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

But they are mad!? (Cyprus bail-in thread no. 3)

by Migeru Wed Mar 20th, 2013 at 05:32:06 AM EST

Eurointelligence: European Commission redefines deposit insurance (March 20, 2013)

This is hugely damaging. According to eKathimerini, a European Commission spokesman explained on Tuesday that deposit guarantees are only operative "in the event of a bank failure" and that a deposit levy is "a fiscal measure applied to all bank accounts", not to those in failing banks. Reuters quotes Klaas Knots, president of the Dutch central bank, as saying that bank customers should get used to the idea of this type of bail-in, at least for as long as the eurozone has no common bank resolution policies.
Since they are now using the levies as a protection against bankruptcy, the result is that banks do not go bankrupt because the insured depositors pay through a levy. Through this legalistic reasoning, the Commission has single-handedly voided all deposit insurance through the EU, or rather rendered it pointless. It means that all deposits, in all EU states, should be considered uninsured.


Cyprus bail-in thread (2)
Live blogging the Cyprus deposit situation

Display:
"Eurointelligence" seems to be the oxymoron of the day.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Mar 20th, 2013 at 06:08:03 AM EST
Reuters: ECB wins watchdog role under cloud over Cyprus deposit levy (March 19, 2013)
"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."



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 Wed Mar 20th, 2013 at 06:08:56 AM EST
Basically, the leaders of Europe, be they in the EC, ECB or Council of Ministers, are clueless about bank runs. Which in this case

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?

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 20th, 2013 at 06:19:48 AM EST
correction:

Basically, the leaders of Europe, be they in the EC, ECB or Council of Ministers, are clueless about bank runs. Which in this case can be seen as a form of madness...

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 20th, 2013 at 06:20:18 AM EST
[ Parent ]
It's not like bank runs are hard to understand or avoid.

Banks runs are caused by lack of confidence in the banking system. They are avoided through the implementation of deposit insurance and central bank liquidity support.

That's it.

In other news, why weren't haircuts instituted on interbank loans to Cypriot banks? I mean, if you worried about not being repaid, you could have bought credit default swaps from some solid and transparent institution. Sure, that could have been a bit credit crunchy, but why do we even allow interbank loans if they can never be allowed to fail? If they are in effect guaranteed by the state (heh...) they should return the same as sovereign bills and bonds.



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

by Starvid on Wed Mar 20th, 2013 at 06:38:01 AM EST
[ Parent ]
why do we even allow interbank loans if they can never be allowed to fail? If they are in effect guaranteed by the state (heh...) they should return the same as sovereign bills and bonds.

European Tribune: Get your policy recommendations two years early.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 20th, 2013 at 01:10:22 PM EST
[ Parent ]
In other news, why weren't haircuts instituted on interbank loans to Cypriot banks?
What makes you believe Cypriot banks had access to the interbank market at the EONIA rate? In fact, the Cypriot government has been shut out of the bond markets for yay-two years, so I presume the same has been true of Cyrpiot banks and the interbank market.

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 Wed Mar 20th, 2013 at 01:18:24 PM EST
[ Parent ]
Bottom RH figure in the post.

Sure, it's not all that much interbank lending. But there's some and it's not being wiped out as it properly should.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 20th, 2013 at 01:20:43 PM EST
[ Parent ]
They could be lending to each other within Cyprus.

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 Wed Mar 20th, 2013 at 01:22:30 PM EST
[ Parent ]
It's even worse than being clueless about bank runs:

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.
(Business Insider)

I suspect there's a conceptual issue. If you're a neoclassical economist or are full of modern market-centric conventional wisdom (as a politician would, since they embody conventional wisdom) then there is no such thing as "precautionary savings" or "liquidity preference". All there is is rational allocation of investments based on risk and return. The most knuckle-headed tweet I've seen about the whole thing was provided by EU conventional wisdom incarnate: @BruegelPisani (16 March)

All those who say Cyprus tax is robbery, have a look.
No reward w/out risk. Savers could have deposited in Germany.
http://bit.ly/15aaw7v
The contrary (Keynesian?) view would acknowledge that uncertainty is a driver of liquidity preference and precautionary savings. See, for instance Precautionary savings in the Great Recession by Ashoka Mody and coauthors, 22 February 2012
Uncertainty rose sharply during the Great Recession, as did saving rates. This column shows that these two developments were related. Using a panel of OECD countries, it estimates that at least two-fifths of the increase in households' saving rates between 2007 and 2009 was due to increased uncertainty about labour-income prospects. It adds that restoring higher levels of consumption and aggregate demand will require employment-friendly social insurance and reduced policy-induced uncertainty.
And this stock of precautionary savings is about to be taxed!!!???

Taxing deposits not protected by deposit insurance might be seen as taxing investor cash hoarding and thus a form of Keynesian "euthanasia of the rentier". But taxing deposits below the deposit guarantee is "euthanasia of the working class".

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 Wed Mar 20th, 2013 at 06:40:15 AM EST
[ Parent ]
Surely worth noting as well that ordinary savers cannot so easily deposit in Germany - and at other times, various problems with cross-border saving have been raised by German leaders as well as others.
by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 20th, 2013 at 03:53:17 PM EST
[ Parent ]
It's easy - all you need is a German friend who lets you use his address.....

Actually, most European countries that I am familiar with make it very difficult for ordinary nonresidents to open accounts.

by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 20th, 2013 at 04:39:22 PM EST
[ Parent ]
Do you think Jean Pisani has any idea what it's like to be an ordinary saver?

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 Wed Mar 20th, 2013 at 05:03:09 PM EST
[ Parent ]
But it is entirely rational to save as a precaution. You just need to take into account that you can starve to death, but cannot buy eternal life and bliss.
by oliver on Wed Mar 20th, 2013 at 04:30:14 PM EST
[ Parent ]
But it is entirely rational to save as a precaution.

You must be a Keynesian.

If you're a neoclassical economist all assets are fungible and liquid, and all that matters is risk and return. Therefore whether you hold cash or not is a risk-return tradeoff and not a "precautionary" measure.

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 Wed Mar 20th, 2013 at 05:05:21 PM EST
[ Parent ]
Why? It seems to me that you just need to use a nonlinear utility function for money.
by oliver on Wed Mar 20th, 2013 at 05:42:30 PM EST
[ Parent ]
Because in neoclassical-land money has no utility beyond its risk/return characteristics. There is literally no "precautionary liquidity" in the theory.

Unless you want to postulate a utility function which for some arbitrary reason includes a liquidity preference, totally detached from the overall logic of the model. Which of course you can do: Utility functions are the perfect pseudoscientific tool. You can postulate any behavior you like, no matter how insane, implausible or at odds with the overall structure of your model, and claim that it is "derived" or "microfounded" simply by applying Jesuit logic to the construction of the agent's utility function.

But that just means that utility functions are turtles all the way down.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 20th, 2013 at 06:11:10 PM EST
[ Parent ]
But there is no general preference for liquidity. It exists as long as the currency is stable. In other cases there is a preference for foreign currency and gold or real estate.

What you have is an aversion to losses, even if classically speaking the chances should outweigh the risks. People prefer savings and cash for safety, not liquidity.

by oliver on Thu Mar 21st, 2013 at 05:04:38 AM EST
[ Parent ]
I suspect this may be cultural, and differ widely among European countries. In France, people may hold long-term illiquid investments -- generally, real estate -- or liquid but risky investments -- i.e. stocks, in other words -- but nobody in either category would dream of not having a substantial buffer in an on-call cash account.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Mar 21st, 2013 at 08:38:55 AM EST
[ Parent ]
Ah, I guess you're not a Keynesian then. But since you're not a Neoclassical either you must be a Classical...

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 Thu Mar 21st, 2013 at 09:18:52 AM EST
[ Parent ]
environment. Cash appreciates, and by definition is expected to do so. And, in a deflationary environment, by definition alternatives to cash yield little to nothing, but carry nominal risk.

Kick in assumption that bank deposits, even the most approaching of liquid, may not be safe, for whatever reason.

You mean to say there's no liquidity preference in such an environment?

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

by r------ on Thu Mar 21st, 2013 at 09:27:19 AM EST
[ Parent ]
You're talking in risk-return terms...

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 Thu Mar 21st, 2013 at 09:54:37 AM EST
[ Parent ]
As would anyone, no?

