldn't be used as term for anything someone doesn't likes.

by IM on Mon Mar 18th, 2013 at 01:10:55 PM EST
[ Parent ]
Property rights are not the issue.

In practical terms, fascism is simply the political wing of social darwinism - hence contempt for the weak and marginalised, and the overt glorification of expansionist narcissism on various spurious racial, financial, or religious grounds.

(There's also a rather obvious urge to self-destruction, but that's something I'll leave to the psychologists.)

So... stealing money is not fascism.

Stealing money from poor people while justifying it on the grounds of one's own specialness and ability to hover disdainfully over normal civilised norms certainly is - with extra points for blaming the weak while abusing them.

Interestingly, it seems that Schäuble's account of himself as a bulwark of reasonableness against the perfidy of the Cypriot establishment may be less than totally candid.

Is this true? Who knows.

Is it plausible? Unfortunately so.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 18th, 2013 at 02:42:07 PM EST
[ Parent ]
No one is talking anymore how much fascism was a reaction to communism. And perhaps a very deliberate, synthetic reaction: national-socialism as a substitute for Marxist socialism, funding of fascist parties... Of course, the same package will be convenient in modern circumstances as well.
by das monde on Mon Mar 18th, 2013 at 02:55:25 PM EST
[ Parent ]
<Stealing money from poor people while justifying it on the grounds of one's own specialness and ability to hover disdainfully over normal civilised norms certainly is - with extra points for blaming the weak while abusing them.<<p> Looks like a goods working definition of most organized religion.
by IM on Mon Mar 18th, 2013 at 03:27:16 PM EST
[ Parent ]
Was in your opinion FDR a fascist? Some of his measures in 1933 were legally dubious and violated property rights.

No, FDR was an opponent of the excessive power of Wall Street over government policy. And he was never overtly anti-democratic in the USA. He signed the Wagoner's National Labor Relations act, which was the foundation for the flourishing of the labor movement in the USA. His opponents, such as the leaders of The Businessman's Plot in 1933 were also supporters of Hitler who they admired because of the effective way in which he dealt with labor. The plot came to light because they attempted to recruit Gen. Smedley Butler, who, instead, went to Congress and denounced the plot and attempted coup.

FDR did tolerate vicious dictatorships in client states and noted of Somoza that 'he might be an SOB, but he was our SOB', and he was tolerant of white racism in the South as he wanted to retain 'The Solid South'. But, had he wished, he could have broken some of the leaders of  major corporations over the Businessman's Plot, but didn't. And DuPont, IBM, Ford, etc. continued to do business with Hitler even after Pearl Harbor, though they at least had the grace to disguise their participation. Prescott Bush, father of GHW Bush, through Brown Harriman Bank, and the Dulles brothers Allen and John Foster, who went on to be CIA Director and Secretary of State, through Sullivan and Cromwell were both heavily involved in legal aspects of US corporations trading with Germany. Many of these relationships helped Germany and harmed the USA during WW II. Much of the leadership and sponsorship of the Republican Party from the 20s through the 50s were, during Hitler's time, tacitly pro-Nazi. They were FDR's political opponents.


"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 04:47:30 PM EST
[ Parent ]
This is silly. There is an entire academic sub-discipline which works on nothing but the definition of fascism, the "fascist minimum" (a number of things which have to be fullfiled for a regime or movement to qualify for fascism, see Griffin et al.).

A fascist is not just some right-wing authoritarian guy you don't like. This use of the word is a Soviet hold-over, as the Stalinists hardly could call the Nazis National Socialists (uh-oh) so instead they called them Fascists. They still do that in Russia.

Anyway, after the war many European hard left parties were more or less remote-controlled from Moscow, and their exposure to Soviet propaganda influenced the words they used. Nazis became fascists, missiles became rockets, and atomic never changed into nuclear. Hence you could hear people in the so-called peace movement of the 80's protesting against the deployment of "atomic rockets".

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

by Starvid on Mon Mar 18th, 2013 at 04:52:59 PM EST
[ Parent ]
This casts a very interesting light on Sara Palin's name. (From the Griffin link):

Palingenetic ultranationalism is a theory concerning generic fascism formulated by British political theorist Roger Griffin.[1][2] The key elements are that fascism can be defined by its core myth, namely that of "national rebirth" -- palingenesis.[1][2] Griffin argues that the unique synthesis of palingenesis and ultranationalism differentiates fascism from para-fascism and other authoritarian nationalist ideologies.

For me the more generic aspect of fascism is the state's appropriation of the right to define everything to its satisfaction and use force to insure compliance. It is sort of an abstraction from Hannah Arendt's The Origins of Totalitarianism as remembered from my grad school days. One of Mig's sig lines highlights this in terms of the operational attitude of most police organizations.

I will have to more carefully read Griffin before I can say whether his definition is more intended to demonstrate who is vs. who is not a fascist. (I.E. 'Not us, certainly!')

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 06:18:20 PM EST
[ Parent ]
You mean this one?

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 06:23:25 PM EST
[ Parent ]
Yes.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 07:25:53 PM EST
[ Parent ]
For me the more generic aspect of fascism is the state's appropriation of the right to define everything to its satisfaction and use force to insure compliance.

Using this definition, even communism becomes fascism. This might be useful in some ways (like when you want to say that you don't like commies ("they're fascists!" (thus ironically using a Soviet-communist nomenclatura...)), but it's certainly not very stringent.

Your definition of fascism is pretty close to what I would just call "totalitarianism". Fascism is totalitarian, but not all totalitarianism is fascism.

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

by Starvid on Mon Mar 18th, 2013 at 07:00:42 PM EST
[ Parent ]
The term 'fascism' comes from the fascies, or bindings, that held together the bundle of rods around the headmans's axe that the fascista carried. Those bindings also symbolized those that bound together the community in a common morality. But the modern useage more commonly gives priority to corporatism as the guiding principle - what ever the corporatists want. But, historically, the fascist government gets away from the control of the corporatists even as it continues to serve their interests, at least in the view of the state.

A more polite description is that the USA is run by a commercial oligarchy, per Lewis Lapham:

As was true in the early years of the Republic the country is governed by a commercial oligarchy. And a citizen who cannot afford the luxury of a contrary opinion learns of necessity to dance the beggars waltz.

What has changed is that significant elements of that oligarchy, through their financial support of the electoral process, have come to be self consciously above the reach of laws that should affect how the operate their businesses. The government has come to be the instrument through which they control the country to their benefit and that government has developed practical omniscience concerning the activities of the citizens which is turned against those citizens who challenge their actions, even when those challenges are of the nature of a conscientious objection. The Bradley Mannings and Aaron Schwartz's of the contemporary scene have the full power of the state turned against them with massively disproportionate charges being filed as an example to others.  
 

