Cyprus - The high price for a rescue

[Thanas]

BTW, the plan (which Cyprus rejected) did indeed not tax savings up to 20.000 EUR.

[Thanas]

This is a good article about the problem.

Excerpt:

Thirty-six lawmakers voted against the deal and 19 abstained, including those belonging to President Nikos Anastasiades' center-right DISY party. With their veto of the expropriation plan, parliamentarians in the island nation showed that representatives of a small European Union member state can indeed block euro-zone efforts to save the common currency.

Anastasiades, of course, didn't exert much effort to find a majority for the deal, even though he had agreed to it in Brussels. On the contrary, even before the parliamentary debate began, he said the package was unlikely to pass -- a virtual invitation to lawmakers to reject it. The move could even be a tactical one. Anastasiades can now return to Brussels in the hopes of leveraging better conditions out of Cyprus' euro-zone partners by highlighting his country's rebellious parliament.

It could also be useful as a lever in Moscow. On Wednesday morning, all eyes were on Russia in the hopes that the country might jump in to provide Nicosia emergency aid. Russian investors have parked billions of euros in Cypriot bank accounts -- indeed the presence of Russian money is one reason why Cyprus' banking sector holds assets worth more than seven times the country's annual gross domestic product. According to media reports, Anastasiades spoke with Russian President Vladimir Putin immediately following the failed parliamentary vote and the Cypriot finance minister flew to Moscow on Tuesday night.

Bullied from Abroad

In the coming negotiations, the Euro Group must be careful as it seeks to maintain its credibility. The vote on Tuesday evening made one thing clear: The main concern in Nicosia was not in fact those who held smaller sums in Cypriot accounts. By Tuesday morning, the original deal had been changed to exempt from the bank levy those holding less than €20,000 in their savings accounts. That the parliamentary veto was nonetheless unanimous shows that lawmakers are primarily interested in maintaining Cyprus' role as a low-tax paradise and offshore business haven. It also shows that Cypriots are unwilling to be bullied from abroad, particularly not by the Germans.

The facts of the case would seem to belie the intense emotions it has triggered. Two large Cypriot banks have run into difficulties and Nicosia is unwilling to liquidate them or allow them to enter into insolvency because that could fatally harm other banks in the country and destroy the country's reputation as a financial center for the foreseeable future. But bailing the banks out is beyond the means of the government, which is why Cyprus needs billions in aid money from the European Stability Mechanism (ESM), the euro-zone's permanent bailout fund. The euro-zone, led by Germany, came up with a not unreasonable demand in exchange for assistance: Namely that the bank customers, whose accounts are to be saved, contribute to the bailout.

[Dr. Trainwreck]

So about half the Eurozone lied their way in, and Germany believed them all. Why it seems more likely to me that they just shut up to get these exports going?

As to the concessions and reforms, you'd believe that they'd finally stop fucking around with austerity when it has failed by every conceivable measure... But apparently it's like communism, and therefore will work this time. I also didn't get the WWII bit, so could you please spare a sentence?

[FTeik]

So about half the Eurozone lied their way in, and Germany believed them all. Why it seems more likely to me that they just shut up to get these exports going?

And in your next post you will probably tell us, that there were german operatives putting guns to the heads of those governments-officials, forcing them to fake their numbers and lie their way into the Eurozone. No, nobody is responsible for anything (including paying other peoples debts), save those bloody germans.

As to the concessions and reforms, you'd believe that they'd finally stop fucking around with austerity when it has failed by every conceivable measure... But apparently it's like communism, and therefore will work this time.

Yes, because spending money you don't have to get your economy running has worked so well in the past. Remind me why we had that huge crash in 2007/2008 again?

Aside from that - AFAIK - the EU has made 120 billion Euro available for stimulating the economies and jobmarkets of its troubled members. Problem is, those countries are taking their time devising programs where to use that money. Maybe if they spent less time complaining about their northern neighbours ... .

[Keevan_Colton]

Remind me why we had that huge crash in 2007/2008 again?

That's a simple one, because the second law of thermodynamics isn't taught to economists/bankers/financial magicians.

[Thanas]

So about half the Eurozone lied their way in, and Germany believed them all. Why it seems more likely to me that they just shut up to get these exports going?

No, the ones who lied where those lying greeks who paid dearly for that. That being said, the crash is neither the fault of Germany, so if you want to play hardball, why should Germany pay for something when it gets no concessions in return?