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Thu Mar 21st, 2013 at 10:02:28 AM EST
[ Parent ]
No. People might think in survival terms. Cash has its own risks, mainly that it can be stolen. Serious deflation also carries with it political risks. You might want to get funds abroad just in case.
by oliver on Thu Mar 21st, 2013 at 10:33:02 AM EST
[ Parent ]
Sounds like the assets you'd be after in thzt scenario would be first and foremost arms.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Thu Mar 21st, 2013 at 10:39:59 AM EST
[ Parent ]
Any economist, sure.

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 Thu Mar 21st, 2013 at 11:43:14 AM EST
[ Parent ]
One of the biggest failures of enlightenment thought (being it left or right - not the point here) is assuming that humans are omni-rational, omniscient. god became Human.

Any expectations based on "rationality of agents" are bound for disappointment.

Notice that there nothing negative in noticing that humans have much more limited cognitive abilities than expected.

Views about human limits only turn sour when a group of people believe that they are above the others (either through god, or the belief that they know better for some reason).

Liberal democracy is the best system not because "people know better", but because people know when they are hurting (and nobody - individual or collective - has the cognitive capability to understand the whole system and "do the good thing")

by cagatacos on Wed Mar 20th, 2013 at 06:56:55 AM EST
[ Parent ]
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

by eurogreen on Wed Mar 20th, 2013 at 06:35:30 AM EST
ABC News
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.
Pope Francis did say something about wanting a poor church. Maybe he could make a similar offer to Italy?
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 20th, 2013 at 06:35:57 AM EST
When the banks open, and (presumably) the depositors pull their money out, does the ECB guarantee the banks against failure? Given that they will presumably be durably non-viable, do they just keep pumping in liquidity?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Mar 20th, 2013 at 06:37:41 AM EST
This crisis was sparked by the ECB refusal to accept Cypriot sovereign bonds as collateral from Cypriot banks who wanted liquidity support. If they still refuse that even after this mad affair, they will look totally stupid.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Mar 20th, 2013 at 06:41:21 AM EST
[ Parent ]
The eternal conundrum.

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 Wed Mar 20th, 2013 at 06:42:09 AM EST
[ Parent ]
To which the answer is "Yes".
by Colman (colman at eurotrib.com) on Wed Mar 20th, 2013 at 06:55:02 AM EST
[ Parent ]
Pray that they are intelligent sadists.

Because if they are stupid, irrespective of whether they are evil or not, Germany is going to be a failed state before this is over.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 20th, 2013 at 01:03:52 PM EST
[ Parent ]
Was Kurt von Schleicher intelligent or stupid by your definition?

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 Wed Mar 20th, 2013 at 01:15:12 PM EST
[ Parent ]
He ended up getting catching a really predictable case of being dead, so he can't have been that smart.

But by the time he rolled around, Germany was already a failed state.

Brünning, OTOH, was stupid.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 20th, 2013 at 01:23:20 PM EST
[ Parent ]
You mean by the time he rolled around as Chancellor?

In late 1926-early 1927, Schleicher told Hindenburg that if it was impossible to form a government headed by the German National People's Party alone, then Hindenburg should "appoint a government in which he had confidence, without consulting the parties or paying attention to their wishes" and with "the order for dissolution ready to hand, give the government every constitutional opportunity to a majority in Parliament".[18] This was the origin of the "presidential governments". Together with Major Oskar von Hindenburg, Otto Meißner, and General Wilhelm Groener, Schleicher was a leading member of the Kamarilla that surrounded President von Hindenburg. It was Schleicher who came up with the idea of a presidential government based on the so-called "25/48/53 formula". Under a presidential government, the head of government (in this case, the chancellor), is responsible to the head of state (president), and not to a legislative body. The "25/48/53 formula" referred to the three articles of the Constitution that could make a presidential government possible:

  • Article 25 allowed the President to dissolve the Reichstag.
  • Article 48 allowed the President to sign into law emergency bills without the consent of the Reichstag. However, the Reichstag could cancel any law passed by Article 48 by a simple majority within 60 days of its passage.
  • Article 53 allowed the President to appoint the Chancellor.

Schleicher′s idea was to have Hindenburg use his powers under Article 53 to appoint a man of Schleicher′s choosing as chancellor, who would rule under the provisions of Article 48. Should the Reichstag threaten to annul any laws so passed, Hindenburg could counter with the threat of dissolution. Hindenburg was unenthusiastic about these plans, but was pressured into going along with them by his son along with Meißner, Groener and Schleicher. During the course of the winter of 1929-30, Schleicher, through various intrigues, undermined the "Grand Coalition" government of Hermann Müller with the support of Groener and Hindenburg.[23] In March 1930, Müller′s government fell and the first presidential government headed by Heinrich Brüning came into office.[24]
He had been scheming for a decade by the time he got shot. He must have thought he was very smart right until Kristallnacht.

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 Wed Mar 20th, 2013 at 01:30:46 PM EST
[ Parent ]
Night of long knives.

Schleicher was a powerful cardinal and a weak pope. As soon as he had to govern himself, the inherent limits of the presidential governments did show pretty quickly.

by IM on Wed Mar 20th, 2013 at 01:58:06 PM EST
[ Parent ]
But when he was finally chancellor he did reap the results of his own intrigues.

Of course the main factors in late 1932 had nothing to do with personalities.

Brüning e. g. represented a powerful faction in the Zentrum that wanted to go right etc.

by IM on Wed Mar 20th, 2013 at 02:01:04 PM EST
[ Parent ]
I'd like to underline one thing even further.

By joining the Eurozone, the member states have exposed themselves to ECB blackmail on a massive scale. The ECB constantly has a gun to the head of any EZ government, and by threatening to stop doing its job by extending liqiudity, this unelected institution can leverage its monetary mandate into forcing democratic governments to change their laws or policy in basically any area. Not only can this be done, it has been done on numerous occasions, against Spain, Italy, Ireland and so on.

Rather than just transfering monetary sovereingty to Frankfurt, EZ-membership has meant a massive transfer of soveriegnty other than monetary. During the Cold War we annually spent 2% of GDP to avoid this kind of loss of freedom, democracy and independence.

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

by Starvid on Wed Mar 20th, 2013 at 06:50:42 AM EST
[ Parent ]
Just recently
Paul de Grauwe: ECB is a law unto itself (FT, November 12, 1998)


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 Wed Mar 20th, 2013 at 07:16:04 AM EST
[ Parent ]
you were a left wing extremist or a right wing crank for pointing that out.

All the while the sensible people and elites drove one of the most famous products of groupthink ever visited upon the developed world. (and I don't say this lightly, I was in america ten years ago in the run-up to the Irak invasion.)

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

by r------ on Wed Mar 20th, 2013 at 09:37:45 AM EST
[ Parent ]
This looks like the endgame. They probably aren't worried about looking stupid to anyone who's not German.
by tjbuff (timhess@adelphia.net) on Wed Mar 20th, 2013 at 10:06:03 AM EST
[ Parent ]
If they were too bad to accept before this mess, they certainly are now, too. They've dug a hole very hard to get out of.
by oliver on Wed Mar 20th, 2013 at 04:31:55 PM EST
[ Parent ]
The ECB, as the central bank of the currency zone, decides on what terms government money is acceptable in clearing. That is the function of a central bank. The notion that government paper has any "natural market value" is a nonsense conjured up in the fevered imagination of people who don't understand the nature and function of money in an advanced industrial economy.

If the ECB decides so tomorrow, all peripheral bonds become risk-free.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 20th, 2013 at 06:14:17 PM EST
[ Parent ]
Yes. And the notion that the ECB would act by objective criteria goes out of the window. Now you might argue for a central bank with a political agenda. But for that a political mandate would be needed. The ECB would cut off the branch it is sitting upon. It is like actually using monarchical reserve powers.
by oliver on Thu Mar 21st, 2013 at 05:10:03 AM EST
[ Parent ]
Because the current ECB has no political agenda.

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 Thu Mar 21st, 2013 at 08:08:53 AM EST
[ Parent ]
There are no "objective criteria" for central bank action, only political preferences.

To pretend otherwise is a bald-faced, usually partisan lie. Which has unfortunately been written into the treaties.

If that is an argument against central bank "independence," then boo fucking hoo for central bank "independence."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 21st, 2013 at 03:19:16 PM EST
[ Parent ]
@WhelanKarl
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


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 Wed Mar 20th, 2013 at 07:58:33 AM EST
One of the world's biggest currency traders, PIMCO, is beginning to sell its EURO position off. Rather than draft a list of possible consequences, perhaps better to say hold on to your hats. Leaving the other hand to hold on to your wallets, of course.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Wed Mar 20th, 2013 at 08:11:30 AM EST
PIMCO hasn't gotten many things right during the last five years or so, though.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Mar 20th, 2013 at 08:31:00 AM EST
[ Parent ]
Probably just another PIMCO miscalculation. Didn't they be bit on inflation in the US and higher interest rates a few years ago?
by IM on Wed Mar 20th, 2013 at 08:31:42 AM EST
[ Parent ]
Can't say, as i don't follow such trading. But if Starvid says so...