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 08:07:55 PM EST
[ Parent ]
Daily Kos: Oh, F*ck No - He Did Not Just Make A Joke About Rape

To a certain extent, the culture of obedience being focused on compliance -- i.e. the desired result -- distracts us from the fact that exacting obedience is coercive and, indeed, the very essence of abuse. Moreover, people who assume that other people exist to be useful to them don't even know what abuse means. It doesn't occur to them that people exist to be respected, not exploited.

Mostly, I suspect, the people who fall into the category of exploiters do so because, other than the gift of gab, they are bereft of practical talents whose fruits they might offer in exchange for what they need from others. It's even possible that the whole "science" of economics was developed by such people in an effort to provide a rational excuse for their own behavior. Why else start from the assumption that the economy is driven by demand? Why not, instead, suggest that trade and exchange are driven by surplus and a desire not to have it go to waste? Because the latter scenario does not comport with the experience of people whose hands are hinged backwards and whose understanding of process is nil.

Dominators coerce. Maybe they're just acting on instinct and don't know what they do. Germans have a saying that encapsulates the attitude: "If you're not compliant, I'll have to use force."  Thus, the cause of the use of force is ascribed to the victim. Compliance (obedience) is presumed to be a virtue. It's not. If humans have rights, then coerced obedience is abuse.

interesting comment that somewhat pertains, perhaps.


'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 Mar 18th, 2013 at 03:05:39 PM EST
[ Parent ]
Reuters:

The euro weakened against the dollar and the Swiss franc after euro-area finance ministers agreed to an unprecedented tax on Cypriot bank deposits as part of a rescue plan for the country.

Europe's 17-nation shared currency slid 1.1 percent to $1.2932 at 6:26 p.m. London time. It declined 0.8 percent to 1.2170 Swiss francs.

 

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Mar 17th, 2013 at 03:06:39 PM EST
Ah, all of this is a clever maneuver to make german exports more competitive.
by IM on Sun Mar 17th, 2013 at 03:37:42 PM EST
[ Parent ]
Euro skids across the board in initial Cyprus reaction:

SYDNEY, March 18 (Reuters) - The euro skidded lower in Asia early on Monday as surprise news that Cyprus would have to tax depositors as part of a bailout plan was taken as setting a dangerous precedent that at worst could ultimately risk bank runs elsewhere in the region.

The single currency was changing hands at $1.2907 , down from $1.3054 late in New York on Friday. It sank against the yen to 122.27 yen, from around 124.54. And it fell on the Swiss franc to 1.2185 francs, from around 1.2275.

The various FOREX entangled derivative cons instruments are rigged traded OTC so I'm not finding anything.  

Not seeing anything about euro/krone trading.  I'd expect the krone to rise versus the euro unless the Riksbank intervenes.  Pretty much ditto for the Norwegian krone and Norge Bank.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Mar 17th, 2013 at 07:07:11 PM EST
[ Parent ]
I don't understand the politics of this thing.

The member countries of the ESM will still give 10 billion, right? And the special tax will bring the needed sum down from about 15 billion to about 10 billion. That would reduce the german share from ca. 4.5 billion to ca. 3 billion.

And that would change what exactly in political terms?

"For Wales? Why Richard, it profit a man nothing to give his soul for the whole world. . . but for Wales!"

by IM on Sun Mar 17th, 2013 at 03:11:33 PM EST
Compromises can end up in something no one wants. So that is a possibility.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sun Mar 17th, 2013 at 04:10:19 PM EST
[ Parent ]
You took the thoughts out of my mind - it's easy to say (as some have) that bailing out Russian gangster money is not politically acceptable, but given that 10 billion is still being put into the bailout, I'm not sure how this alters the politics at all.

Oh, we bailed out the gangsters, but we charged them 10%?

Surely Bild isn't going to be pacified by that?

by Metatone (metatone [a|t] gmail (dot) com) on Mon Mar 18th, 2013 at 05:29:26 AM EST
[ Parent ]
The gangsters had a heads-up a week ago. A lot of Russian money has already moved elsewhere.

As for the politics - apparently the aim is to minimise any possibility of senior bond-holder losses, to push depositor money northwards, and to make Cyprus a docile client state whose interesting mineral resources can be extracted with a minimum of unfortunate local enrichment.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 18th, 2013 at 07:59:14 AM EST
[ Parent ]
Why must they be protected at all costs, including demolishing deposit insurance, and at the risk of destroying the euro?

Whoever they are, they must be scarier than the Russian mafia.

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

by eurogreen on Mon Mar 18th, 2013 at 09:15:15 AM EST
[ Parent ]
Cyprus: What Were They Thinking? and some other notes | Some of it was true...
The central mystery boils down to "WHAT THE HELL WERE THEY THINKING?". Haircutting Taxing small depositors doesn't only violate the principle of social equity, it hurts a lot of people and creates political and logistical difficulties without playing a central part in raising the cash.
Some metrics around deposit distribution: poor people have very little cash. I haven't managed to track down statistics on Cypriot deposits (if they exist) but: in the UK 2% of depositors account for 49% of deposits. The median savings of the bottom half by income of the population is £400. Cyprus is an only marginally more equal society than the UK (Gini of 0.3 vs UK 0.33), a somewhat poorer one, so it doesn't seem unlikely that a floor of say EUR50,000 would massively reduce the number of people captured but not hugely impact the amount of deposits. (links to follow)


Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Mar 17th, 2013 at 03:14:03 PM EST

Unfair, short-sighted and self-defeating

Whatever the rationale, it is a mistake for three reasons.

The first error is to reawaken contagion risk elsewhere in the euro zone. Depositors have come through the financial crisis largely unscathed. Now they have been bailed in, some of them in breach of an explicit promise that they can be sure of getting their money back even if a bank goes belly-up.

Euro-zone leaders will spin the deal as reflecting the unique circumstances surrounding Cyprus, just as they did the Greek debt restructuring last year. But if you were a depositor in a peripheral country that looked like it needed more money from the euro zone, what would your calculation be? That you would never be treated like the people in Cyprus, or that a precedent had been set which reflected the consistent demands of creditor countries for burden-sharing? The chances of big, destabilising movements of money (into cash, if not into other banks) have just shot up.

The second error is one of equity. There is an argument to be made over the principles of bailing in uninsured depositors. And there is a case for hitting everyone in Cypriot banks before any taxpayer in another country. But there is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched, as appears to be the case here; or not imposing any losses on sovereign-debt investors in Cyprus; or protecting depositors in the Greek operations of Cypriot banks, as has also happened. The euro zone may cloak this bail-out in the language of fairness but it is a highly selective treatment. Indeed, the euro zone's insistence that this is a one-off makes that perfectly plain: with enough foreigners at risk and a small enough country to push around, you get an outcome like Cyprus. (That is one reason why people are now wondering about the implications of this deal for little Latvia, also home to lots of Russian money and itself due to join the euro zone in 2014.)