As to the concessions and reforms, you'd believe that they'd finally stop fucking around with austerity when it has failed by every conceivable measure... But apparently it's like communism, and therefore will work this time.

I was unaware that forcing those who are rescued to share some of the costs is so horrible in the case of Cyprus. Would they rather lose 6% or all of it? Under what rationale do you think it fair for Germany to pay for all of this?

I also didn't get the WWII bit, so could you please spare a sentence?

German conservative politicians were opposed to greece entering the union for cultural and economic reasons. They then faced a PR campaign from the German left and the greek Government about how Germany, with its history, should not deny entry to others.

[Admiral Valdemar]

I wonder how tempting those Russian offers are now. Especially with the ones from Gazprom and the threats no doubt made by the mafioso there.

The run on the banks will be interesting to watch in any case.

[Dr. Trainwreck]

No, the ones who lied where those lying greeks who paid dearly for that. That being said, the crash is neither the fault of Germany, so if you want to play hardball, why should Germany pay for something when it gets no concessions in return?

Of course we paid, because we lied. Like, collectively. Every last Greek, so suck it up you southern bastards just and unjust alike. And exactly how many concessions should be accepted, and then half-assedly implemented with only token oversight, for Germany's money?

I was unaware that forcing those who are rescued to share some of the costs is so horrible in the case of Cyprus. Would they rather lose 6% or all of it? Under what rationale do you think it fair for Germany to pay for all of this?

Look, I get your indignation, but the Cypriots clearly would never accept any of this, even without having a clear alternative. The measure was already voted down, because they don't want to end up like us.

German conservative politicians were opposed to greece entering the union for cultural and economic reasons. They then faced a PR campaign from the German left and the greek Government about how Germany, with its history, should not deny entry to others.

Low blow indeed. But Greece for all its faults is still (or was then) a Western democracy, so the cultural reasons are, I think, unfair.

[FTeik]

So about half the Eurozone lied their way in, and Germany believed them all. Why it seems more likely to me that they just shut up to get these exports going?

No, the ones who lied where those lying greeks who paid dearly for that. That being said, the crash is neither the fault of Germany, so if you want to play hardball, why should Germany pay for something when it gets no concessions in return?

To be fair, while the common people are paying dearly, those lying greeks are most likely the least effected. If they were smart enough to cheat their way into the Eurozone, they were probably smart enough to save their assets. That being said Greece had at least three years to get its house in order at the tax-front from what I have read and nothing has happened. Is it any wonder, that under such circumstances any good-will left towards Greece might have been exhausted?

German conservative politicians were opposed to greece entering the union for cultural and economic reasons. They then faced a PR campaign from the German left and the greek Government about how Germany, with its history, should not deny entry to others.

I would have to dig up the news-articles from that time, but was it really the conservative, who were opposed to greece entering the union (or was that about Italy?). Helmut Kohl after all was hell-bent on getting his "european house", so economical concerns didn't matter (and the german re-unification serves as precedence-case for this attitude), while his social-democratic successor Gerhard Schroeder condemned the EURO as a miscarriage.

Speaking of Schroeder, I've come to admire the man more and more. Not only for his no to the Iraq-war, but also the economic reforms he pushed through. Granted, they could (and need) to be improved a lot, but less than fifteen years ago Germany was the "sick man of Europe" and look, where the country stands today. Schroeder and his party paid a high price for it, though. I don't see any present-day politician, who has the courage to do the same without getting pressured from outside, anywhere.

Concerning Cyprus, now Mother Russia is supposed to bail them out. In exchange for access/shares to the cyprian oil- and gasfields. One has to wonder, why the cyprian government didn't offer a similar deal to the EU or its own people as exhange for their savings. And after twenty years the russian navy is going to grace the mediterrean with its presence. Coincidence?

[Admiral Valdemar]

The Cyprus crisis is easily the biggest story right now, far more so than that North Korean crap that has garnered so many pages on here over essentially nothing of importance whatsoever. We're seeing a really quite interesting geo-political and military matter being dictated by one island state. One that is probably the most important single location within the Med.

The EU, Russia and US are all involved here with some other bit players in the shadows, so how it unfolds next week with any new deal will be interesting, as I say.