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Wed Mar 20th, 2013 at 09:11:07 AM EST
[ Parent ]
Since the beginning of the present depression, PIMCO's forecasts have corresponded to reality only by coincidence.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 20th, 2013 at 01:06:39 PM EST
[ Parent ]
More or less correlated with having Mohamed El-Erian talk rather than Paul McCulley.

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 Wed Mar 20th, 2013 at 01:14:26 PM EST
[ Parent ]
to leave not just the Euro, but the EU itself, Cyprus is it.

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

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

by r------ on Wed Mar 20th, 2013 at 09:32:38 AM EST
But note that, for Moscow, one of the motivations to rescue Cyprus is to increase their access to Eurozone markets via a country that is in the EMU. They might just settle for Gasprom getting development rights in return for financing the resolution of Cyprus banks so that Germany doesn't have to spend any money on 'feckless southerners'. Now would not be the time to press for a naval base. They could do that after this issue and their new status in Cyprus is established fact and a new distraction/crisis arises elsewhere in the EZ.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 20th, 2013 at 12:19:00 PM EST
[ Parent ]
Eurozone crisis live: Cyprus scrambles to secure new bailout | Business | guardian.co.uk

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.



It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Mar 20th, 2013 at 09:52:47 AM EST
Oh, FFS, the magical 90% figure.

CEPR: Paul Krugman and the 90 Percent Zombie (27 February 2013)

Paul Krugman is engaged in battle with the 90 percent zombie: the claim that economies go to hell when their ratio of debt to GDP exceeds 90 percent. He makes the obvious point that it is really impossible to untangle cause and effect with such a small sample. The countries that had debt to GDP ratios above 90 percent all had other major problems that likely would have impeded growth even if they had no debt.

I have written numerous times as to why this claim is beyond silly. Among other things, government can sell off assets that would substantially reduce their debt. In the old days governments used to sell off the right to collect certain taxes. We do something similar today with patent and copyright monopolies. Anyhow, if we used these routes to get our debt to GDP ratio below 90 percent, would everyone be happy?

However, to my mind, the bullet to zombie head in this story is the fact that we can easily change the debt to GDP ratio with some simple and costless debt management. If interest rates rise as projected, we would have the opportunity to buy back trillions of dollars of the debt issued in the current low interest rate environment at sharp discounts. Suppose we bought back $4 trillion in long-term debt at a price of $3 trillion because higher interest rates lowered the price of the outstanding bonds.



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 Wed Mar 20th, 2013 at 10:07:45 AM EST
[ Parent ]
Krugman blog: Another Attack of the 90 Percent Zombie (February 27, 2013)
Look, this is just not an established result. It's a correlation; but it could just as well reflect a pathway from slow growth to high debt, or from third factors like political and institutional dysfunction to both slow growth and high debt.

This last possibility becomes especially persuasive when you look at the full list of advanced countries that have exceeded the supposed 90 percent threshold in the past 50 years: Japan, Italy, Belgium, Greece. That's it. So yes, Japan and Italy have had high debt and slow growth; do you really want to say that debt was the only reason for slow growth, or that the Japanese slowdown of the 1990s had no role in causing the rise in debt? Do you really want to say that debt is the only reason for Italy's poor performance? If your answer to either question is no, you have just said that you don't believe in Reinhart-Rogoff's results.

So why do people imagine that this is a definitive result? That's obvious. R-R on debt got picked up eagerly by deficit scolds, because it said what they wanted to hear. Then it became orthodoxy through what we might call the Scarborough effect: Very Serious People heard other Very Serious People citing the alleged finding, then repeated it themselves, and it became part of what Everyone Knows -- after all, everyone they talked to said it was true.

...

And professional economists, at least, should know better.



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 Wed Mar 20th, 2013 at 10:24:47 AM EST
[ Parent ]
Next New Deal: No, the 90 Percent Debt Threshold Hasn't Been Proven (Jan 28, 2013)
The editorial focuses on the debt-to-GDP ratio leveling out too close to a 90 percent threshold. The writers also claim that there is a well-defined and well-established 90 percent threshold over which our economy will suffer. They write, "The CBPP analysis assumes steady economic growth and no war. If that's even slightly off, debt-to-GDP could keep rising -- and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth." This 90 percent threshold was proposed by Carmen Reinhart and Kenneth Rogoff in their 2010 article "Growth in a Time of Debt" (GITD). They found that economies with public debt over 90 percent of debt-to-GDP grew more slowly than other countries.

It's always tough to figure out where consensus among economists lies. But economists don't "regard" the 90 percent mark as definitive; in fact, this study and its claim have never even been peer reviewed by an economics journal.

I don't bring this up because something that's peer reviewed should automatically be accepted as definitive, or that credentials are everything, or that only Very Serious Economics matter. (That's a bad rule in general, and as an economics blogger that would be a doubly insane claim.) I bring it up only because the public should understand that the 90 percent threshold couldn't survive peer review for a very important reason: It's impossible to seperate the cause and effect here given the evidence collected. Policymakers and deficit hawks should reconsider if they're running under the assumption that this is a well-established rule.



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 Wed Mar 20th, 2013 at 10:26:59 AM EST
[ Parent ]
in fact, this study and its claim have never even been peer reviewed by an economics journal.

Words fail.

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

by ATinNM on Wed Mar 20th, 2013 at 11:49:56 AM EST
[ Parent ]
[1] According to their C.V.s, it's been published in the May 2010 issue of the American Economic Review, which is a special non-reviewed "papers and proceedings" issue.
With a nod to JakeS:
It's a conference proceeding, not a paper. You can get any old shit published in conference proceedings.


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 Wed Mar 20th, 2013 at 12:00:17 PM EST
[ Parent ]
I guess we need an "Official" Journal of Economic Conventional Wisdom" in which such 'peer review' could be conducted.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 20th, 2013 at 12:02:19 PM EST
[ Parent ]
I think everyone may be getting economics confused with a science.

Y'all should stop that shit now.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Mar 20th, 2013 at 12:05:09 PM EST
[ Parent ]
I hope my bank goes bankrupt so I can get my money bank (loopy).

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.

by Upstate NY on Wed Mar 20th, 2013 at 10:55:25 AM EST
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.
The "problem" is that the "rescue" would more than double the debt-to-GDP ratio.

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 Wed Mar 20th, 2013 at 11:16:28 AM EST
[ Parent ]
Maybe they can sell off all their natural gas reserves.

I knew as soon as they discovered those reserves that they would never profit from them.

by Upstate NY on Wed Mar 20th, 2013 at 11:22:03 AM EST
[ Parent ]
@WhelanKarl
Real conversation between me and a troika person (TP). TP: Ireland earned great credit for its structural reforms. Me: Name one. TP: Um err.


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 Wed Mar 20th, 2013 at 11:24:00 AM EST
SZ
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."
I can just imagine how this will go down in Cyprus and Greece: A German of Turkish origin.....
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 20th, 2013 at 11:25:11 AM EST
It's not because he's of Turkish origin that it's shameful that he said that. It's because he's Green.

(Racist.)

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

by eurogreen on Wed Mar 20th, 2013 at 12:05:08 PM EST
[ Parent ]
Of course not. But that's likely to be what the Greeks and Cypriots will pick up on.
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 20th, 2013 at 12:19:30 PM EST
[ Parent ]
(Just kidding.)

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Mar 20th, 2013 at 12:26:02 PM EST
[ Parent ]
True. But whatever the problem with Özdemir is, that isn't the problem.
by IM on Wed Mar 20th, 2013 at 02:13:19 PM EST
[ Parent ]
@zerohedge
ECB SAID TO ASSUME CYPRUS BANK HOLIDAY EXTENDED TO END OF WEEK. Which week?