The final error is strategic. The Cypriot deal has no coherence in the larger context. The euro crisis has been in abeyance for a few months, thanks largely to the readiness of the European Central Bank to intervene to help struggling countries. The ECB's price for helping countries is to insist they go into a bail-out programme. The political price of going into a programme has just gone up, so the ECB's safety net looks a little thinner.



Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 03:27:01 PM EST
Metatone posted a link to this above, but it is worth re-posting... the Forbes article is short and to the point, and very much worth the read - they are very serious about how destructive this is:

http://www.forbes.com/sites/eamonnfingleton/2013/03/17/the-botching-of-the-cyprus-bailout-worse-than -lehman-brothers/

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Sun Mar 17th, 2013 at 03:39:27 PM EST
Cyprus: too small to bail | Faisal Islam on Economics

More specifically Sarris was told that for 90 days, Berlin, Brussels and Frankfurt had been monitoring whether Cyprus had caused any contagion in the markets, and it had not. Therefore the suggestion to hit depositors generally was "take it or leave it".

Leave it, was basically referring to leaving the eurozone and returning to the Cypriot pound. Cyprus, in essence was too small to have to be bailed out fully.

There was also a debate about the extent of the levy on depositors. Cypriot politicians suggest the original move from its "EU colleagues" was a deposit cut of 40per cent, presumably to the deposits above €100,000. This was negotiated down to 9.9 per cent for deposits above €100k and 6.75 per cent below.



Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Mar 17th, 2013 at 03:54:06 PM EST
This is insane.
The contagion risk is not what the policy does in Cyprus, it's about what the policy says will be done in Spain and Italy further down the road.
by Metatone (metatone [a|t] gmail (dot) com) on Mon Mar 18th, 2013 at 05:31:34 AM EST
[ Parent ]
Small enough to fail. Elegant.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Mon Mar 18th, 2013 at 06:00:17 AM EST
[ Parent ]
Though I think he is trying to calm anxiety and fear, by the mild way he states this. It caught him by surprise and he's watching it closely...

http://krugman.blogs.nytimes.com/2013/03/17/the-cypriot-haircut/

To quote Krugman: "It's as if the Europeans are holding up a neon sign, written in Greek and Italian, saying "time to stage a run on your banks!"

Tomorrow and the days immediately following should be very interesting."

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Sun Mar 17th, 2013 at 04:07:22 PM EST
Oh, man.  When even Faux News thinks you've screwed-up.  You've REALLY screwed up.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Mar 17th, 2013 at 06:51:58 PM EST
Cyprus Mail: Troika are `vindictive and neo-colonial' (March 17, 2013)
AKEL leader Andros Kyprianou described Cyprus' treatment by the troika as "vindictive and neo-colonial," adding that his party would discuss proposing the island's exit from the eurozone.

"They are attempting to impose their political options on Cyprus, leading out country and people to conditions that are similar to those in other countries of the European south," Kyprianou said.

Kyprianou held President Nicos Anastasiades responsible for the developments, saying that his party's secretariat will recommend rejection of the measures.



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 07:19:32 PM EST
I hope the Cypriot Parliament does reject the plan. But even that would not undo the damage done to the concept of 'deposit insurance'. Regardless of why Anastasiades proposed putting up the small depositors to lessen the losses of the large depositors the fact remains that this was not ruled out by saner heads. Apparently there are no sane heads that were involved in this debacle.

I suspect some interesting news has yet to emerge regarding Anastasiades' contributors, patrons, etc. He may have feared their reaction, but now he has the Cypriot people to worry about. With no level below which people are not protected they are gratuitously enraging all.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 07:58:12 PM EST
[ Parent ]
Wolfgang Münchau: Europe is risking a bank run (FT.com, March 17, 2013)
With the agreement on a depositor haircut for Cyprus - in all but name - the eurozone has effectively defaulted on a deposit insurance guarantee for bank deposits. That guarantee was given in 2008 after the collapse of Lehman Brothers. It consisted of a series of nationally co-ordinated guarantees. They wanted to make the political point that all savings are safe.

...

I myself had favoured a haircut, or tax, on deposits of more than €100,000 - the portion not covered by the deposit insurance guarantee. There is no moral or economic reason to protect foreigners who have decided to park large sums in a Cypriot bank account for whatever reason. Such a haircut would also have been in line with the philosophy of deposit insurance. Its purpose is not to provide absolute certainty, but to prevent bank runs, which is what happens when you go after small depositors. Well-designed deposit insurance schemes thus impose ceilings.

...

If one wanted to feed the political mood of insurrection in southern Europe, this was the way to do it. The long-term political damage of this agreement is going to be huge. In the short term, the danger consists of a generalised bank run, not just in Cyprus.



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 07:23:01 PM EST
The inestimable Matina Stevis et. al.: Europe Plan to Aid Cyprus Raises Risks (WSJ, March 17, 2013)
Over 10 hours of tense negotiations that ended early Saturday, euro-zone finance ministers hammered out the rescue for Cyprus, a nation of 800,000 people, an economy of less than €18 billion, and an opaque banking system with some €70 billion in deposits, many of them held by Russians and other foreigners.

...

"It was the worst time in my life. It reminds me of the invasion of the Turks in 1974," said a Cypriot official involved in the negotiations.

...

This account of the negotiations in Brussels, the discussions that led up to them and the expected fallout, is based on interviews with eight officials who participated in or were briefed on the talks.



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 07:38:46 PM EST

Cypriot authorities in revised deal talks

Cyprus' embattled president was on Sunday in talks with Brussels and political rivals to ease the terms of a planned levy on smaller deposit holders as he tried to scrape together a parliamentary majority for a €10bn bailout for the debt-laden island.

(...)

According to senior officials involved in the talks, the German-led group of negotiators who insisted on the bank levy were agnostic as to where the axe fell. They said Mr Anastasiades, with the backing of the commission, had resisted a rate higher than 10 per cent out of fear it would destabilise the financial sector even more.

One senior eurozone official said the ECB and other EU negotiators at one point suggested putting all the burden on larger depositors.

"We had proposed a levy with a rate of zero below €100,000, and a higher one afterwards," said the official. "The Cypriot president did not want to agree to a levy higher than 10 per cent, and if you do the numbers you get the 6.75 and 9.9 [per cent]."

Cypriot officials insisted no levy on smaller depositors was impossible. One senior Cypriot official involved in the talks said that because about 35 per cent of all deposits are below the threshold, exempting them would mean a rate so high for the rest that it would no longer be viewed as a tax.

