Cyprus - The high price for a rescue

[Tribun]

The Independent

Cyprus's stricken economy has been rescued with a €10bn (£8.65bn) bailout, but on terms that are more draconian than those forced on Portugal, Ireland and even Greece.

Cyprus this weekend became the fifth country in three years to receive an international rescue package. However, in a notably tough departure from previous deals, savers in Cypriot banks will be forced to hand over up to 10 per cent of their deposits to raise about €6bn.

Acknowledging furious reaction from residents of the Mediterranean island, finance minister Michael Sarris said: "I am not happy with this outcome in the sense that I wish I was not the minister to do this. Much more money could have been lost in a bankruptcy of the banking system or indeed of the country."

Greece has been plagued by violent rallies by the extreme austerity measures that the country has had to impose, with police using water cannon and tear gas to subdue protesters hurling firebombs outside the parliament building in Athens. Cyprus could suffer similar problems, because it has a relatively high trade union membership that accounts for more than half of the working population.

Antonis Neophytou, a leader of the biggest union, the PEO, warned that his members would oppose the €1.4bn privatisation programme that is a condition of the bailout, because they "look to salvage what has been built on over decades in Cyprus". According to reports out of Nicosia, he added: "All Cypriots will react ... workers are ready and have decided to respond, but unions will have to co-ordinate and [do so] in collaboration with all unions."

I had always thought that our politicians in Europe would keep being utterly lax with taxpayer money. Guess they are starting to reach their limits and start to hit states like Cyprus where it really hurts - their wallets. Now, this 10% on all despoits over 100.000€ (6.5% on those under) does hurt quite a lot.

[Murazor]

I had always thought that our politicians in Europe would keep being utterly lax with taxpayer money. Guess they are starting to reach their limits and start to hit states like Cyprus where it really hurts - their wallets. Now, this 10% on all despoits over 100.000€ (6.5% on those under) does hurt quite a lot.

Dude... do you realize that there aren't many moves worse than this, this side of the occupation of the Ruhr, in terms of economic policy?

[Starglider]

Dude... do you realize that there aren't many moves worse than this, this side of the occupation of the Ruhr, in terms of economic policy?

On the contrary I am certain the socialist majority on this board will rejoice at the implementaton of their long-desired wealth tax. Surely Europe would be a better place if every country in the EU had this, although it's troubling that there is no mention of an exemption for government & EU employees (our hard-working public servants have already dedicated themselves to the common good, how can we ask more of them).

[Guardsman Bass]

Ignore the troll.

Dude... do you realize that there aren't many moves worse than this, this side of the occupation of the Ruhr, in terms of economic policy?

It's an incredibly risky decision, one that sounds almost tailor-made to cause a bank run when Cypriot banks re-open (the ATMs are already getting hit by people pulling their money out). And what if people in the other shaky Mediterranean economies waiting on assistance in exchange for austerity start to think that this "one-time" tax might end up in their austerity packages?

[aerius]

Nice. They're doing a backdoor looting of the entire country. Can you say "bank run"?
Next step, pension funds. I hear there's quite a few billion waiting to be stolen there.

[General Mung Beans]

From what I've read, the bank account tax is being used as (at least partially) a substitute for longer-term austerity measures and being sold that way.

[Guardsman Bass]

At least the Cyprus government is trying to use the bank holiday cleverly. They're also apparently locking things down so that large-scale electronic transfers from the banks out of the country are not possible for a while.

[mr friendly guy]

So they are taxing assets rather than income? Wow. Besides the obvious that they are desperate, isn't this "punishing" those who save, and provides a disincentive to do so. Sure they can say its a once off, but people might start worrying they will do it again. Going on, wasn't the problem with Europe's financial woes related to people spending money they didn't (ie not saving). What happens if you were someone who has high amounts of savings because of a combination of budgeting, frugality and living within your means. I can understand why some people might just get a tad bit angry.

[fgalkin]

So, the message they're sending is "ask for our help and we'll killfuck your economy?" Because, you see, Cyprus is a tax haven. A lot of very wealthy individuals do their private banking with Cypriot banks. Foreign savings account for some 40% of the total. Now, these accounts are being looted. How willing do you think they will be to do business with Cyprus after this is over?

Not to mention that a lot of corporations are based there as well for the same reasons. Now, those are being doubly screwed by the looting AND by the freeze on international transfers and the bank holidays that disrupt operation.

Rescue package, my ass.

Have a very nice day.
-fgalkin

[Sea Skimmer]

I do believe the plan is, people get bank stock equal in value to the deposits seized which they won't be able sell for a unspecified period of time. So in principal its possible that the money can be recouped if the banks don't collapse anyway, or have a perpetually depressed stock value.

[weemadando]

Also, it'll be a nice experiment to see how extreme one off measures fare against ongoing, creeping austerity in terms of public support and efficacy.

[Thanas]

They hit large fortunes disproportionally hard. People below 100.000 EUR get 6.6%, people above get 10%. Sucks for the rich russian oligarchs.

I don't like them hit lower fortunes.

