"The deeply distressing problems faced by Cyprus show how insufficient this step is in itself," said Martin Schulz, the German president of the European Parliament, calling for an EU-wide scheme to close failing banks and guarantee deposits.

...

"This is almost a fatal blow to banking union," [Paul de Grauwe] said. "The one key element of banking union is a system to help each other out and share the cost when there is a banking crisis in one country. There is no willingness to do that."

...

"Clearly we don't have a banking union yet, even if we will have single supervision," [Nicolas Veron] said. "Deposit guarantee is a central plank of that. I hope that lessons will be learned from this episode."

As a result, we're all going to learn the hard way.

What's really interesting to me is that I may be wrong, because it seems Europe's people are too numb to understand what is happening.

We will see 20% - 50% levies in Spain before the end of the year, but the Spanish people haven't realised it. Question is, will they realise it before the levy hits?

for as long as the eurozone has no common bank resolution policies

Remind me, who pushed for the rapid creation of a centralised banking governance institution, and who threw all their weight into delaying it as long as possible?

Presumably they wanted the Cyprus fail to happen first.

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

And in a surprise development, the head of Cyprus' influential Orthodox church, Archbishop Chrysostomos II, said he would put the church's assets at the country's disposal, saying the church was willing to mortgage its assets to invest in government bonds. The church has considerable wealth, including property, stakes in a bank and a brewery.

ECB had capital of €6.4 billion at end-2011 so a T[ARGET]2 default from Cyprus would wipe this out. http://www.ecb.int/pub/pdf/annrep/ar2011en.pdf

Here's hoping the meetings in Moscow are going well.

The Hun is always either at your throat or at your feet. Winston Churchill

Abandoning tough reforms not the answer, says ECB's Asmussen

More from ECB board member Joerg Asmussen who warned about the (lack of) solvency of Cypriot banks earlier.

Speaking at conference he said abandoning the tough reforms and raising spending instead would not solve the debt crisis and would merely shift the problems to the future. He said:

It is an illusion to think that more debt is the answer to this debt crisis. Recent research has shown that high public debt levels in the euro area hamper growth, with a serious negative effect starting when debt exceeds 90% of GDP.

On of the more interesting statements of the last few days: "Cyprus's debt is totally unsustainable, too high relative to GDP." The new Eurogroup leader.

Cyprus's debt to GDP: 71.6%

Yanis Varoufakis writes that all the Cypriot banks passed Euro stress tests with flying colors 12 months ago.

Real conversation between me and a troika person (TP). TP: Ireland earned great credit for its structural reforms. Me: Name one. TP: Um err.

Grünen-Chef Cem Özdemir hält die geplante Zwangsabgabe in Zypern trotz der Ablehnung durch das dortige Parlament für richtig. "Der Eigenanteil Zyperns muss bleiben", sagte er im Deutschlandfunk. Allerdings müsse man Einlagen von mehr als 100.000 Euro noch stärker belasten als mit 9,9 Prozent wie bisher geplant. Ersparnisse unterhalb der 100.000 Euro-Grenze sollten Özdemir zufolge nicht komplett von der geplanten Zwangsabgabe ausgeschlossen werden: "Wer 80.000 Euro auf der hohen Kante hat, ist jetzt nicht der Ärmste der Armen", sagte er. "Wenn der einen Beitrag leistet, der vermutlich unterhalb dessen ist, was er an Zinserlösen hat, dann wird er nicht verarmen."

ECB SAID TO ASSUME CYPRUS BANK HOLIDAY EXTENDED TO END OF WEEK. Which week?

According to Mega TV, Anastasiades reportedly said to Olli Rehn and the German MEP Elmar Brok: "When I warned you that there would not be a parliamentary majority to pass the agreement, you didn't want to listen. Give my regards to Mrs Merkel." The comments have not been confirmed.

Cue Three Stooges

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

"We had a very good first meeting, very constructive, very honest discussion," Sarris said after meeting Siluanov. "We've underscored how difficult the situation is." However, he said there were "no offers, nothing concrete".

Sarris said he would stay in Moscow until a deal was reached.

Indeed, if he doesn't get a deal it's probably better if he doesn't come home.

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

1. There might be huge political storm brewing in Cyprus if an article in one of Cyprus' major dailies about people close to Anastasiadis moving large sums of their money out of the Cypriot banking system days before the bail in is confirmed. The opposition demands the publication of banking records of transactions during the critical period
   
2. It seems that Cyprus' plan b includes the following: a. Good Bank / Bad Bank scheme where all deposits under 100k go to the GB as well as performing loans, while the rest go to the BB b. 10y public bonds on future natural gas profits. All public and bank pension funds go there. They reckon to have about 3 billion there, more if the church chips in c. Selling off Laiki (probably to Gazprom, again persistent rumors say that this is a done deal, but who knows) d. Hitting uninsured deposits with anywhere from 3 to 30% depending on who's spreading the rumor :-)

A quick run-down on the impressively stupid handling of the "Cyprus bailout" by the EU.

 And, before we go on, we should note that the on-the-ground situation for visitors and tourists is perfectly fine - Cypriots are not prone to rioting and even though the banks are closed, the ATMs still work.  We are all at work and things are otherwise proceeding normally.

Is it unfair to spoil a good fit of official hysteria with a little bit of context?

First, some background that most people know partially but not completely:

1. The Cyprus sovereign has not been particularly profligate. Debt to GDP as late as last year was in the low 70% range, lower than Germany, etc. While the last Communist government ran unnecessary fiscal deficits, the new government was elected with a more or less `austerity' orientation

2. The issues with the Cyprus sovereign have come from the bailout of the banking system.

The banking sector in Cyprus is being portrayed in the mainstream press as a monstrosity of risky banks for Russian mobsters. I think it is important to put it in context:

(a) Banking assets are about 7.1x GDP relative to the EU average of 3.5x GDP and similar to Ireland and Malta.

Luxembourg, by contrast, where Anglo-Saxon firms do their tax arbitrage has banking assets of 21x GDP. So, Cyprus's exposure is similar to that of an economy that has large financial services sector, but that still has a real economy too. It is not Luxembourg nor the Cayman Islands nor the Bahamas nor the Channel Islands and so on.

(b) Further to this point, 20B of the 70B of deposits are non-EU (aka Russia/CIS) which, while meaningful (28%), hardly dominate the system

(c) The banks are almost 100% deposit funded (something that regulators across the world have been encouraging because deposits tend to be sticky if you take care of them).

3. Q: So, given all that, why do the banks need a bailout?

A: Primarily due to their exposure to Greece, Cyprus's neighboring economy, both on the commercial side, but most importantly and most critically because of the Greek Government Bond EU restructuring (this accounts for about 40-50% of the capital needs) which Cyprus signed up for in the spirit of EU / Greek solidarity.   It was understood at the time that there would be some protection in exchange for this later on otherwise, Cyprus should have taken a harder line at the time such as ensuring the that Greek branches get covered by the Greek bailout.

It gets better. A must read.

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

The president of Cyprus will on Thursday present political leaders with a "Plan B" for funding the country's controversial bailout, state TV says.

Earlier it was announced that banks, which have been shut all week to prevent mass withdrawals, would stay closed until Tuesday.

Politicians have been scrambling to find a way forward after a bank levy was rejected by parliament on Tuesday.