"If this is successful then it will be used in the future," said the dejected official, predicting Spanish and Italian banks could face similar levies. "If this is not successful then who cares about Cyprus."



Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Mar 17th, 2013 at 08:34:07 PM EST
[ Parent ]
That's the FT version. Here's another FT article, by Peter Spiegel: Cyprus depositors' fate sealed in Berlin (March 17, 2013)
But Mr Anastasiades soon learnt storming out was not an option. The European Central Bank had another shock for him: the island's second-largest bank, Laiki, was in such bad shape that it no longer qualified for the eurosystem's emergency liquidity assistance - the cheap central bank loans that teetering eurozone banks need to run their day-to-day operations.

The message, delivered by the ECB's chief negotiator, Jörg Asmussen, meant that if no deal was reached, Laiki would collapse, probably bringing the island's largest bank down with it, and saddling Nicosia with a €30bn bill to reimburse accounts covered by the country's deposit guarantee scheme. It was money Nicosia did not have. All of the island's account holders would be wiped out.

Mr Schäuble was not alone. Several officials involved in the talks said he not only had backing from the Finns, Slovaks and to a lesser extent the Dutch. The International Monetary Fund, which had been urging depositor haircuts for months, had won the argument over the skittish European Commission, which had long worried that seizing depositor assets could spark a bank run in Cyprus and, potentially, elsewhere in the eurozone.



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 09:03:12 PM EST
[ Parent ]
Can they legally do that? I mean doesn't the ECB have certain duties to the banking systems it oversees? Can they legally say, pretty much, "die" to a whole country?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sun Mar 17th, 2013 at 09:18:56 PM EST
[ Parent ]
I'd say look at Karl Whelan's piece here.

A lot of commentators are beginning to very explicitly question the sweeping powers and the limited accountability enjoyed by the ECB. For instance, Frances Coppola in the post linked to in the story body.

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 09:46:24 PM EST
[ Parent ]
It looks like Draghi's 'special tool' was thoroughly used in the case of Laiki. What a tool.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 10:37:19 PM EST
[ Parent ]
But doesn't this require some sort of majority in the ECB (2/3 I hear)? You can't just cut off the ELA on Cypriot banks and renege on the implicit ECB guarantee by the president's fiat alone. Unless the EU South  and the crisis countries committed suicide this is impossible. So it was an empty threat. No?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Mon Mar 18th, 2013 at 06:13:48 PM EST
[ Parent ]
I guess that comes down to who makes the decision. My google-fu was not strong enough to find it.

Found something related from Karl Wheelan (pdf of presentation)

International Money and Banking: 6. The ECB and Fed's Operational Strategies - part6.pdf

Emergency Liquidity Assistance

In some cases, banks run out of Eurosystem eligible collateral but still need to borrow from the central bank to pay off the liabilities that are flowing out of the bank.

Eurosystem central banks generally have a lender of last resort power thatpre-dates the euro. This allows them to make loans to banks even if thesebanks don't have eligible collateral.

These loans are called Emergency Liquidity Assistance(ELA) and the cental banks of the Eurosystem do not share risks with the central bank thatmakes these loans.

Article 14.4 of the ECB statute implies that the ECB Governing Council can decide by a two thirds majority to prevent any programmes (including ELA) that "interfere with the objectives and tasks" of the ECB. So while the risk stays with the central bank (and ultimately government) granting the loan,the ECB Governing Council still needs to approve these loans.

ELA has featured heavily in the Irish banking crisis (almost all the moneyAnglo/IBRC owes is ELA) and in Greece (where the Greek governmentbonds have regularly been taken off the eligible collateral list).



Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue Mar 19th, 2013 at 08:05:19 AM EST
[ Parent ]
And here's the eKathimerini version: How Europe stumbled into scheme to punish Cyprus savers (March 18, 2013)
Cyprus could have offered full protection to those with insured deposits up to 100,000 euros and still reached the 5.8 billion euro target by taxing uninsured deposits at a rate above 15 percent.

...

But when the plans were presented to Anastasiades, several participants said, he balked at any suggestion that uninsured depositors should pay more than 10 percent.

...

The meeting was contentious, participants say. Schaeuble, Dutch Finance Minister Jeroen Dijsselbloem and negotiators for the ECB, EU and International Monetary Fund broke off several times to talk separately with the Cypriots. Other ministers hung around in the corridors, playing games on their mobile phones.

...

Anastasiades stormed out of the meeting in anger. He returned only when senior negotiators told him that if he left, Cyprus would have to default and shut its banks altogether.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 06:14:34 PM EST
[ Parent ]
Now that sounds plausible:

>Merkel's Finance Minister Wolfgang Schaeuble had gone to Brussels with a firm mandate from Berlin: «no bail-in, no bailout», said a member of her government. That meant: unless depositors took a hit, there would be no agreement and Germany would not contribute towards a package for Cyprus.<

And then it gets inexplicable:

>European officials set on a figure of 5.8 billion euros to come from depositors, and refused to budge. What they had not decided in advance was how much of that should come from big, uninsured depositors, and how much from ordinary savers.<

Still why 5.8 billion? Why not 4.8 billion or whatever?

>Under a promise which still appears on the website of the Central Bank of Cyprus, deposits in its banks are insured up to 100,000 euros. Cyprus has about 30 billion euros in insured deposits, a large amount for a country of just 1 million people.

But because of its status as an offshore financial hub for foreigners - including large numbers of rich Russians - it also has 38 billion euros in uninsured deposits in bigger accounts.<

So the cypriot government had agency:

>Cyprus could have offered full protection to those with insured deposits up to 100,000 euros and still reached the 5.8 billion euro target by taxing uninsured deposits at a rate above 15 percent.<

by IM on Mon Mar 18th, 2013 at 06:40:12 PM EST
[ Parent ]
So the cypriot government had agency:

I'm not particularly surprised that Anastasiades wanted to keep his racket running. Nonetheless our great leaders hardly get to pretend that the Cypriots did it all on their own. The ECB is already supposed to have threatened to let the banks fail if Cyprus doesn't come up with an arbitrary amount of money. Yet in the face of this blatant sophistry trying to get around explicit guarantees they throw up their hands?

by generic on Tue Mar 19th, 2013 at 02:20:26 AM EST
[ Parent ]
Telegraph [UK]: Cyprus bailout - as it happened: March 18, 2013
Our Brussels correspondent Bruno Waterfield reports that EU Commissioner for the single market, Michel Barnier, believes that big depositors should have taken the hit on the Cypriot "levy" on savings, according to sources close to the French EU official.