[Lord of the Abyss]

I do believe the plan is, people get bank stock equal in value to the deposits seized which they won't be able sell for a unspecified period of time. So in principal its possible that the money can be recouped if the banks don't collapse anyway, or have a perpetually depressed stock value.

The problem is that this is practically tailor made to make sure that the banks do collapse, so these people are being "compensated" with what will most likely be essentially worthless stock.

[Broomstick]

From what I've read, the bank account tax is being used as (at least partially) a substitute for longer-term austerity measures and being sold that way.

Oddly enough, those who will be most adversely affected in real terms - ordinary non-wealthy cypriots who entrusted their money to banks for safe-keeping, and for whom this may have major impacts on their standard of living - seem to have not been consulted at all. Maybe they would have preferred to keep their money and have longer-term austerity measures? Maybe not? Sucks to be them, though - someone outside their country decided that the best way to deal with the problem was to simply take their money. The articles I read imply this was targeted to glean money from outsiders using Cyprus banks to stash their money, but the way it was applied makes no distinction between a wealthy outsider plonking millions into a Cypriot bank account and some poor pensioner losing 6.5% of a small nest egg they were hoping would last their rest of their lives with no means of recovering that money in their lifetime.

Seems like a guaranteed way to destroy trust in banks.

[Broomstick]

I do believe the plan is, people get bank stock equal in value to the deposits seized which they won't be able sell for a unspecified period of time. So in principal its possible that the money can be recouped if the banks don't collapse anyway, or have a perpetually depressed stock value.

Oh, fuck that - who the hell would put money in a Cyrpiot bank after the accounts are looted by 10%? Especially a wealthy individual free to take their money anywhere in the world?

Bank stock in Cyprus will be about the same value as toilet paper after this. Alright, that's a bit of hyperbole, but giving bank stock in lieu of actual cash, particularly bank stock you can't sell for a period of time is bullshit.

[Dr. Trainwreck]

They probably show Greece failing and thought that it was because the austerity wasn't hard enough.

While I can't feel lots of sympathy for these with upwards of 100k in the bank (perhaps I will when I also have that much), just what the fuck is it with ALL accounts? What's next, 1/5 of Christian males for the Janissaries?

[aerius]

Also, it'll be a nice experiment to see how extreme one off measures fare against ongoing, creeping austerity in terms of public support and efficacy.

Thinking about it some more, I think this is a trial run for the rest of Europe. The banksters picked a small out of the way country that most people can't find on a map in which to do their looting, if the "bailout" succeeds they just made an easy money grab. And they know they can do it to the next country on the list. If it fails and Cyprus goes down the shitter or breaks out in a war, well, it was a dipshit country that most people can't find on a map anyway so it'll either be ignored or passed off as the fault of the failed country.

[Irbis]

So, the message they're sending is "ask for our help and we'll killfuck your economy?" Because, you see, Cyprus is a tax haven. A lot of very wealthy individuals do their private banking with Cypriot banks. Foreign savings account for some 40% of the total. Now, these accounts are being looted. How willing do you think they will be to do business with Cyprus after this is over?

Gee, let me play the world's smallest violin for problems of tax havens and rich assholes ducking obligations in their native countries. Maybe, just maybe, having normal tax rate would keep the first afloat, and not dodging taxes would left money of the second safe

Now if we could only do the same to Irish/Dutch/Caribbean sandwich dodgers...

Though, realistically looking, I somehow have feeling all the really rich ones got a hunch a few hours beforehand to get their money out of there pronto, and as always, losses will be piled on blameless normal people, while profits will be entirely privatized.

Now, if only there was 0% rate on these below say 25.000 Euro, the whole thing could be somewhat justified, but as it is, it won't hit the real cause of the problem hard enough, it will hit normal people too hard, and it might cause bank runs just causing more bailouts and more profits for speculators...

[J]

It's not quite so simple...

Bloomberg link

Cyprus President Delays Parliament Vote on Plan for Deposit Tax
By Georgios Georgiou, Maria Petrakis & Marcus Bensasson - Mar 17, 2013 7:07 AM ET

Cyprus’s President Nicos Anastasiades will seek approval to impose losses on the island- nation’s depositors tomorrow, a day later than planned as he seeks more time to convince lawmakers to back him.

Anastasiades, less than a month in the job, will meet with the country’s lawmakers tomorrow, before the Parliament session on the legislation begins at 4 p.m., the Press and Information Office said in a statement on its website. The vote on his decision to accept a rescue that includes the euro area’s first move to penalize depositors was initially slated for today.

With his Disy party holding 20 seats in the 56-seat legislature, he needs at least nine more votes to secure approval and avoid the financial collapse of the region’s third- smallest economy. If he doesn’t get backing for the plan, the banks may stay shut starting March 19, state-run Cyprus Broadcasting Corp. said. Tomorrow is a bank holiday in Cyprus.