[Thanas]

Of course we paid, because we lied. Like, collectively. Every last Greek, so suck it up you southern bastards just and unjust alike. And exactly how many concessions should be accepted, and then half-assedly implemented with only token oversight, for Germany's money?

I don't know, sounds pretty much like we learned from that and want more stringent oversight now. Cue Merkel is the next dictator stuff.

Look, I get your indignation, but the Cypriots clearly would never accept any of this, even without having a clear alternative. The measure was already voted down, because they don't want to end up like us.

Then they can pretty much go bankrupt in my book. If Cyprus cannot even pay a 6% tax to avoid bankruptcy, then they probably have to find out the hard way that going into bed with the russians or going bankrupt is going to be far worse. But good that they showed the next Hitler Merkel.

Low blow indeed. But Greece for all its faults is still (or was then) a Western democracy, so the cultural reasons are, I think, unfair.

Considering the current Greek recession and bankruptcy seem to be borne out of a culture of corruption, tax evasion and general incompetence over several decades, I think the cultural reasons were spot on.

I would have to dig up the news-articles from that time, but was it really the conservative, who were opposed to greece entering the union (or was that about Italy?). Helmut Kohl after all was hell-bent on getting his "european house", so economical concerns didn't matter (and the german re-unification serves as precedence-case for this attitude), while his social-democratic successor Gerhard Schroeder condemned the EURO as a miscarriage.

Schröder wanted the Greecs in, Kohl's successors were less than enthusiastic. I also cannot respect Schröder as the man was clearly bought by Putin and is currently Putin's mouthpiece in Germany. He can get bent, the corrupt arse.

To be fair, while the common people are paying dearly, those lying greeks are most likely the least effected. If they were smart enough to cheat their way into the Eurozone, they were probably smart enough to save their assets. That being said Greece had at least three years to get its house in order at the tax-front from what I have read and nothing has happened. Is it any wonder, that under such circumstances any good-will left towards Greece might have been exhausted?

Let's be realistic. Decades of incompetence, lies, tax evasion and corruption are not going to be fixed in a few years. Nor was it any helping that we allowed the corrupt elite to stay in power. So no, I am not really blaming Greece for making slow progress.

[Dominus Atheos]

I don't want to get into a debate here, but I just want to know how correct my sense of what is going on is.

1. The Germans ran a nice trade surplus for most of the time the eurozone has existed, which couldn't have happened if every country in europe had a different currency. The so called "PIIGS" wouldn't have as much debt if they hadn't sent so much of their money to Germany.

2. If the Eurozone collapses, Germany will be hit hard, maybe even harder then most.

Those are the 2 biggest reasons why Germany should cover the government bonds issued by the ailing nations.

OH GOD PLEASE DON'T YELL AT ME!

[D.Turtle]

That is my understanding of the situation as well.

However, the conventional wisdom -among pretty much all groups in Germany, from the man in the street, to the politicians, to the journalists, to the scientific elite - is that Germany has such a large trade surplus and is doing so well is because Germany made a lot of hard decisions in order to increase competitiveness and is simply reaping the rewards of those sacrifices. The Euro does not play any large role in this picture. On the contrary, a surprising number of people are convinced that we would be even beter off without the Euro, as we then wouldn't have the risk of having to save the other countries' asses with our money.

How correct or true this view or understanding of the situation is, is left up to you.

But again, this view is pretty much universal in Germany.

[Dr. Trainwreck]

I don't know, sounds pretty much like we learned from that and want more stringent oversight now. Cue Merkel is the next dictator stuff.

I agree with you on this, but without knowing anything about the Greek economy, things will be fucked again even if the bureaucrats get shipped straight from Germany.

Then they can pretty much go bankrupt in my book. If Cyprus cannot even pay a 6% tax to avoid bankruptcy, then they probably have to find out the hard way that going into bed with the russians or going bankrupt is going to be far worse. But good that they showed the next Hitler Merkel.

Do they actually trust that a 6% tax will save them from bankruptcy, or do they have reason to feel that this is just the thin edge of the wedge? They'd rather take the road less traveled than take the road that's been nicely illuminated by Greece.

Considering the current Greek recession and bankruptcy seem to be borne out of a culture of corruption, tax evasion and general incompetence over several decades, I think the cultural reasons were spot on.

Or perhaps they are borne out of a housing bubble and banks fucking themselves over and taking about half the 2007 budget in bailouts.