That is code from the French European Commissioner for the Russian depositors who have substantial holdings in Cypriot banks rather than the British expats whose savings are caught up in the crisis.

"Barnier would like the one-off levy to be weighted so the burden is on large depositors," said the source.

As commissioner for the single market, Mr Barnier is the watchdog over the EU's "deposit guarantee scheme", legislation which protects up to €100,000 of savings if a bank goes bust but in the Cyprus case, say sources close to him, it does not apply.

Officials are billing the Cypriot hit on savers as a "fiscal measure" rather than a bail-in, haircut or loss inflicted on depositors in order to wriggle around the EU deposit guarantee law.

The point is made that Cypriot banks are deposit based, meaning that depositors are the only people to go to for a cash raid, given that the sovereign state in Cyprus cannot underwrite its banks.

Cypriot banks account for 55 per cent of the economy, their debts run to 800 per cent of Cyprus' GDP - this is a risk unlike any other eurozone country, officials argue.

If the two main banks in Cyprus go bust then the state goes bust too, meaning depositors would lose everything anyway is the case made in Brussels.



guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Tue Mar 19th, 2013 at 02:57:15 AM EST
[ Parent ]
>I'm not particularly surprised that Anastasiades wanted to keep his racket running.<

To put in a word for him: He inherited this racket from his "communist" predecessor.

by IM on Tue Mar 19th, 2013 at 05:45:57 AM EST
[ Parent ]
Yeah, we knew that: European Salon de News, Discussion et Klatsch - 28 July 2011
The effort to transform Cyprus into a global hedge fund and asset management epicenter has been in the works for over 5 years, with the aim of providing access to key markets such as the Middle East, the Eastern European region, Asia and Russia. Some of the top hedge funds globally have already established a footprint in Cyprus in an effort to adapt to international standards. As an accesspoint to the EU, Cyprus works for the Pan/European hedge fund model, with worldwide offices and execution from the island.


guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Tue Mar 19th, 2013 at 06:47:34 AM EST
[ Parent ]
Still why 5.8 billion? Why not 4.8 billion or whatever?

They had to come up with a figure. Negotiation 101: When you are the more powerful party to a negotiation, when the other side's alternative to negotiated settlement is sufficiently poor, and when you have no fair, objective or even explicable model by which to determine what figure to arrive at, come up with a nonsense and stick to it.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Mar 19th, 2013 at 02:35:06 AM EST
[ Parent ]
They asked for EUR 10 bn to come from Cyprus, and agreed to count towards that some privatisation receipts, and future income from the increase in corporate taxes. The 5.8bn is the gap remaining.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue Mar 19th, 2013 at 05:00:21 AM EST
[ Parent ]
Yes, but then you could just demand 13.5 or 14.5% corporation tax rate, calculate higher future income and accept a lower contribution from the depositors.

>They had to come up with a figure.<

But that is my point: If the figure is somewhat arbitrary anyway, why not change it?

And regarding the art of the negotiations: If you are the more powerful party anyway, you have more not less room for flexibility.

by IM on Tue Mar 19th, 2013 at 05:40:55 AM EST
[ Parent ]
Not if your demands are off-the-wall insane and flatly illegitimate by any conceivable objective standard.

Such as attaching conditionalities to the central bank doing its job.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Mar 19th, 2013 at 12:47:34 PM EST
[ Parent ]
If the figure is somewhat arbitrary anyway, why not change it?

Because you have to pretend you know what you're doing?

by gk (gk (gk quattro due due sette @gmail.com)) on Tue Mar 19th, 2013 at 01:34:33 PM EST
[ Parent ]
Glad I still have my US passport.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Sun Mar 17th, 2013 at 08:56:43 PM EST
Who woulda thunk?

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 09:03:33 PM EST
[ Parent ]
Always good to keep one's options open. We live in very interesting times.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 10:38:38 PM EST
[ Parent ]
Some reactions from Greece and Cyprus:

* Cypriot Economics "Nobel" laureate Christoforos Pissarides is fast on the "WTF but TINA" narrative:

Pissarides said "the requests placed upon us by the Eurogroup meeting on Friday are shocking. No one could have expected it. First reactions by the general public and the elected representatives in Parliament are completely justified", he remarked.

"It is simply not fair to be forced to pay for the past mistakes of a few in such a manner" Pissarides underlined.

However, he added, "we have to step back and think of the alternatives".
Pissarides told CNA "the truth is hard to swallow. If the law is not approved tomorrow the consequences will be much worse. There will be large scale bankruptcies and most small Cypriot bank depositors will lose everything, because they will discover that their banks will not open again."

And this, he stressed, "will not happen in some vague future date; it will happen now, this week. Our economy will collapse".
Pissarides said "I believe that however painful it is to accept the memorandum, it is our only hope for saving our economy from instant collapse. We will be able to overcome our troubles and we will see good days again, even better than the ones that we have known, because Cypriots know how to work hard to overcome adversity and succeed.

But first we have to accept that the deal that our government managed to work out in Brussels is the best hope that we have to avoid new disasters and make a new start".

  • The reaction from the general public that Pissarides mentions included large demos, threatening enough to force the President to be smuggled in and out of the Presidential mansion while his spokesperson was attacked by the people gathered there. The fact that this is a recently elected president who campaigned among other things on the explicit promise that there will be no haircut of depositors under his watch, has made people furious. One depositor attempted to take hold of his money with the aid of a bulldozer

  • Perhaps it is noteworthy that Cyprus is sitting on large hydrocarbon deposits worth up to 400 billion dollars, which is something which seems to me bizarre that no one is taking into account, as far as creditworthiness is concerned...

  • SYRIZA's "shadow ministry of finance" (Euclid Tsakalotos):

Developments in Cyprus show yet again that a policy which is not about the whole of the Eurozone, but consists of piecemeal actions for each country by itself, leads to a dead end. The decision for a haircut on deposits in Cyprus, even those under the 100k Euro guaranty, runs contrary even with the decision to further the banking union and to establish a pan-european bank-deposit guaranty  

From now on, in any crisis, wherever it might develop, the fear of depositors will be part of the equation, with unforeseeable consequences. The Eurogroup has made sure, with its mindless and without any historical perspective decisions, that in the future every crisis will be a drama as well

We are nearing a decisive moment where either the South as a whole will impose a fairer and sustainable total solution, or the eurozone will not be able to manage its centrifugal forces and the wrath of peoples



The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sun Mar 17th, 2013 at 09:14:23 PM EST
Perhaps it is noteworthy that Cyprus is sitting on large hydrocarbon deposits worth up to 400 billion dollars, which is something which seems to me bizarre that no one is taking into account, as far as creditworthiness is concerned...

