Cyprus - The high price for a rescue

[Broomstick]

Not feeling a lot of sympathy for their government.

How about for the Cypriots who aren't government and who aren't money launderers? Not a single tear for them?

[Patroklos]

The markests are predictably reacting negatively to this. A precident is being set that no investor big or small can ignore. I think the Asian and probably North American markets are being premature with their reaction, but thats how these things work.

[SomeDude]

Inflation: hits everything, including investments and wages.
Tax on savings: only hits sleeping funds, not investments or wages.

Yet for some reason, the latter is seen as so much more problematic than the first. I suppose it's because it's more sudden.

[Thanas]

Not feeling a lot of sympathy for their government.

How about for the Cypriots who aren't government and who aren't money launderers? Not a single tear for them?

"Government" and "non-goverment people" are two different, non-inclusive categories. I was unaware that I need to differentiate further, especially when I already wrote about my stance on them hitting ordinary people in this very thread.

I do not like it. Then again, a government is only the reflection of its people in a democracy, so unless people can show these guys gut into it via fraud the populace does bear at least some measure of responsibility.

[Tribun]

Not feeling a lot of sympathy for their government.

How about for the Cypriots who aren't government and who aren't money launderers? Not a single tear for them?

"Government" and "non-goverment people" are two different, non-inclusive categories. I was unaware that I need to differentiate further, especially when I already wrote about my stance on them hitting ordinary people in this very thread.

I do not like it. Then again, a government is only the reflection of its people in a democracy, so unless people can show these guys gut into it via fraud the populace does bear at least some measure of responsibility.

That reminds me of a German saying (translated):

"Every nation gets the politicians/government it deserves."

[Thanas]

French, actually. Toute nation a le gouvernement qu'elle mérite - Maistre.

We Germans just stole it.

[J]

We Germans just stole it.

Just like you're stealing from Cyprus via the EU bailouts!


Latest news I've seen is they're hoping to reopen banks on Thursday after they settle things. The vote has been delayed yet again amidst growing opposition while the government parties try to wrangle votes among themselves.

[Irbis]

After some digging - Cyprus currently has problems due to all pathologies being a tax haven brings. Cyprus has banking sector some eight times larger than the rest of the economy - it's not just too big too fail, it can literally buy the state from under its population. Russia position in this is interesting - 40% of 70 bln Euro placed in Cypriot banks is believed to belong to Russians, to the point that Cyprus (or rather, money placed there) is the largest foreign investor in Russia, larger than Germany. On one hand, Putin's "friends" would like to preserve that status, on the other, Russian tax agency would like to grab at least some money placed there. That was the point of Russian multi-billion Euro help to Cyprus, we'll see who will actually win in the struggle.

One thing I wonder about is why it was even done. Entire Eurozone now loses status of safe haven, seeing money can be confiscated any time without warning. How will PIIGS citizens behave? Why do this? Is weakening the Euro worth it? Or maybe that's the point - indirect subsidy to German and French economy by weakening currency?

[Thanas]

Or maybe that's the point - indirect subsidy to German and French economy by weakening currency?

Yes yes, you got us. Clearly all of this is a devious German plot to keep the euro weak and our economy strong.

[Grumman]

Inflation: hits everything, including investments and wages.
Tax on savings: only hits sleeping funds, not investments or wages.

Yet for some reason, the latter is seen as so much more problematic than the first. I suppose it's because it's more sudden.

Part of the problem certainly is that it must be sudden - if you don't ambush your economy when attempting this sort of seizure of savings, there won't be any savings to seize - every bank will be stripped bare by people trying to avoid losing 6-10% of their money overnight. But it also proves that the deposit insurance offered by the Cyprus government cannot be relied upon - insurance which exists for the specific purpose of preventing that sort of catastrophic bank run.

It's also incorrect to suggest that it will not affect investments or wages - how is a business supposed to pay its employees what it owes them when 10% of their payroll account suddenly vanishes?

[DaveJB]

The latest development: (Link)

A new proposal from the Cyprus finance ministry says bank depositors with savings of 20,000 euros (£17,000) or less would be exempt from a levy.

Amounts between 20,000 and 100,000 euros would face a 6.75% tax. The levy on savings above 100,000 would remain at 9.9%. The levy has enraged Cypriots.