However, the conventional wisdom -among pretty much all groups in Germany, from the man in the street, to the politicians, to the journalists, to the scientific elite - is that Germany has such a large trade surplus and is doing so well is because Germany made a lot of hard decisions in order to increase competitiveness and is simply reaping the rewards of those sacrifices. The Euro does not play any large role in this picture. On the contrary, a surprising number of people are convinced that we would be even beter off without the Euro, as we then wouldn't have the risk of having to save the other countries' asses with our money.

The conventional wisdom in Greece, meanwhile, is that Germany intervenes in southern economies, robs them blind, and calls it help. Whether it's true or not, it's reinforced by the facts that debt is rising, the economy shrinking, and at the sime time German GDP is going up.

[Dartzap]

Grauniad has a liveblog running for the Cyprian banks going the way of the dodo

[Admiral Valdemar]

They have till Montag to get their Hail Mary Plan B ready, else it's finito for their banks.

So, who will it be: The Russians, the EU's enemy; or Germany, Cyprus' enemy? Make your choice.

[Tribun]

From what I heard, the Russians decided to tell them to get lost (not that directly, but it's the gist of it). Doesn't look good for Cyprus, they probably now get an even worse deal.

[Sea Skimmer]

BTW, the plan (which Cyprus rejected) did indeed not tax savings up to 20.000 EUR.

Only because it was modified at the last second to say that though. The original plan that started people near rioting had no such provision.

[Thanas]

I don't want to get into a debate here, but I just want to know how correct my sense of what is going on is.

1. The Germans ran a nice trade surplus for most of the time the eurozone has existed, which couldn't have happened if every country in europe had a different currency. The so called "PIIGS" wouldn't have as much debt if they hadn't sent so much of their money to Germany.

That is the part I disagree with. Germany ran a nice trade surplus before the Euro as well. We were the world champions in exports before and during the Euro (now China is currently battling us for that position and will likely get it if they haven't done so already). Did the Euro help? Sure. Was it the cause? No. The Piigs meanwhile did not send enough of their money to Germany to cause the crisis. In every single case the crisis is not caused by trade deficits but because of things like housing bubbles, corruption and general inefficiency of their economies.

I agree with you on this, but without knowing anything about the Greek economy, things will be fucked again even if the bureaucrats get shipped straight from Germany.

Sure, I just find it hilarious how people can one hand blame Germany for not overseeing the reform efforts enough and then blame Germany for wanting too much control.

Then they can pretty much go bankrupt in my book. If Cyprus cannot even pay a 6% tax to avoid bankruptcy, then they probably have to find out the hard way that going into bed with the russians or going bankrupt is going to be far worse. But good that they showed the next Hitler Merkel.

Do they actually trust that a 6% tax will save them from bankruptcy, or do they have reason to feel that this is just the thin edge of the wedge? They'd rather take the road less traveled than take the road that's been nicely illuminated by Greece.

Well, if the proposed bailout is not enough, then they can ask for more, under new conditions. As it stands though, the money is what the Eurozone judged to be sufficient. Fact of the matter is that either they accept the deal and get help or they don't. Nobody is forcing them to take the money.

Or perhaps they are borne out of a housing bubble and banks fucking themselves over and taking about half the 2007 budget in bailouts.

Sure, those are contributing factors too. But one cannot believe that even if these things did not exist that Greece could have gone on indefinitely.

The conventional wisdom in Greece, meanwhile, is that Germany intervenes in southern economies, robs them blind, and calls it help. Whether it's true or not, it's reinforced by the facts that debt is rising, the economy shrinking, and at the sime time German GDP is going up.

German GDP is going up because our economy is (still) doing well and not because we somehow plundered Greece. Correlation, not causation.

[Dr. Trainwreck]

Sure, I just find it hilarious how people can one hand blame Germany for not overseeing the reform efforts enough and then blame Germany for wanting too much control.

They are different crowds.

Well, if the proposed bailout is not enough, then they can ask for more, under new conditions. As it stands though, the money is what the Eurozone judged to be sufficient. Fact of the matter is that either they accept the deal and get help or they don't. Nobody is forcing them to take the money.

Apparently the savings tax was also judged to be sufficient. Anastasiades proposed it, but the guy is a rotten bastard and I'd never have it beneath him to do. What the fuck was the Eurogroup thinking when they voted on it?