Shhh!  That is only to be discussed AFTER the entire country is broken and those rights are submitted as a very partial compensation for the creditor's troubles.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 10:43:45 PM EST
[ Parent ]
PIMCO | - ​​TARGET2: A Channel for Europe's Capital Flight
Some commentators have suggested there is a limit to how large the Bundesbank's TARGET2 claim on its balance sheet can grow, implying a corresponding limit to how much the Eurosystem can lend to banks in the current account deficit countries. The Bundesbank is a long way from reaching this limit. The theoretical limit is imposed by two factors out of the Bundesbank's control: the amount of collateral banks in southern Europe can muster to borrow more money from the ECB and the amount of capital flight from them.   The pool of eligible collateral in the euro area is enormous. The ECB estimated it at €14 trillion at the end of 2010, and recently introduced rules to allow banks to use even more collateral, albeit of lower quality, to borrow from it. So the collateral for further borrowing exists should capital flight persist.   We see the risk of capital flight continuing. While the ECB's generous liquidity operations and bond purchases have calmed financial markets down, the eurozone's long-term structural problems remain. Debt overhangs persist, growth is mediocre and the governance structure - a common monetary policy without a centralized fiscal policy - is a challenge. History is fraught with monetary unions that broke up because they did not progress to political and fiscal union. What should convince us that this time is different?



'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 Sun Mar 17th, 2013 at 10:49:35 PM EST
Note that PIMCO's public pronouncements have been consistently wrong about everything important for at least ten years by now.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 18th, 2013 at 05:01:23 PM EST
[ Parent ]
Asian markets fall amid fears over Cyprus bailout deal  BBC

Japan's Nikkei 225 index and Hong Kong's Hang Seng fell 2%, while Australia's ASX 200 dipped 1.4%.

Analysts said that investors were sceptical about how the developments in Cyprus may affect other bigger eurozone economies which may also need bailout funds in the future.

The big fear being that, if approved, the plan may set a precedence for those countries.

"There will certainly be confusion in Cyprus and investors looking just at headlines may fret about its case becoming a model," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.



"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 17th, 2013 at 11:35:27 PM EST
Cyprus: The next blunder | Charles Wyplosz | vox

The question is: "how bank depositors will react in Cyprus and elsewhere?" The short answer is that we don't know but we can build scenarios:

  • The benign scenario is that depositors in Cypriot banks will accept the tax and keep their remaining money where it is. Depositors in other troubled countries will accept that Cyprus is special and remain unmoved.
  • A less benign scenario is that depositors in Cypriot banks come to fear another round of optimal, time-inconsistent levies. This is what theory predicts. After all, if policy makers found it optimal once, why not twice, or more?

Under the less benign scenario:

  • We will have a full-fledged bank run as soon as the corralito is lifted. Since bank assets amount to some 900% of GDP, there is no hope of any bailout by the Cypriot government.
  • Any new European loan would immediately translate into a run on the public debt.

At this point in the scenario script, the ECB enters the play. Being the only lender of last resort, the ECB will have to decide what to do.

  • In principle, it could stabilise the situation at little cost as total Cypriot bank assets represent less than 0.2% of Eurozone GDP or 0.5% of the central bank's own balance sheet.
  • But this would involve the risk that it could suffer losses - especially if the banks are badly resolved, i.e. the bankruptcies are badly handled.

This is not unlikely since the ECB does not control Cypriot bank resolution.

Remember that the current version of the banking union explicitly leaves resolution authority in national hands. In Cyprus, as almost everywhere else, national authorities are deeply conflicted when it comes to their banking systems. Powerful special interest groups become engaged when banks go bust and governments decide who pays the price. Thus, it is a good bet that Cyprus's bank resolution will be deeply flawed. The risk to the ECB is real.

Proper resolution under European control could have been part of the conditions for the loan just agreed. But this does not seem be the case. The omission most likely reflects a belief by policymakers that the Cyprus crisis has been solved successfully. The problem is that this belief is false: Cyprus's predicament remains even under the benign scenario.

The really worrisome scenario is that the Cypriot bailout becomes euro-systemic - in which case the collapse of the Cypriot economy will be a sideshow. This will happen when and if depositors in troubled countries, say Italy or Spain, take notice of how fellow depositors were treated in Cyprus.

All the ingredients of a self-fulfilling crisis are now in place:

  • It will be individually rational to withdraw deposits from local banks to avoid the remote probability of a confiscatory tax.
  • As depositors learn what others do and proceed to withdraw funds, a bank run will occur.
  • The banking system will collapse, requiring a Cyprus-style programme that will tax whatever is left in deposits, thus justifying the withdrawals.

This would probably be the end of the euro.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Mar 18th, 2013 at 03:27:02 AM EST
Reuters: Putin hits out at "dangerous" Cyprus bank deposit levy (18 March 2013)
"While assessing the proposed additional levy on bank accounts in Cyprus, Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous," Kremlin spokesman Dmitry Peskov told journalists.

...

Russia has made no decision yet on whether to extend the duration or ease the terms of a sovereign loan to Cyprus, a government source told Reuters earlier on Monday.

European Union officials have said they expect Russia to extend the 2.5 billion euro ($3.27 billion) loan by five years, until 2021, and refinance terms.

...

Officials have also said Russian investors are interested in buying a majority stake in Cyprus Popular Bank and increasing their holdings in Bank of Cyprus - the two biggest banks on the Mediterranean island.

The involvement of any Russian investors - private or state - in recapitalisation of the island's struggling banks is still a matter for discussion, the first government source said.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 06:16:42 AM EST
Well he would say that wouldn't he.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Mar 18th, 2013 at 07:12:56 AM EST
[ Parent ]
Gazprom Offers Cyprus Bank Restructuring Deal to Avoid EU Bailout | Greece.GreekReporter.com Latest News from Greece

Russian energy giant Gazprom has offered the Republic of Cyprus a plan in which the company will undertake the restructuring of the country's banks in exchange for exploration rights for natural gas in Cyprus'’ exclusive economic zone, local media reported.

Representatives of the Russian company submitted the proposal to the office of Cypriot President Nicos Anastasiades on Sunday evening, Sigma TV reported.

The proposal states that Gazprom will fund the restructuring of the country's crippled financial institutions in exchange for substantial control over the country's gas resources while Cyprus won't need to take the harsh bailout package offered by the EU.



Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Mar 18th, 2013 at 07:23:06 AM EST
[ Parent ]
Win - win - win.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 07:28:43 AM EST
[ Parent ]
Get your news one year early at the European Tribune.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Mar 18th, 2013 at 07:40:21 AM EST
[ Parent ]
And just think of the US reaction. I wonder if Obama has already started putting pressure on Merkel?
by gk (gk (gk quattro due due sette @gmail.com)) on Mon Mar 18th, 2013 at 07:42:31 AM EST
[ Parent ]
It's possible that the adults are in charge and the Eurogroup has become irrelevant.