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 Wed Mar 20th, 2013 at 11:29:32 AM EST
Various amateurs are now blaming each other for this fine mess  Eurointelligence March 19

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."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 20th, 2013 at 12:09:32 PM EST
Cyprus loan talks in Moscow constructive, says finance minister | World news | guardian.co.uk

"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

by eurogreen on Wed Mar 20th, 2013 at 12:25:07 PM EST
Reuters: Cyprus Banks to remain closed Thursday and Friday

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Mar 20th, 2013 at 01:53:17 PM EST
Reading they'll remain closed until Tuesday... no link yet

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 Wed Mar 20th, 2013 at 02:41:06 PM EST
[ Parent ]
Hope you folks weren't depending upon that money to feed your small kids or keep Granny alive. Sorry about that. Have to protect the banks, ya' know.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Wed Mar 20th, 2013 at 04:42:20 PM EST
[ Parent ]
If you were actually watching the news (though maybe not in the US: I don't know...), you'd know that the ATMs are working, so people can withdraw money, though the banks are having to work hard to fill them to keep up with the demand.
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 20th, 2013 at 04:49:47 PM EST
[ Parent ]
Thank you. Just posted a ?? about that. Nope, can't get a thing about your situation on the news ... even Democracy Now! is blowing over it (for now). After all, we've got important shit to pay attention to ... the "anniversary" of the Iraq invasion and March Madness!

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Wed Mar 20th, 2013 at 04:53:54 PM EST
[ Parent ]
You can search on the web - Cyprus even has newspapers in English....

You mean these things have even drowned out coverage of Obama's visit to Israel? I mean, apart from the superb coverage in America's finest new source?

Moments after stepping out from Air Force One Wednesday, President Barack Obama reportedly greeted Prime Minister Benjamin Netanyahu at Ben Gurion International Airport, shook his hand, smiled, leaned in, and told the Israeli leader that "this is a completely pointless visit and a waste of everyone's time."
and
While touring Israel's "Iron Dome" all-weather missile defense system Wednesday, President Barack Obama sarcastically asked Prime Minister Benjamin Netanyahu where he got all the money to build such technologically advanced equipment.
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 20th, 2013 at 04:57:34 PM EST
[ Parent ]
Silly me, I really should bookmark The Onion. Thank you.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Wed Mar 20th, 2013 at 05:02:29 PM EST
[ Parent ]
Another Thank You. Just found this:

  http://www.cyprus-mail.com/

Now I've got to read this every morning for the next few weeks.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Mar 20th, 2013 at 05:09:27 PM EST
[ Parent ]
A quote from an article from above:

Financial institutions will remain closed today to prevent a run on the banks, but when they will re-open is anyone's guess.

And there you have it.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Mar 20th, 2013 at 05:14:29 PM EST
[ Parent ]
I saw it on CNN both Monday and Wednesday while I was at the gym so it isn't being ignored. I don't know how it's being framed as I wasn't listening.

you are the media you consume.

by MillMan (millguy at gmail) on Thu Mar 21st, 2013 at 02:32:57 AM EST
[ Parent ]
  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 :-)


The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Mar 20th, 2013 at 02:56:14 PM EST
BTW official sources in Cyprus unofficially express fears that the the forces around the ECB will attempt to inflict as much damage on Cyprus as possible, since otherwise it would signal that EU policies are amendable, thus triggering a domino effect of insubordination across the EU South.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Mar 20th, 2013 at 03:00:00 PM EST
[ Parent ]


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 Wed Mar 20th, 2013 at 03:46:04 PM EST
[ Parent ]


Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 20th, 2013 at 04:04:51 PM EST
[ Parent ]
Yeah, let's watch for a strong EU alpha signal.
by das monde on Thu Mar 21st, 2013 at 03:33:39 AM EST
[ Parent ]
According to Cypriot sources the government is panicking since it seems that Russia "is not prepared to sacrifice good relations with the EU (i.e. Germany) to save Cyprus", which means that they won't be as involved as the GoC wanted

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Mar 20th, 2013 at 03:18:14 PM EST
[ Parent ]
Time for Plan C... Though if the ECB will act vindicatively there isn't much Cyprus can do.

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 Wed Mar 20th, 2013 at 03:27:21 PM EST
[ Parent ]
Migeru:
Though if the ECB will act vindicatively there isn't much Cyprus can do.

Except leaving the euro. And from what we have learned their position which might look bad now will only get worse if they delay. You are attacked by what should be your central bank, so you need to get a new one.

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

by A swedish kind of death on Wed Mar 20th, 2013 at 04:14:18 PM EST
[ Parent ]
On the other hand:

Russian banks had $30 to $40 billion tied up in cross-border loans to Cypriot firms at the end of 2012 and some $12 billion on deposit with Cypriot banks, Moody's rating agency said.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Wed Mar 20th, 2013 at 04:22:07 PM EST
[ Parent ]
Cyprus Bailout: Stupidity, Short-Sightedness, Something Else?   By Cyprus.com Editor  (H/T naked capitalism)

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."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 20th, 2013 at 04:29:09 PM EST
...even though the banks are closed, the ATMs still work.

What exactly does that mean? What kind of "Bank Holiday" allows the average citizen to still access his/her cash? Or can you deposit but not withdraw? Or are the mechanics working, you just can't get them to spit out any money?

Odd.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Mar 20th, 2013 at 04:50:13 PM EST
[ Parent ]
There's a limit of a couple of hundred on ATM cards, as a rule.
by Colman (colman at eurotrib.com) on Wed Mar 20th, 2013 at 04:56:11 PM EST
[ Parent ]
Usually per day.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 20th, 2013 at 04:58:45 PM EST
[ Parent ]
In Cyprus, or are you generalizing from countries you know? My bank in Italy lets me withdraw at least 1,500 in one transaction. I know that, because the preprogrammed buttons jump directly from 300 to 1.500 (am I the only person who likes withdrawing around 500 each time?)

I've no idea what the limits in Cyprus are, but they might be able to reduce them at short notice.

by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 20th, 2013 at 05:08:10 PM EST
[ Parent ]
That's Italy for you. :-) Yeah, I'm generalising, though even if the limit is as high as 1500 you still can't move real money by taking it from ATMs for a week.
by Colman (colman at eurotrib.com) on Wed Mar 20th, 2013 at 05:44:34 PM EST
[ Parent ]
The rate they are going it might be more than a week....

Note that I've no idea what the actual limit is in Italy, only that it must be at least 1.500.

by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 20th, 2013 at 05:49:13 PM EST
[ Parent ]
Isn't the limit set per customer?

A very usual limit in Spain is €600, but that's because it corresponds to the old 100,000 pta. I'm planning on getting a new account with a €1,000 limit on withdrawals. I don't actually know what the default is.

Usually when I go abroad I gauge the "reasonable" amount of pocket money by looking at the median of the (usually 6) default options presented by ATMs for withdrawal amounts.

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 Wed Mar 20th, 2013 at 05:54:07 PM EST
[ Parent ]
In the UK the limit depends on the account type and the card that goes with it.

I have a nominal limit of £500 per transaction, but it turns out to be possible to withdraw more with multiple consecutive transactions. (Strange, but true.)

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Mar 20th, 2013 at 06:02:36 PM EST
[ Parent ]
I have found it possible to arrange much larger amounts with BoA if required, such as for travel, but it was suggested that a rather low daily limit was preferred in case of fraud. And I hardly ever use cash, so there is little reason to withdraw if from an ATM so $200/day seemed reasonable. It could be a case of them limiting their liability, as the bank is liable for losses due to fraud - unless they show the customer was involved.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 20th, 2013 at 09:31:46 PM EST
[ Parent ]
Right  Had an issue with that in Britain, because I was paying all my rent up front.  Got to the bank and found I could only withdraw a few hundred pounds per day.

We found some convoluted way around it that probably means my pension is fully invested in some sort of batshit HSBC LIBOR scheme, but whatever.

(Forget the food.  It's the banking rules that make me wonder how they ever built that god-forsaken empire.)

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

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Mar 20th, 2013 at 06:07:32 PM EST
[ Parent ]
15. ...
If you want to do a wealth tax, then pass a wealth tax, calculate it properly (on wealth, not on liquidity on a given day) and collect it.   Or issue subordinate government bonds tied to gas revenue to the local population.   And restructure everyone below on the priority chain. ...

A wealth tax -- preferably assessed and paid over a period of years -- would solve so many issues/problems in the US.

by Marie2 on Wed Mar 20th, 2013 at 05:46:43 PM EST
[ Parent ]
A wealth tax ... in The US Empire ???!!!  LOL

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Wed Mar 20th, 2013 at 05:54:09 PM EST
[ Parent ]
A much easier sell to a large majority of Americans than the reduction in carbon fuel burning needed to avert the worst of climate change.
by Marie2 on Wed Mar 20th, 2013 at 06:20:45 PM EST
[ Parent ]
A much easier sell to a large majority of Americans ...