Sure, those are contributing factors too. But one cannot believe that even if these things did not exist that Greece could have gone on indefinitely.

No. The bubbles would burst some years later. The problem remains, though, that we'd be tied to the Euro and have no way of solving the crisis ourselves.

German GDP is going up because our economy is (still) doing well and not because we somehow plundered Greece. Correlation, not causation.

Did I ever say it made sense?

[Thanas]

Apparently the savings tax was also judged to be sufficient. Anastasiades proposed it, but the guy is a rotten bastard and I'd never have it beneath him to do. What the fuck was the Eurogroup thinking when they voted on it?

Well, what is the alternative? Demand he be replaced before dealing with Cyprus? Yeah, that'll totally not cue images of "MERKELHITLER".

No. The bubbles would burst some years later. The problem remains, though, that we'd be tied to the Euro and have no way of solving the crisis ourselves.

Yeah but if Greece wanted to maintain that aspect they shouldn't have joined the Euro in the first place. You can't have the best of both worlds here.

German GDP is going up because our economy is (still) doing well and not because we somehow plundered Greece. Correlation, not causation.

Did I ever say it made sense?

My apologies, I mistook your "indicators support this" part as a sign that you were supporting that theory too.

[Dr. Trainwreck]

Well, what is the alternative? Demand he be replaced before dealing with Cyprus? Yeah, that'll totally not cue images of "MERKELHITLER".

A good alternative would be to tell him to fuck off with the savings, or tax only those above 100k. What was he going to do, say that he wanted to raid the banks but the dastardly Europeans didn't let him?

Yeah but if Greece wanted to maintain that aspect they shouldn't have joined the Euro in the first place. You can't have the best of both worlds here.

The Greek people are not the ones you want to tell it to, though; PASOK never held a referendum, or in any way asked the people about it. They are the ones at fault here, but Europe has been negotiating with them for the last three years. Papadimos was also a complete disaster; he had a hand in the statistics that brought Greece in the Eurozone, but was then entrusted with governing the country in a barely constitutional way to boot. This crisis has been a fuckup from all sides.

My apologies, I mistook your "indicators support this" part as a sign that you were supporting that theory too.

Eh. Worse misunderstandings have been made. Sorry on not being clear.

[K. A. Pital]

Russia will not give shit to Cyprus now that they've arrested the money of the oligarchs and the government to take the "tax".

Cyprus massively insulted their Russian oligarch masters; now their only choice is to loot the oligarch accounts while the money is still there (which I think is what they chose). And it will be good, although in the long run this will cause an exodus of criminal capital (all major Russian capitals are criminal or connected to crime, by the way) and Cyprus won't enjoy its offshore-status investments.

But better an honest yet poor life than living high on blood money.

[Siege]

A good alternative would be to tell him to fuck off with the savings, or tax only those above 100k. What was he going to do, say that he wanted to raid the banks but the dastardly Europeans didn't let him?

What I'd like to know is, how much interest did Cypriot banks pay over those savings accounts? Because I've been hearing quite a bit about how the 6% tax initially proposed would've been stealing from the little people, but if the banks paid an equal or higher percentage in interest then a hypothetical tax wouldn't amount to theft so much as just not paying a mouthwatering amount of interest for a year. Right?

'Cause if that's the case the plan suddenly sounds a lot more reasonable than "we're levying six percent of ALL YOUR MONIES" might appear at first glance.

[Dr. Trainwreck]

What I'd like to know is, how much interest did Cypriot banks pay over those savings accounts? Because I've been hearing quite a bit about how the 6% tax initially proposed would've been stealing from the little people, but if the banks paid an equal or higher percentage in interest then a hypothetical tax wouldn't amount to theft so much as just not paying a mouthwatering amount of interest for a year. Right?

'Cause if that's the case the plan suddenly sounds a lot more reasonable than "we're levying six percent of ALL YOUR MONIES" might appear at first glance.

The website of the Bank of Cyprus gives from 0,15% (under 3k) to 1% (over 100k) for savings accounts, although I just looked there so they might have changed their programs in front of the impending rape.

But anyway right now the problem in their actual aconomy is the bank lockdown. They could take advantage of it and raid their Russian depositors like Stas says (assuming they'd rather deal with Europe than the vor y zakone). No matter what happens, you can't extract a cent to pay your bills, food, employees or business contractors.