Dean Baker: Time for the Fed to Take Over the European Central Bank's Job (Al Jazeera English via CEPR, November 28, 2011)

It would be bad enough if the ECB's incompetence just put Europe's economy at risk. After all, there are tens of millions of people who stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics. But the consequences of a euro meltdown do well beyond the eurozone.

...

Of course this sort of intervention will look horrible from the standpoint of the eurozone countries. It will appear as though they cannot be trusted to manage their own central bank and deal with their own economic affairs.

Unfortunately, this is the case. They have entrusted the continent's most important economic institution to a group of ideological zealots who are infatuated by the sight of low inflation rates even as whole economies collapse in ruins and tens of millions of people needlessly go unemployed.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 07:59:35 AM EST
[ Parent ]
what? A Dean Baker column from late 2011 proves this? Last time I heard of him - last week or so - Dean Baker was a prophet in the wilderness in his own country.

 What's next, reading Chomsky to learn about the intentions of Obama?

by IM on Mon Mar 18th, 2013 at 08:31:11 AM EST
[ Parent ]
It doesn't prove anything. What I'm saying is that it is necessary that "the adults take control" and there weren't any in attendance at the Justus Lipsius building last Friday night.

What Dean Baker wrote in 2011 is even more true 18 months later: the Eurogroup cannot be trusted to manage its own affairs.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 08:40:59 AM EST
[ Parent ]
Cue EU whining about Russia extending its influence.

I was on holiday for the weekend - Sam and I went away for the first time in five years - and I'm bloody well going back. I'm boggled at how crazy the world has gone while I was offline.

by Colman (colman at eurotrib.com) on Mon Mar 18th, 2013 at 07:50:26 AM EST
[ Parent ]
Nature abhors a vacuum.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Mar 18th, 2013 at 07:56:00 AM EST
[ Parent ]
I really have no idea why the Cypriot parliament, or government, would turn this offer down, having heard the Eurozone offer.

Even if it turns out to be incompatible with Euro membership, or EU membership. Being a subsidiary of Gazprom might look like a better option.

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

by eurogreen on Mon Mar 18th, 2013 at 09:21:28 AM EST
[ Parent ]
Western European newspapers seem to be studiously ignoring this Gazprom aspect of the matter.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Mon Mar 18th, 2013 at 11:16:55 AM EST
[ Parent ]
The Gazprom story has now been denied by Gazprom.

ITAR-TASS: Gazprombank initiates Cyprus restructuring plan - Gazprom (18/03/2013)

Russia's Gazprom has not offered the Republic of Cyprus financial assistance in restructuring the country's banks in exchange for the right to gas production in the exclusive economic zone of Cyprus. Gazprombank initiated this offer, a spokesman for the gas giant told Tass.

Itar-Tass has failed to get an immediate commentary from Gazprombank as of yet.

Cypriot Sigma TV reported on Monday that Gazprom had offered a plan, in which the company will undertake the restructuring of the country's banks in exchange for exploration rights for gas in Cyprus' exclusive economic zone.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 01:06:20 PM EST
[ Parent ]
Went on a google-search to find the relationship between Gazprom and Gazprombank. It appears to be complicated.

How Gazprom lost control of Gazprombank - FT.com

By 2008, Gazprom had relinquished its majority on the Gazprombank board. Today, Gazfond's Yuri Shamalov, as well as Anatoly Gavrilenko, head of Lider, are both on the board. So too is the head of Sogaz - Sergei Ivanov junior, son of deputy prime minister Sergei Ivanov, a close Putin ally and former KGB colleague.

I would say that in one way Gazprombank is still Gazprom's bank, in another they are both part of the ruling network in Russia. Anyway, if an offer was made it has to have the support of the Russian government, and thus it does not matter which corporation it was.

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

by A swedish kind of death on Mon Mar 18th, 2013 at 03:21:44 PM EST
[ Parent ]
Spiegel: Zypern: Zwangsabgabe nützt Putins Anti-Schwarzgeld-Kampagne (18.03.2013)
Europas Rettungsplan für Zypern kostet russische Bürger bis zu vier Milliarden Dollar. Moskaus Medien reagieren hysterisch, Oligarchen und Finanzhaie hingegen entspannt. Dem Kreml spielt die Krise sogar in die Karten: Sie hilft Putin, Russlands Schwarzgeld unter Kontrolle zu bekommen.

...

Dem Kreml spielt die Zypern-Krise ohnehin in die Karten. Krise und Zwangsabgaben erschüttern die Reputation der Insel als sicherer Hafen für Russlands Reiche, und das kommt Moskau gelegen. Wladimir Putin hat ausländischen Steuerparadiesen den Kampf angesagt. "Ent-Offshorisierung" hat er die Kampagne genannt. Putin will russisches Geld aus dem Ausland zurück in die Heimat holen und den Finanzplatz Moskau aufwerten.

...

Russlands Finanzminister Anton Siluanow hat Gesprächsbereitschaft signalisiert, fordert aber eine Gegenleistung. Zypern müsse "Maßnahmen ergreifen, um Informationen über die Arbeit unserer Firmen offenzulegen" - und die Namen der Geschäftsleute, die dahinter stehen.

In brief, Putin is fighting tax evasion and offshore tax havens, so the deposit Levy is useful to him.

It would have been even more useful had it taken the form originally proposed by Schäuble: no levy for insured deposits below €100k, and up to 17% for uninsured deposits. That's why the final Eurogroup plan is "unprofessional" to him.

And when the Cypriot finance minister goes to Moscow on Wednesday to renegotiate the terms of Russia's loan, the Russian minister will demand more transparency about the Russian accountholders in Cyprus.

If Gazprom ends up recapitalizing the Cypriot banking system and getting a gas concession in Cypriot waters, it will really be win-win-win... for Russia.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 09:15:37 AM EST
[ Parent ]
NY Times: Cyprus Delays Vote on Bailout Plan (March 18, 2013)
Cyprus's Parliament on Monday delayed an emergency vote on a bailout plan for the second time in as many days as President Nicos Anastasiades faced trouble rounding up support among lawmakers.

A vote was scheduled for Tuesday at 4 p.m. local time, the Parliament announced, although there was the possibility it could be delayed until Friday.