But the US isn't a functioning democracy. Majorities mean very little. The wealthy own this government and they will never allow significantly higher taxes on the ultra-wealthy ... that's one of the benefits of being in the 1% Club. You write the rules (laws) and then break them with impunity.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Wed Mar 20th, 2013 at 07:45:32 PM EST
[ Parent ]
True -- except every once in a while, when the majority becomes too large and pissed off to be ignored, our "masters" get scared enough to begin tossing out bones to the rabble in an effort to quell our hunger.  
by Marie2 on Wed Mar 20th, 2013 at 10:10:57 PM EST
[ Parent ]
The point about Luxembourg deserves making a few times next time IM comes around to lecture us about how Cyprus deserves everything it gets.
by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 20th, 2013 at 05:52:28 PM EST
[ Parent ]
I don't think that's entirely fair. He just gets prickly when people start talking about German fascism once again destroying Europe.
by generic on Wed Mar 20th, 2013 at 07:02:51 PM EST
[ Parent ]
And, given that the whole German fascism argument ends up in a complicated discussion of terms and definitions which inevitably 1) makes people angry 2) goes nowhere 3)changes the topic 4) is not that interesting as the original statement about German fascism was more hyperbolic than anything, I tend to think that it would be better for all concerned to choose not to have that argument - primarily by not making that accusation/hyperbolic statement/curious interrogation of the issue to begin with.
by Zwackus on Wed Mar 20th, 2013 at 08:19:25 PM EST
[ Parent ]
No, his reaction is entirely standard issue nationalist partisanship. We always see it whenever any country or its institutions comes under criticism. We've had it in Russian flavours, French flavours, British and American
(Anglo!) flavours, Israeli flavours and so on and so forth.  That the Germans have a handy outrage screen to hide behind doesn't make it all that different.

All nation states are evil and racist, pretty much by definition. Only the details of how they express that differ. And their members and partisans always want to think otherwise and always claim we're singling them out because we criticise them - despite our criticising pretty much every nation I can think of at some stage.

by Colman (colman at eurotrib.com) on Thu Mar 21st, 2013 at 09:03:41 AM EST
[ Parent ]
In other words: One should always come to ET with the understanding that we hate everybody. :)

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Mar 21st, 2013 at 11:26:21 AM EST
[ Parent ]
I am a partisan of Malta or Luxemburg and want to defend their banking industry? I don't think so.

 I am actually critizising cypriotic nationalistic myths, these myths cloaking the right wing economic policies of the last twenty years or so in Cyprus. Which have now delivered the predictable results.

And yes I don't like the argumentum ad hitlerum. I think it devalues the political discourse. And that is a position as old as Orwell, so I can't see the nationalism in there.  

by IM on Thu Mar 21st, 2013 at 01:29:39 PM EST
[ Parent ]
Your love of tax havens anywhere is duly noted.
by IM on Wed Mar 20th, 2013 at 08:25:04 PM EST
[ Parent ]
As it your apparently highly selective hatred of Cyprus as a tax haven. Luxembourg and Lichtenstein, not to mention Switzerland are all much closer to Germany. I am reminded of observations about seeing the mote in your neighbor's eye but not the log in your own.

It seems to me that the official German response to Cyprus, which you seem to mirror, does not even need to be focus group tested. It just draws on every conservative German politician's innate grasp of pejorative stereotypes applicable to Cyprus that will readily be believed by most Germans.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Mar 21st, 2013 at 01:40:20 AM EST
[ Parent ]
"Luxembourg and Lichtenstein, not to mention Switzerland are all much closer to Germany. "

You can surely point out there I said anything positive about their tax avoiding business model.

And what is so selective? I said the same things about Iceland, Ireland and the UK at least since the start of this crisis.

the cited cypriotic is actuall<y bragging that inancial services constitute 45% of Cyprus gdp. And that is supposed to be a good thing?

by IM on Thu Mar 21st, 2013 at 01:34:16 PM EST
[ Parent ]
"(f) inancial services constitute 45% of Cyprus gdp. And that is supposed to be a good thing?"
Perhaps you and I can agree that it is not such a good thing there, in The City, on Wall Street or even in Frankfurt, but, in the world as it is, such centers are prized by more than just their inhabitants. Would that the world were different! Yet Cyprus too had to find its way in the world that is, so why should it be singled out for destruction on the account of its being a financial center when other more significant financial centers are left not just alone but to benefit from the destruction of one small center that is currently the object of the ECB's obloquy?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Mar 21st, 2013 at 01:51:57 PM EST
[ Parent ]
When there is any German support for dealing with Luxembourg, then I'll take lectures from you. As it is, you're only concerned with others use of tax havens, not your own. Not to mention the extremely dubious tax arrangements used by Volkswagen and others in connection with sourcing from Poland and the Czech Republic.
by Metatone (metatone [a|t] gmail (dot) com) on Thu Mar 21st, 2013 at 07:43:13 AM EST
[ Parent ]
Further, ordinary Germans like yourself should be wary of assigning guilt to ordinary citizens of other countries, since your government and corporations are involved in massive corruption in the Far East and indeed even in Greece regarding weapons and other industrial sales.
by Metatone (metatone [a|t] gmail (dot) com) on Thu Mar 21st, 2013 at 07:59:44 AM EST
[ Parent ]
That is nonsense. To use a non-german but related example: The US is pressuring Switzerland and its banks for information about the assets of american citizens. To tax them. And that is entirely correct.

And whatever United Fruit does in Panama or drones do in Pakistan will not change this.

by IM on Thu Mar 21st, 2013 at 01:48:20 PM EST
[ Parent ]
Well, Germany did encroach on Liechtenstein's "sovereignty". But Luxembourg is a founding EEC member state...

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 Thu Mar 21st, 2013 at 08:07:20 AM EST
[ Parent ]
In the real world, in any debate about any harmonization, Germany, France and other bigger EU states are on one side of the debate and  Luxemburg, Austria, Cyprus, Ireland, the Netherlands and of course the UK on the other. These fronts haven't changed much since twenty years now.

There were also some recent disputes between Germany and Switzerland /Lichtenstein about taxes. I wouldn't this called taking on  yet and the concurrent american approaches were more effective. But it was good enough to cause quite the nationalistic stir in Switzerland and Lichtenstein.  

But the reason the EU isn't able to do anything about non taxpaying EU citizens in Switzerland is that countries with similar strategies like Luxemburg Austria, Cyprus, up to point also Ireland and the Netherlands protect them.  

by IM on Thu Mar 21st, 2013 at 01:45:56 PM EST
[ Parent ]
In the real world, in any debate about any harmonization, Germany, France and other bigger EU states are on one side of the debate and  Luxemburg, Austria, Cyprus, Ireland, the Netherlands and of course the UK on the other. These fronts haven't changed much since twenty years now.
In the real world countries grant their far-off outposts special fiscal regimes as a way to make them viable, as otherwise they would have to be depopulated. This is the case with the Canary Islands and Gibraltar. Such regions are structurally in deficit within the countries they belong to. I bet Greenland and the Faroe Islands within Denmark, the Açores and Madeira, The Isle of Man and the Channel Islands, Monaco, Liechtenstein, the Guyanas, Martinique and Réunion, San Marino, Malta and Cyprus... can only survive within the states they belong to, or next to the large states that neighbour them, either through fiscal transfer or special tax regimes... which is a sort of implicit fiscal transfer.

Oh, or they can have a serially devaluing independent currency. That works, too.

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 Thu Mar 21st, 2013 at 01:58:27 PM EST
[ Parent ]
That would bring the number of potential financial centers up to twenty or so. And Europe alone - other regions of the worlds have their own tax havens - needs twenty of these centers why? Doesn't look like a very sustainable strategy to me.
by IM on Thu Mar 21st, 2013 at 02:49:03 PM EST
[ Parent ]
Europe does not need any "financial centers" at all.

But Europe needs a fiscal transfer mechanism to make the periphery viable. And if Germany will not fund that fiscal transfer mechanism by printing money and giving it to the periphery, then Germany will fund that fiscal transfer mechanism by default, devaluation, or tax fraud laundering.

I prefer the honesty and transparency of direct fiscal transfers. But then, I'm not a Bavarian housewife.