The earlier plan was to tax all savings under 100,000 euros at 6.75%.

The controversial tax is a condition for Cyprus to get a 10bn-euro loan from the EU and IMF, to rescue its banks.

A crucial vote is looming in the Cypriot parliament on the bailout deal - expected to start at 18:00 (16:00 GMT). But there is still much uncertainty, and it is expected to be very close.

Late on Monday the eurozone finance ministers urged Cyprus to rethink the levy on bank deposits, which had been agreed on Saturday in Brussels.

Fearing a run on accounts, Cyprus has shut its banks until at least Thursday. The local stock exchange also remains closed.

President Nicos Anastasiades has urged all parties to back the bailout, saying Cyprus will be bankrupt if the deal does not go ahead.

What do you suppose the chances are that this is going to lead to people trying to spread their wealth by opening as many new accounts with as many different banks as possible, each with an opening deposit of €19,999.99?

[Darth Tanner]

What do you suppose the chances are that this is going to lead to people trying to spread their wealth by opening as many new accounts with as many different banks as possible, each with an opening deposit of €19,999.99?

It’s too late for that; the Banks have already frozen out the amount of money that will be seized, this simply releases some of that money.

A guy in the office from Cyprus has a brother who was just about to buy a flat after selling his old one so had a lot of cash in his account … to say he is pissed is an understatement.

I can't see the current government staying in office for long.

[Irbis]

Yes yes, you got us. Clearly all of this is a devious German plot to keep the euro weak and our economy strong.

Okay then, point to me one upside of this plan. I just couldn't see Germany detonating huge petard under unstable house of cards that might also fall on German economy without anything positive in it for them, but I guess this means I am not qualified to be modern German Neron

Anyway, as far as stability of Eurozone goes, this move has potential to be single most destabilizing thing that happened in southern Europe yet to banking and political systems, plus it also has big chance of pissing off Russia. Sorry I tried to look for some sign of sanity in our dear Euro overlords.

[Thanas]

The alternative is what? Germany pays the debt of every nation in Europe in trouble?

Oh, and get off your high horse. Your "alternative" solution accused us of deliberately planning to use the crisis to keep the Euro down. Yes, so much more reasonable.

[J]

The alternative is what? Germany pays the debt of every nation in Europe in trouble?

I seem to recall someone stating Germany would indeed do exactly that with Greece & other nations if required in the interests of European unity & brotherhood. Yet, here we are. Cyprus only needs 5.8 billion Euros to make its depositors whole, and Germany with its $3.5 trillion economy is saying no. Surely you can afford it, no? What changed? Do you like the Greeks more than the Cypriots?

Teasing aside, something seems fishy, not conspiracy theory fishy, more like we're not getting the full story fishy. One rumour I've heard is that key EU banks hold Cypriot bank bonds, a standard bailout would result in said bonds taking a haircut so they pulled some strings and put forth a proposal which would rob the depositors to make the bondholders whole. Seems plausible, but again, I don't think it's the full story since I have a hard time believing the EU can't come up with 5.8 billion Euros to make the banks whole. I guess we'll all have to wait for the true story to surface.

[Thanas]

The alternative is what? Germany pays the debt of every nation in Europe in trouble?

I seem to recall someone stating Germany would indeed do exactly that with Greece & other nations if required in the interests of European unity & brotherhood. Yet, here we are. Cyprus only needs 5.8 billion Euros to make its depositors whole, and Germany with its $3.5 trillion economy is saying no. Surely you can afford it, no? What changed? Do you like the Greeks more than the Cypriots?

I said that we would help them. Not that we would write blank cheques. Also, nice little obfuscation between the size of the entire German economy and the state deficit of Cyprus. If you weren't fundamentally dishonest I'd explain to you how that is a pretty bad comparison to use.

[SomeDude]

Inflation: hits everything, including investments and wages.
Tax on savings: only hits sleeping funds, not investments or wages.

Yet for some reason, the latter is seen as so much more problematic than the first. I suppose it's because it's more sudden.