As European stock markets faltered and the euro fell against major currencies, the government said it would also keep Cypriot banks shuttered until at least Friday, well beyond a bank holiday that was supposed to end Monday. The move was aimed at staving off a possible bank run.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 09:02:56 AM EST
Not to worry.  I'm sure the Russian mob can set up some payday lenders to get folks through.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Mar 18th, 2013 at 10:49:11 AM EST
[ Parent ]
Greece is an ongoing tragedy. Cyprus is looking to become the farce. Don't expect laughter from Merkel or the ECB as they will be the objects of the farce. Russia, via Gasprom, does a leveraged buyout of Cyprus with Europe providing the leverage. Putin will be the hero.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 12:31:18 PM EST
[ Parent ]
This shit is just turning weirder and weirder.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Mar 18th, 2013 at 01:24:51 PM EST
[ Parent ]
... the government said it would also keep Cypriot banks shuttered until at least Friday,...

Are you for real?!! What about the people who were stupid enough to have their liquid cash (not I, said the Twankie) in a bank account that they use for unimportant things like food? What do they do ... dumpster dive?

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Mon Mar 18th, 2013 at 12:06:27 PM EST
[ Parent ]
"Let them use credit cards"
by gk (gk (gk quattro due due sette @gmail.com)) on Mon Mar 18th, 2013 at 12:34:47 PM EST
[ Parent ]
If this doesn't inspire bank runs in other countries, nothing will. Hey people!! Your $$$s not safe!!

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Mar 18th, 2013 at 12:10:52 PM EST
[ Parent ]
This is actually strengthening the $. It is their €€€s that aren't safe.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 18th, 2013 at 12:34:37 PM EST
[ Parent ]
For me, $$$ means money in general

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Mar 18th, 2013 at 12:39:03 PM EST
[ Parent ]
At present a bankrun won't happen, why should it? But the next meeting scheduled for a Friday afternoon might trigger it off. Even if it doesn't happen, everyone will have to bear it in mind.
by Katrin on Mon Mar 18th, 2013 at 12:51:24 PM EST
[ Parent ]
Calling a "Bank Holiday" until Friday can be translated into "We would be in the middle of a bank run and all it entails if we let it happen". Bank runs involve psychology. Once you think your hard earned savings are in jeopardy and you perceive that the govts./banks are lying to you, it's hard to turn that perception and psychology around. Wait till the Bank Holiday is over ... and look out.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Mar 18th, 2013 at 01:23:11 PM EST
[ Parent ]
You said "in other countries", and that is what I referred to.
by Katrin on Mon Mar 18th, 2013 at 02:05:47 PM EST
[ Parent ]
Let's suppose I'm living in in Greece or Italy and I see this crap happening in Cyprus. Question: What kind of warning were the Cypriots given that all this nonsense was in the works? My read is ... none. They tried this theft on a Friday hoping most people would miss what was happening until the Cyprus politicians blessed the theft. Now Cyprus is trying to fend off a bona fide bank run. So, what's to stop this same crap from happening in Greece or Italy? Should the average citizen take a chance with their life savings if they don't need to? It's obvious this crap happens without any warning and that's the killer of confidence.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Mar 18th, 2013 at 02:17:52 PM EST
[ Parent ]
The average citizen hasn't got much choice. Otherwise--as I said--anything, for instance finance ministers meeting, can trigger off a bank run. At present there isn't one, though, although we are quite agreed that confidence has been killed.
by Katrin on Mon Mar 18th, 2013 at 02:57:31 PM EST
[ Parent ]
Anyone can open up an account in a foreign country, no problem.

And bank-runs can't be triggered by some random political meetings, because people know that no matter what they will be protected by deposit insurance. Deposit insurance is a really good invention which has virtually eliminated bank-runs completely, so everyone is very careful to never ever jeopardize or question them in any way whatsoever.

Uhm...

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

by Starvid on Mon Mar 18th, 2013 at 04:58:42 PM EST
[ Parent ]
Eyra Klein[s Wonkblog weighs in

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/16/why-todays-cyprus-bailout-could-be-the-st art-of-the-next-financial-crisis/

Sorry. can't do the block quote right now...but they are worried this could be bad.  yippee

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Mon Mar 18th, 2013 at 01:43:18 PM EST
Statement by the Eurogroup President on Cyprus [PDF] (18 March 2013)
I recall that the political agreement reached on 16 March on the cornerstones of the adjustment programme and the financing envelope for Cyprus reflects the consensus reached by the Cypriot government with the Eurogroup. The implementation of the reform measures included in the draft programme is the best guarantee for a more prosperous future for Cyprus and its citizens, through a viable financial sector, sound public finances and sustainable economic growth.

I reiterate that the stability levy on deposits is a one-off measure. This measure will - together with the international financial support - be used to restore the viability of the Cypriot banking system and hence, safeguard financial stability in Cyprus. In the absence of this measure, Cyprus would have faced scenarios that would have left deposit holders significantly worse off.

The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below EUR 100.000. The Cypriot authorities will introduce more progressivity in the one-off levy compared to what was agreed on 16 March, provided that it continues yielding the targeted reduction of the financing envelope and, hence, not impact the overall amount of financial assistance up to EUR 10bn.

The Eurogroup takes note of the authorities' decision to declare a temporary bank holiday in Cyprus on 19-20 March 2013 to safeguard the stability of the financial sector, and urges a swift decision by the Cypriot authorities and parliament to rapidly implement the agreed measures.

Shorter Dijsselbloem:

  1. Cyprus did it to itself, nobody put a gun to Cyprus' head.
  2. We'll do this just this once. Honest.
  3. It's up to Cyprus how much they want to tax the small depositors. Small depositors are sacrosanct. There is no contradiction.
  4. Closing the banks by surprise for five days contributes to financial stability. Please fall on your sword already so we can move on.


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 18th, 2013 at 05:25:03 PM EST

Savings swoop `bleak day for banking union'

The weekend decision to strip €5.8bn from the savings accounts of Cypriot banking customers has blown a hole in the EU's ambitious reforms billed as the route out of the eurozone crisis, while potentially undermining a growing reliance at banks around the world on funding their operations with customer deposits.

"This is a totally crazy decision," said one European bank chief. "This is the biggest policy mistake that the [European Central Bank] has subscribed to."

(...)

Cyprus shows that - whatever small depositors might expect or believe - those savings are not safe from overnight taxes to avert a bank collapse.
"We nailed our colours to the mast in Europe to say that [accounts] under €100,000 were protected," said a senior official involved in financial reform. "Now there is a real risk of mixed messages."

[No Shit, Sherlock!]

(...)

"It is the abrogation of an explicit guarantee," Tim Adams, managing director of the Institute of International Finance, the global banking lobby group, told the Financial Times. "This is an unsettling precedent. In future, I fear they will regret having done it."



Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Mar 18th, 2013 at 05:56:20 PM EST
New thread open

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue Mar 19th, 2013 at 04:58:56 AM EST


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]

Top Diaries