Unless, of course, you just want to liquidate the periphery and move the population to the core (or leave them to die). In which case you should be open and above board about it. The extent to which the center should subsidize the periphery (and the extent to which the periphery provides services for the center which escape the narrow focus of national accounts) is an interesting and germane discussion, but unfortunately one we as Europeans refuse to have.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 21st, 2013 at 03:31:19 PM EST
[ Parent ]
I still can't see why people are so scared about sovereign defaults. Companies default all the time. If sovereign defaults are needed in the Eurozone, bring'em on.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Mar 21st, 2013 at 04:22:51 PM EST
[ Parent ]
Because sovereign bonds are interest rate policy instruments, and sporadic defaults are not the right way to implement negative nominal interest rates.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 21st, 2013 at 04:26:17 PM EST
[ Parent ]
Yes, but I didn't ask the question as in what-the-world-would-look-like-if-it-was-up-to-JakeS, but given the current situation.

You need some way to relieve competitive pressures. Usually that's done through floating currencies. Can't do that now. Then there are fiscal transfers. Not acceptable to the Eurozone member states.

And then sovereign default is left. So be it. Default already!

Oh, it will create havoc with bank balance sheets? Then recapitalize them. Not enough money? Well, that is when the time has come for a rescue package. Let the Eurozone states via ESM or whatever inject capital into bankrupt banks and take them into recievership. The shares will be held by the ESM, which can send them to the member states, sell them into the market, or do whatever they feel like.

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

by Starvid on Thu Mar 21st, 2013 at 04:34:39 PM EST
[ Parent ]
Well, I do believe you just answered your question: "Rescue" package.

As we all know, the only purpose of EU "rescue" packages is to rescue the receiving country from the onerous obligation of maintaining a civilized society.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 21st, 2013 at 05:38:35 PM EST
[ Parent ]
Still, this would work pretty well. It would make everyone happy (except bank creditors), it wouldn't force the ECB to do its job, and it would likely be cheaper than the current bailouts.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Mar 21st, 2013 at 05:41:37 PM EST
[ Parent ]
First, it's not obvious that the Troika would make a "rescue" package following a default.

Second, any such "rescue" package would come with insane "conditionalities" attached, which would make the defaulting country better off saying "fuck off and die" than accepting.

Third, if the defaulter is going to say "fuck off and die" anyway, it might as well just issue its own currency from the get-go and convert all its debts and all the debts of its residents to this new currency. Since that's what's going to happen anyway as soon as it tells the Troika to fuck off and die. The end result is the same, except that this way avoids a sovereign default on the nominal notional (which is what matters to interest rate policy).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 21st, 2013 at 06:01:45 PM EST
[ Parent ]
More insane than the current conditionalities? I don't see why. Maybe even less, if the rescue packages need not be as large, and as they clearly give something back to the rescuers, namely ownership of what are suddenly "good banks".

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Mar 21st, 2013 at 06:47:43 PM EST
[ Parent ]
Current conditionalities reliably produce failed states.

"Not worse than Kosovo" just isn't terribly appealing.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 21st, 2013 at 09:04:37 PM EST
[ Parent ]
We're having Selective sovereign default all right. Just the kind that actually matters, not the kind you're thinking about.

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 Thu Mar 21st, 2013 at 05:14:31 PM EST
[ Parent ]
We only need one financial center, obviously: Düsseldorf.

Look, the Canary Islands are not a financial center, but they enjoy a plethora of tax exemptions.

You may not remember this, but allegedly the Troika suggested evacuating all the Aegean islands with fewer than 150 inhabitants in order to save money to the Greek state. That's not because these islands were offshore financial centers, but they were recipients of fiscal transfers because otherwise they are not sustainable.

These are all real macroeconomic considerations that a geographically fragmented state with a sufficient degree of solidarity must face and resolve.

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 Thu Mar 21st, 2013 at 03:38:14 PM EST
[ Parent ]
You are dodging the question. So Heligoland - that would be german equivalent - should be turned into the channel islands?* And transfer payments for Islands populated with 56 people or so are not relevant for this discussion. Most of them depopulate since the early 20th century anyway.

And I understood periphery as an political and economic term in the EU, not as strictly geographic. So Cyprus - not that isolated geographically anyway if we don't pretend the world ends at the EU border - was not forced to develop into an offshore financial center. That started pre EU anyway. Neither was the very unperipheral Luxemburg.

Turning every small or peripheral EU country into Luxemburg won't work. The imitation of other caribbean islands to imitate the cayman islands brought quite mixed results after all too.

* My alternative proposal: Turning it into a Akzaban theme park.

by IM on Thu Mar 21st, 2013 at 04:02:03 PM EST
[ Parent ]
My alternative proposal: Turning it into a Akzaban theme park.
Well, we know all German can think of doing with the Euro periphery is cheap tourism.

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 Thu Mar 21st, 2013 at 04:07:17 PM EST
[ Parent ]
I think they actually try expensive tourism.
by IM on Thu Mar 21st, 2013 at 04:17:24 PM EST
[ Parent ]
I'm not dodging the question. I'm saying tax havens are a form of fiscal transfer. There are others.

What you cannot do is have a currency union without fiscal transfers. That's not sustainable.

Cyprus joined the Euro in 2010 with generalised plaudits, also from Germany. Look at them 3 years later.

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 Thu Mar 21st, 2013 at 04:10:02 PM EST
[ Parent ]
I'm saying tax havens are a form of fiscal transfer.

We have to agree to disagree about that. Fiscal transfer has a meaning and being a tax haven is not included in that.

Look at them 3 years later.

That just shows that the roots are obviously pre Euro.

by IM on Thu Mar 21st, 2013 at 04:44:40 PM EST
[ Parent ]
Look at them 3 years later.

That just shows that the roots are obviously pre Euro.

My point is that the same people that castigate them now for their "unsustainable business model" (it's a country, not a business, but we'll let that pass for now) were congratulating them 3 years ago for joining the Euro.

Not unlike Ireland, by the way.

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 Thu Mar 21st, 2013 at 05:11:24 PM EST
[ Parent ]
Add Lavtia to the "Luxemburg, Austria, Cyprus, Ireland, the Netherlands and of course the UK" list.  Russian money has been flowing out of Cypress and into Latvian banks.

Speaking as an outsider, it's clear eurozone economic policy has purposely privileged monied interests (rentiers, banks, etc.) over the wealth creating Real Economy.  ECB forcing Cypriot banks to "unilaterally disarm" by raising taxes or "bailing-in" hot money deposited in the country would cause a bank run on those banks, with the money ending up in Lavia, Luxemburg, Austria, Cyprus, Ireland, the Netherlands and of course the UK, continuing and acerbating the crisis.

The eurozone crisis will only begin to abate when the ECB focuses on the real, underlying, systemic problems caused by their absurd pro-cyclic policies based on Neo-Classical and Neo-liberal theologies.

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

by ATinNM on Thu Mar 21st, 2013 at 02:18:21 PM EST
[ Parent ]
"As it is, you're only concerned with others use of tax havens, not your own."

I don't have a tax haven of my own. I assume you don't own one either. The more I am surprised of your strong defense of the cypriotic elite.

by IM on Thu Mar 21st, 2013 at 01:52:29 PM EST
[ Parent ]
Of the Elite? I thought the whole argument here was that Cyprus shouldn't be plunged into a depression by crashing its domestic banking system, for the sake or ordinary Cypriots. The same ones that have less, often much less, than €100,000 in their accounts and should have been spared the deposit tax proposed by the European Commission and justified under the legalistic argument that the deposit is taxed a second before the bank would go bankrupt it's a fiscal measure and not a violation of deposit insurance.

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 Thu Mar 21st, 2013 at 02:03:49 PM EST
[ Parent ]
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.

Germany: Making Americans seem eagle-eyed since 2008.

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

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Mar 20th, 2013 at 06:16:56 PM EST
[ Parent ]
"Luxembourg, by contrast, where Anglo-Saxon firms do their tax arbitrage has banking assets of 21x GDP."

Next: Our banking assets to gdp is still lower then Lichtenstein!

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

A brazen lie. As far as I know ukrainien deposits alone reach almost 20 billion.

by IM on Wed Mar 20th, 2013 at 08:31:14 PM EST
[ Parent ]
for your assertion here.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Wed Mar 20th, 2013 at 08:59:50 PM EST
[ Parent ]
Something that isn't Bild or Spiegel preferably.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Mar 20th, 2013 at 09:01:32 PM EST
[ Parent ]
Let's guess: As long as the source isn't the babbling of some neoliberal stooge of the cypriotic oligarchy it isn't accepted?
by IM on Wed Mar 20th, 2013 at 09:05:49 PM EST
[ Parent ]
stooge of the German oligarchy.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Wed Mar 20th, 2013 at 09:07:50 PM EST
[ Parent ]
Look, in the real world Cyprus is functioning as a low tax paradise for  money of questionable origin. And some idiotic cypriotic blogger - perhaps because he is paid, perhaps out of nationalism - defends the bankrupt neoliberal paradise.