“If tomorrow Cyprus’s Parliament rejects the bill, Cyprus opens the road to chaos,” said Afxentis Afxentiou, who was governor of the Central Bank of Cyprus from 1982 until 2002, said on CYBC. If the bill is rejected, “Cyprus will turn into Libya. Even with the pain, we need to follow a normal course, with hope we’ll see better days.”
Stalled Bailout

Euro-area finance ministers meeting in Brussels on March 15 and in the early hours of yesterday agreed to tax bank deposits in Cyprus as part of a 10 billion-euro ($13 billion) bailout mostly aimed at saving the country’s banks. Anastasiades, 66, was elected Cyprus’s leader on Feb. 24 on a promise to revive bailout talks, while refusing to accept losses for depositors.

“We faced decisions that had already been taken,” Anastasiades said in a statement yesterday. He said the European Central Bank would stop providing liquidity to one of the country’s banks on March 19, leading to its collapse if his government didn’t accept the rescue package.

The choice was between “the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis,” he said.

Anastasiades rejected pressure from an ECB representative to bring a vote on depositor losses to Parliament today, Greek state-run Athens News Agency reported, without saying how it got the information. An unnamed ECB representative pressured Anastasiades to open banks on March 19, the news agency said.

Anastasiades met with leaders of the nation’s political parties yesterday. While he may get support from the third- biggest party, Diko, which backed Anastasiades in the election, Diko’s eight seats won’t assure him a majority.
Deposit Tax

The debate on the law, which will impose a levy of 6.75 percent on deposits of less than 100,000 euros and 9.9 percent of more than that, will be preceded by more meetings between Anastasiades and political leaders. Anastasiades, who met with his ministers today, will convene another meeting of the cabinet tomorrow morning, CYBC said.

The measure, which is designed to raise 5.8 billion euros, means a smaller bailout for the east Mediterranean island nation than the 17.5 billion euros envisioned at one point. Cypriots woke up yesterday to find bank transfers frozen as the country’s authorities prepared to remove the tax from accounts before banks reopen on March 19.

George Perdikes, a lawmaker from the Green Party who sits on Parliament’s finance committee, said ways were being examined to soften the blow to depositors. These include giving them bonds linked to profits from the country’s gas reserves, he said in comments broadcast on CYBC after a meeting of the committee’s members with Anastasiades.
‘Lose-Lose’

“This is a lose-lose situation,” he said. “Whatever happens there will be a massive outflow from Cypriot banks, with or without a haircut.”

European officials have struggled to find an agreement that would rescue Cyprus, which accounts for less than half of a percent of the euro region’s economy, without unsettling investors in larger countries and sparking a new round of market contagion. Other elements of the rescue include asset sales and an increase in the corporate tax rate to 12.5 percent from 10 percent.

Cyprus in June became the fifth euro-area nation to request a rescue, after Greece’s debt restructuring, the largest in history, hurt lenders including Bank of Cyprus Plc and Cyprus Popular Bank Pcl (CPB), the nation’s two biggest.

the government still needs to pass a law to put the money grab taxes into effect, which is not a done deal since it appears they have a coalition government and the support may not be there.

[mr friendly guy]

http://www.bbc.co.uk/news/world-europe-21819990

Russian money targeted

If it goes ahead, the levy will affect many non-Cypriots with bank accounts, including UK expatriates.

However, depositors in the overseas arms of Cypriot banks will not be hit. Bank of Cyprus UK and Laiki Bank UK both confirmed on their websites that there would be no impact.

Chancellor George Osborne said the UK would compensate any government employees and military personnel whose bank accounts were affected.

According to Reuters news agency, almost half of the depositors in Cyprus are believed to be non-resident Russians.

The EU decision to impose a levy on bank deposits may have been motivated by a belief that a lot of the money in Cypriot banks belongs to Russian money-launderers, BBC business editor Robert Peston says.

The levy itself would not take effect until Tuesday, following a public holiday, but action is being taken to control electronic money transfers over the weekend.

Co-operative banks, the only ones which were open in Cyprus on Saturday, closed after people started queuing to withdraw their money.

[Irbis]

Ah, the Russian money launderers. The most crystal and innocent of all people.

Who wants to bet Putin's handlers will order the government of Russia to protest, loudly or covertly? Didn't Cyprus borrowed big sum from Russia recently? That could be a big spanner thrown into the works.

[mr friendly guy]

I am sure Russia will protest. Although I had no idea that almost half of the depositors in Cyprus are Russians.

[Thanas]

Cyprus is a regular violator of all kinds of laws as well. They wouldn't even be in this mess had they not smuggled weapons (against EU law) into Syria (against EU law) and stored those weapons near their only power plant, in a simple container, with no heat proof (against EU law, regulations how to handle live munitions and common sense). Said munitions promptly blew up, almost singlehandedly causing the crisis in Cyprus.

Not feeling a lot of sympathy for their government.

[Dr. Trainwreck]

I only knew that the explosion was because of improper storage, not that the stuff was supposed to go to Syria.

It was also very, very darkly humorous. Cypriots often brag about their military because they serve two years instead of 'only' nine months, so to see them fucking up so massively was a big STFU. At least they didn't try to spin in to being the Greeks' fault, like I've read some trying to do with their banks.

[Thanas]

The stuff was Syrian, Cyprus seized it and stored it to give it back to Syria on the sly.

More info here, scroll down