Part of the problem certainly is that it must be sudden - if you don't ambush your economy when attempting this sort of seizure of savings, there won't be any savings to seize - every bank will be stripped bare by people trying to avoid losing 6-10% of their money overnight. But it also proves that the deposit insurance offered by the Cyprus government cannot be relied upon - insurance which exists for the specific purpose of preventing that sort of catastrophic bank run.

Inflation can have a more significant impact and it is absolutely not sudden. (Ofcourse, given the shared currency, inflation is not an option here.)

It's also incorrect to suggest that it will not affect investments or wages - how is a business supposed to pay its employees what it owes them when 10% of their payroll account suddenly vanishes?

Unless I'm greatly mistaken, this tax isn't on all money on bank accounts, but on all money on savings accounts. Payroll accounts wouldn't be affected. The point is that, if you have 6% inflation, everything loses its value. Under the proposal, only funds that aren't reinvested in the economy or actively used are affected. Would you rather lose a percentage of your savings or the same percentage of your monthly wage?

[Tribun]

As expected they try to play strong man and rejected.

I think they painfully overestimate their extortion potential, screaming for money but not wanting to do anything for it (not just the recent developments, they want to stay an oasis for dubious money). I wonder how they manage to ignore the realities?

[Darth Tanner]

I'd imagine their either afraid of the Russia oligarchs or conscious of the fact accepting this deal is electoral suicide for all time. Any alternative would probably be preferred to the mess this deal represents.

I’d imagine that in the short term Cyprus could secure loans from Russia, if nothing else then just to stabilise the situation while the Russian elite get their money out of town fast.

[EnterpriseSovereign]

Well it turns out they've rejected the deal, and the RAF have flown in planes carrying millions in cash - it's a pity the problem isn't that simple to solve

[Teebs]

I think the most shocking thing about the tax/levy on savers below the guaranteed €100,000 is that bondholders are not being told to take a hit. They were making commercial transactions with risk priced in rather than being encouraged by the government to treat their money as ultra safe.

[aerius]

I think the most shocking thing about the tax/levy on savers below the guaranteed €100,000 is that bondholders are not being told to take a hit. They were making commercial transactions with risk priced in rather than being encouraged by the government to treat their money as ultra safe.

Yep. When you have a bank failure/bailout, the order in which people get wiped out to pay off the creditors is shareholders first, then bondholders, and finally the depositors. When that order gets dicked with, something is very wrong or crooked. The Russian angle might be part of it but going to that kind of trouble to stiff the Ruskies doesn't make sense. I think my wife is right, a connected European bank got its dick caught in the door and wants its Cyprus bank bonds made whole.

[Grumman]

It's also incorrect to suggest that it will not affect investments or wages - how is a business supposed to pay its employees what it owes them when 10% of their payroll account suddenly vanishes?

Unless I'm greatly mistaken, this tax isn't on all money on bank accounts, but on all money on savings accounts. Payroll accounts wouldn't be affected.

The articles I've been seeing do not make that distinction.

The point is that, if you have 6% inflation, everything loses its value. Under the proposal, only funds that aren't reinvested in the economy or actively used are affected.

The proposal cares nothing for whether the funds are being reinvested or not, only where they happened to be at the close of business on Friday. Someone who just sold their house Friday afternoon and was going to buy a new house on Tuesday morning will get slugged for the full amount, despite the funds only being "stagnant" for less than a single business day.

[Dr. Trainwreck]

The alternative is what? Germany pays the debt of every nation in Europe in trouble?

And the alternative to this is what? Germany lets the entire European economy starve while whistling "it's all their fault" like American conservatives? Tell you what: did German leaders even care about who was in the Euro and who wasn't, or their only concern was to make exports easier for their business friends?

[Thanas]

The alternative is what? Germany pays the debt of every nation in Europe in trouble?

And the alternative to this is what? Germany lets the entire European economy starve while whistling "it's all their fault" like American conservatives?

No, the alternative is Germany paying in exchange for reforms or concessions. I don't know what Cyprus prefers - losing all of their investments or (at worst) 90% of them. Looks like the first. I do not have huge sympathy for nations who gambled on their national debt.

Tell you what: did German leaders even care about who was in the Euro and who wasn't, or their only concern was to make exports easier for their business friends?

Yeah, they did. They also however did not want to refuse any nation due to WWII, and also believed what the liars told them. See Greece.