And you are joining in- why? What's your next move, defending the labour laws of Dubai?

by IM on Wed Mar 20th, 2013 at 09:25:03 PM EST
[ Parent ]
back up your assertions with facts credibly sourced.

This blogger is not the only one to make the same point. US Fed  advisor and Nobel Prize winner Chris Pissarides, and former ECB board member Anthanasios Orphanides have made very similar points.

My question to you is, what is the source for your assertions? First, that 20bn€ in Cypriot bank liabilities come from Ukraine alone, and second, your new assertion that there is money of questionable origin (as understood in a legal sense) in significant quantities

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

by r------ on Wed Mar 20th, 2013 at 09:33:22 PM EST
[ Parent ]
appeal to authority, what?

What is your source? Cyprus doesn't seems to belong to any reputable organisations who do proper statistics

by IM on Wed Mar 20th, 2013 at 09:40:36 PM EST
[ Parent ]
You denigrated a blogger as obscure, I simply pointed out that others far less obscure were making similar points. That's perhaps backing up my assertions with sources, something I've asked of you to no avai.

As for reputable statistics from EZ member state Cyprus, I'd only note that as an EZ member, they are required to compile stats in some lecel of detail to the ECB. You could try to source tour assertions there.

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

by r------ on Wed Mar 20th, 2013 at 09:46:53 PM EST
[ Parent ]
Cyprus doesn't seems to belong to any reputable organisations who do proper statistics
Eurostat is not reputable. Genau

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 Thu Mar 21st, 2013 at 04:59:15 AM EST
[ Parent ]
Well, it's probably not.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Mar 21st, 2013 at 07:11:30 AM EST
[ Parent ]
Oh wait...

Love your new email address btw.

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

by r------ on Wed Mar 20th, 2013 at 09:06:14 PM EST
[ Parent ]
I tried to look it up, but Cyprus is that much of a tax haven that it isn't even included in the BIS.
by IM on Wed Mar 20th, 2013 at 09:09:02 PM EST
[ Parent ]
the Channel Islands, Ireland, the Netherlands, or Luxembourg?

And if so, how?

And if not, what is your point?

Perhaps German pressure could be brought to bear to close all tax havens in the EU...at least let's be consistent. Ireland was bailed out...German-led terms of that bailout did very very little in terms of Ireland's corporate tax structure and corporate law. Clearly, this is not what Germany has in mind for Cyprus either.

Stop blowing smoke and answer your assertion that the Ukraine accounts alone for 20bn€ in Cypriot banking liabilities with a credible source.

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

by r------ on Wed Mar 20th, 2013 at 09:16:13 PM EST
[ Parent ]
"the Channel Islands, Ireland, the Netherlands, or Luxembourg?"

And that is a good thing? Are you nuts?

Look, it is bad enough that a lot of the smaller EU countries with the help of useful idiots like you are functioning as tax havens, delawares of the Eu, deregulating outposts.

Bu now, that at long least this neoliberal agents are bust, we are obligated to finance the further operations of these casinos? Why?  

by IM on Wed Mar 20th, 2013 at 09:30:35 PM EST
[ Parent ]
The German ones who made foolish investments before 2008 and are now abusing EU institutions (and progressively delegitmising them in the process) in order to protect the assets of their otherwise losing hand?

Didn't think so.

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

by r------ on Wed Mar 20th, 2013 at 09:38:10 PM EST
[ Parent ]
With whom are you arguing? Has anyone here objected to bailing in uninsured deposits?
by generic on Wed Mar 20th, 2013 at 09:50:59 PM EST
[ Parent ]
That is actually a very good question. I thought on this blog there was a consensus or near consensus that bailing in was a good idea, a moral necessity and so on.

Every day were were several comments complaining that the creditors of private banks were paid out in full.

And now there is a bail in and everybody complains. Why? are only bond-holder to be burned and large depositors not? there is the legal, economic, moral difference?

And these implicit and explicit defenses of the very financial services heavy cypriotic economic model I don't understand either.

Is it really a good thing when every smaller EU country tries to imitate Switzerland? How many Switzerlands does the EU need? Luxemburg, Malta, Ireland, Iceland, Cyprus, Austria they can't all be the financial centre of Europe at the same time.  

by IM on Thu Mar 21st, 2013 at 02:04:21 PM EST
[ Parent ]
I thought on this blog there was a consensus or near consensus that bailing in was a good idea

If there is I'm not part of it.

"Bailing-in" small depositors is the stupidest idea ECB has come up with ... and that's saying something.

"Bailing-in" hot money large depositors is also stupid since the money would flee Cyprus to other eurozone tax havens.  

What has to happen is a realistic eurozone-wide tax policy applied across the eurozone and a fiscal and monetary policy that isn't from Cloud Cuckoo Land.  I wearily concede the ECB and other eurozone Decision Makers show no sign of doing so.


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

by ATinNM on Thu Mar 21st, 2013 at 02:26:28 PM EST
[ Parent ]
"What has to happen is a realistic eurozone-wide tax policy applied across the eurozone "

But that is impossible because of the list of countries just mentioned.

So bailing in isn't the thing to do in bank resolution? I am genuinely surprised.

by IM on Thu Mar 21st, 2013 at 02:29:55 PM EST
[ Parent ]
that the EC/ECB/IMF, spearheaded by your government, in cramming down Greek sovereigns and implementing austerity in Greece with disasterous consequences on the balance sheets of banks with Greek exposure, sovereign and otherwise.

Wonder what the balance sheets of the two banks would have looked like  if Germany  hadn't mistakenly decided the solution to Europe's economic crisis was to liquidate.

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

by r------ on Thu Mar 21st, 2013 at 02:39:58 PM EST
[ Parent ]
And you are dodging the question.
by IM on Thu Mar 21st, 2013 at 02:54:46 PM EST
[ Parent ]
and ideological statement with which I deeply disagree and therefore prefer to ignore.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Thu Mar 21st, 2013 at 03:00:25 PM EST
[ Parent ]
So the idea that the creditors of banks should be hit in a bank resolution is nationalistic?

Funny, I always thought the "burn the bondholders" demands in Ireland were somewhat nationalistic too, but I doubt you are talking about that.

by IM on Thu Mar 21st, 2013 at 03:05:49 PM EST
[ Parent ]
at the time of the runup to the Irak war. You deny that your government is driving the train...back then, of course, it was the coalition of the willing, now it is hiding behind EU institutions and the few allies Germany has.

And a lot of splitting hairs.

There's no reasoning with you. That's why I ignore your questions, especially since you have repeatedly refused to back up some of your assertions about this particular crisis with data or credibly sourced documentation.

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

by r------ on Thu Mar 21st, 2013 at 03:25:16 PM EST
[ Parent ]
Smears, nothing more. No, there is indeed no reasoning with you.  
by IM on Thu Mar 21st, 2013 at 04:49:45 PM EST
[ Parent ]
Sure. The problem isn't Cyprus - the problem is the fact that monetary union has always been a neo-idiocy project, organised on classical neo-idiocy ideals.

European populations were sold a shining ideal of cross-border political harmony and inspired unity, when all the time the real object was to make clown-pants funny money appear serious and respectable.

And - most of all - safe, and too big to jail.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Mar 21st, 2013 at 02:57:43 PM EST
[ Parent ]
It's not just Germany.

The entire EU 1% is determined to plunder the eurozone for their personal profit.  Merkel, et. al., are only the public face of the process.

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

by ATinNM on Thu Mar 21st, 2013 at 03:02:55 PM EST
[ Parent ]
I repeat, if you are in a hole STOP DIGGING.

The Cyprus banks are in trouble because of their exposure to Greek debt.  The Greek crisis is continuing because the ECB is implementing the wrong policy, at the wrong time.  The PIIGS crisis was cause by the ECB implementing the wrong policy at the wrong time.  The pre-conditions for the PIIGS crisis was caused by the ECB implementing the wrong policy at the wrong time.  

See the trend?

The Cypriot Crisis is a symptom.  Focusing on symptoms won't cure the disease.


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

by ATinNM on Thu Mar 21st, 2013 at 02:57:31 PM EST
[ Parent ]
No, bailing in isn't the thing to do. Taking the bank into receivership and honoring the deposit guarantee is the thing to do.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Mar 21st, 2013 at 03:47:48 PM EST
[ Parent ]
Fiscal transfers.

You cannot have a sustainable currency without them. An Optimal Currency Area is coterminous with the geographical reach of fiscal transfers.

In a democratic system this requires a feeling of solidarity. Thus: one nation, none currency.

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 Thu Mar 21st, 2013 at 02:44:58 PM EST
[ Parent ]
Yes and what about bailing in? As you know you can have very expensive failures of banks without belonging to the euro. In the UK. e. g. The UK did spend a considerable portion of their gdp to bail out their banks without any participation of bank creditors. Would a bail-in have been the wrong solution there too?
by IM on Thu Mar 21st, 2013 at 03:00:31 PM EST
[ Parent ]
Yes, what about bailing in? My plan C for Cyprus:

  • Uninsured depositors in the two banks the ECB claims are bankrupt receive equity in exchange for their deposits.
  • Insured depositors in the two banks the ECB claims are bankrupt receive Cyprus government consols, redeemable at par in payment of Cypriot government taxes.
  • Capital controls are instituted in the form of an exit tax equal to Cyprus' sovereign CDS spread on the day of the capital outflow.


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 Thu Mar 21st, 2013 at 03:34:26 PM EST
[ Parent ]
People who should get burned when a bank fails, in order (exhaust each item before moving on to next):

Senior management
Equity holders
Preferred equity holders
Subordinate creditors
Ordinary creditors, less insured deposits (including holders of collateralized debt for which the collateral proved inadequate)
Senior creditors
Insured depositors holding foreign currency deposits (non-€ deposits if in the Eurozone)
The ECB (if in the €Z)
Foreign residents holding insured deposits in local currency (in € if in the €Z)
The central bank (if not in the Eurozone)

And since the central bank of a non-€Z country is inexhaustible insofar as covering local currency obligations is concerned, this is where the buck stops.

Now, if and when you come out forcefully in favor of having the ECB do its job and eat the losses to €-denominated €Z sovereign bonds and €-denominated €Z insured deposits, then all your talk about about Cyprus getting what's coming to it might stop sounding like self-serving sanctimonious bullshit.

But right now, the enemy of the ECB is my friend. And if that means supporting a two-bit tax fraud haven, then I guess I can accept that stopping an out-of-control central bank run by insane partisan ideologues makes strange bedfellows.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 21st, 2013 at 03:50:44 PM EST
[ Parent ]
Who is defending large depositors? By all means burn them, but don't abolish deposit insurance in the process. This is the single worst idea our glorious leaders came up with in the last few years.
They all signed up on it and now they are doing an impression of the Evil Russian Mafia's Private Cayman island to justify it.
by generic on Thu Mar 21st, 2013 at 02:38:37 PM EST
[ Parent ]
German-led terms of that bailout did very very little in terms of Ireland's corporate tax structure and corporate law.

Because Ireland did give up everything - but not their low corporate tax rate. Pretty revealing priorities. And a lot of people here defended this irish stance.

by IM on Wed Mar 20th, 2013 at 09:34:51 PM EST
[ Parent ]
about closing down Cyprus as a similar tax haven. But you admit Germany did not lead the charge in Ireland for the sorts of structural charges you now imply are driving German intentions re: Cyprus.

Sorry, not very convincing.

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

by r------ on Wed Mar 20th, 2013 at 09:41:00 PM EST
[ Parent ]
"But you admit Germany did not lead the charge in Ireland for the sorts of structural charges you now imply"

I said nothing of that sort.

by IM on Thu Mar 21st, 2013 at 02:05:26 PM EST
[ Parent ]
The Irish deal is revealing of the priorities of Germany as well: Germany obviously valued the Irish making good on their silly blanket guarantee more highly than Ireland reforming its corporate tax structure.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 21st, 2013 at 03:54:06 PM EST
[ Parent ]
No that's not true, the CIS figure is indeed at ~30 billion. The number of depositors at over 100k in Cyprus includes most SMEs, funds, and professionals, and do remember that Cyprus is the home of ship owners and other moguls as well (not to mention the thriving British-Cypriot community).
There is no doubt in my mind that a large part of the ex-CIS business is related to some sort of Russian tax-evasion schemes - nay, even to actual mob money, but this does not explain the bizarreness of ordering total destruction of the Cypriot (and the creditworthiness of all of the Southern EU) banking sector, given that much, much worse in terms of banking practices and governence occurs in Luxembourg and indeed Germany, if the Basel AML index is to be trusted - yet no-one has suggested we nuke their banks (Greece BTW is up there between Pakistan and Namibia as it should be, given that local banking-political-criminal complex is truly world class - unlike Cyprus where things are much tamer).

Note two things:

  • that the big Cypriot banks went belly up from exposure to the Greek PSI haircut, when whereas Greek banks got recapitalized, no such deal was made for the Cypriot banks
  • private depositors in non-bankrupt banks are forced to bail-out other private bankrupt banks

Factually AFAICS the post is impeccable (although obviously written by some sort of Cypriot liberal) - it does admittedly leave things unmentioned. It's worth a read though because it contains vastly more real information on Cyprus than the vast majority of English language articles I've read - not to mention the information content of the supposedly empirical statements on the subject by the German leadership. This has been up to par with most of their propaganda during this crisis and is at Soviet levels: totally misleading or downright false.


The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Mar 20th, 2013 at 10:45:41 PM EST
[ Parent ]
The 20bn€ figure is for non financial institutions; if you include financial institutions you get to 30bn. See here:

http://sdw.ecb.europa.eu/reports.do?node=1000003195

Note that in Cyprus there are many Russian banks (as well as UK banks) with branches domiciled in Cyprus, so it is normal that there is 12bn in cross-border liabilities to non-EZ financial institutions; these would hardly be what the blogger is talking about in terms of those portions of bank deposits which could be characterised as potentially "of doubtful origin" in the way most commentators intend it. See the following (source ECB):

http://sdw.ecb.europa.eu/reports.do?node=1000003195

And indeed, of the non financial institution deposits, roughly 20bn of the 70 bn are non Eurozone. Including financial institutions, you get to 30bn out of 100bn. So the blogger's point, that we're only talking about 30% of Cypriot banks' balance sheet, is correct, no matter how you slice it.

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

by r------ on Thu Mar 21st, 2013 at 05:13:35 AM EST
[ Parent ]
"No that's not true, the CIS figure is indeed at ~30 billion."

Twenty billion from Ukrainia, ten from Russia. That would fit.

And CIS is of course not the sum of all foreign deposits. If I interpret the graphic correct, ca. 50% are domestic, the reminder foreign. That would give us 50-60 billion in foreign deposits.

by IM on Thu Mar 21st, 2013 at 02:10:28 PM EST
[ Parent ]
Double the deposits from Ukraine than from Russia proper? Where do you get that from? And what about Kazakhstan, there's more than a bit from there too.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Thu Mar 21st, 2013 at 02:32:19 PM EST
[ Parent ]
The theory is that russian deposits have been overestimated and ukranian underestimated because these people all look alike.
by IM on Thu Mar 21st, 2013 at 02:52:36 PM EST
[ Parent ]
There was a Russian commentator a while back who made similar comments toward Western Europeans.

She was rebuked as well.

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

by r------ on Thu Mar 21st, 2013 at 03:28:34 PM EST
[ Parent ]
Oh please. You perfectly know that that wasn't serious.
by IM on Thu Mar 21st, 2013 at 03:30:30 PM EST
[ Parent ]
this subject (eg, oblique insinuations of lazy shifty or corrupt southerners, Russians, et c.) it's far from obvious that you are indeed joking.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Thu Mar 21st, 2013 at 04:43:25 PM EST
[ Parent ]
"oblique insinuations of lazy shifty or corrupt southerners, Russians"

I hope you can prove that assertion.

Ireland and Iceland are populated by shifty southrons? The more you know...

by IM on Thu Mar 21st, 2013 at 04:46:56 PM EST
[ Parent ]
It's not coincidental that the Irish used to be called 'white niggers' at the time of the Potato Famine (and not only then).

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 Thu Mar 21st, 2013 at 05:08:09 PM EST
[ Parent ]
Yes and Iceland was probably even poorer back then. And a more mistreated colony. But perhaps I have just read to much Laxness.

On the other hand "our gallant allies on the continent" and I can't remember saying anything about drunken micks.

by IM on Thu Mar 21st, 2013 at 05:17:48 PM EST
[ Parent ]
BBC News - Cyprus government to present bailout plan B on Thursday

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.



Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Mar 20th, 2013 at 05:16:02 PM EST
Projection? (Cyprus bail-in thread no. 4)

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 Thu Mar 21st, 2013 at 04:42:54 AM EST


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