The state of play in Cyprus is that negotiations in Parliament are underway, with the hope of a yes vote on a “Plan B” today (see update at the end, this is looking a lot rockier than conventional wisdom surmised). The Cypriot officialdom has allowed for slippage in this timetable, with the bank holiday in effect till Thursday. The latest events were largely a nothingburger, aside from the big news of the failure to approve the president’s plan yesterday: European ministers confirmed that they’ll approve an agreement so long as Cyrpus obtains €5.8 billion from depositors. Monday night, President Nicos Anastasiades gave his version of the Hank Paulson armageddon speech on national TV, laying out the fact that no deal means an immediate collapse of “one bank” (presumably Liaki), and a possible exit from the Eurozone.
The widespread assumption is that the Cypriots will fall into line, since the alternative really does look even uglier. But the runway is pretty short. The government could conceivably extend the bank holiday through Friday, which means through the weekend. But anything beyond that likely starts to eat at the real economy.
Moreover, even getting a deal still will have a big, negative economic impact in Cyprus. Deposits are certain to flee, so the bank crisis that was hoped to be averted is still a real possibility. After all, it is not clear that Cyprus will be out of the woods with this rescue; many experts expect further restructuings are in the works. Why sit around and let your ox be gored a second time? The Prodigal Greek (hat tip Guardian) notes:
No matter what today’s outcome, Cyprus’ banking system will not be the same ever again. If Germany’s intention was to reduce the size of it – closer to the eurozone average – they managed to achieve that with a masterful stroke in just one weekend.
Deposits flight combined with the sale of the Greek operations will probably leave the Cypriot banking system half the size it was on Friday night, even left with one systemic bank after restructuring.
Cannot see a smooth transition period without some form of capital controls.
By the time the dust settles, the Cypriot economy will sink and PIMCO’s adverse scenario will materialise. Many people did their best to make this a reality.
Felix Salmon takes issue with Andrew Ross Sorkin’s “those dirty Cypriots had it coming to them” for living in a tax haven. Ahem. People in glass houses should not throw stones. How exactly are tax evaders like GE and Apple any different than Russian oligarchs (some of whom evade taxes via perfectly legitimate big companies?) As Nicholas Shaxson pointed out in his book Treasure Islands, the biggest tax haven in the world is now run by the US, between Delaware and Wyoming corporations (you can hide ownership just as well via Wyoming limited liability corps as Isle of Man shells) and our friends in Caymans. By Sorkin’s logic, it would be OK to cram down everyone in Delaware because they benefitted from the local tax avoidance business.
Separately, Sorkin is way too sanguine about contagion risk. Did he miss that there was already destablizing deposit flight from the periphery, and only the successful OMT headfake of last September calmed nerves enough to put it to a stop? You don’t need lines at ATMs to bring a bank down; a slow big deposit drain will do that too if the bank has dodgy, illiquid assets. That is exactly what brought down WaMu, and plenty of Spanish banks have balance sheets at least as ugly.
But Salmon is also unduly enthusiastic about a hail Mary idea of having the Cyriot government vote through a plan to convert deposits over €100,000 to 5 or 10 year CDs, with the longer term ones secured by gas revenues. You could completely spare the under €100,000. Now I will say the plan is exceedingly clever and Salmon cheekily urges the Parliament to pass it and force the Eurocrats to dare to shoot Cyprus in the head with a perfectly reasonable, indeed better, plan on offer.
The problem is that this idea is altogether too late. I’ve been in a fair number of two party negotiations, and unless both sides trust each other a lot, radical new ideas at the 11th hour are generally seen as a sign of bad faith dealing. People have gotten locked into positions and find it psychologically difficult to budge. It’s even harder to get bigger groups on board. Given that Anastasiades is so afraid of rattling the Eurocrats that he felt the need to get their blessing merely for rearranging the deck chairs on his Titanic (shifting the amounts various depositors get whacked to meet the required €5.8 billion target), I doubt he would back this sort of idea, and without his support, I don’t see how this could get through Parliament (Salmon isn’t wrong in thinking the Germans would look like idiots to refuse this deal, but if the surplus countries feel they are being played by the Cypriots, don’t underestimate national prejudices overriding sensible reactions).
But there is another potential wild card, which is Russia. If nothing else, Putin is ripshit about not being included in the negotiations, as well as having all Russian activity depicted as money laundering. Some (much) undeniably is, but there are also Russian retirees living in Cyprus, and perfectly legitimate Russian companies who use Cyprus because it is an English law jurisdiction (as in a lot of international companies prefer entering into contracts with Russians in that jurisdiction; I know Americans who do deals regularly with Russians who operate this way). As the New York Times pointed out:
The din of criticism from Moscow signaled the importance of Cypriot offshore financing for the Russian economy. The island has long served as an escape valve for Russian businessmen. Some are surely dodging local taxes. Others, paradoxically, are seeking better courts in the British law system practiced in Cyprus.
Offshore domiciles are so ingrained in the post-Soviet way of doing business in Russia that Cypriot shell companies are linked not only with money launderers and organized crime, but well-established companies like the metals giant Norilsk Nickel.
In theory, Russia has a lot of leverage. It has a €2.5 billion loan to the government, and it has been asked to lower payments and extend the maturity. After making its displeasure with the deposit grab known, and convening an emergency ministerial meeting to contemplate what to do, it has pointedly said it has not made a decision about whether to restructure the loan, and is reconsidering its position. This is a comparatively small piece of the overall equation, but with all sides locked into positions and time running out, a Russian reversal would be a serious, potentially fatal complication. And Russia is going to be even more unhappy with a deal that hits Russian depositors even harder, which is the only sort of deal the Parliament might approve.
But as the Financial Times tells us the Russians do not want to blow Cyprus up, which is what they could do if they try flexing their muscles:
The main fear is blockages in money transfers from or through Cyprus as a result of the authorities stepping in to deal with a pending deposit run on the island, according to David Nangle, head of equity research for Renaissance Capital, a Moscow-based investment bank. While Russians own billions in Cyprus deposits, the island is far more important to the Russian economy as a conduit for financial flows – Russian money goes to Cyprus, where it gets advantageous tax treatment, and then back into Russia.
In all honesty, I’m not sure I buy that Cyprus is indispensable. It would take some doing to operate out of other tax havens, but Cyprus is not unique. But the cost of a meltdown would be much larger than any deal, and the Russians are also angling for a role in the development of gas reserves near Cyprus, so there are other considerations at work here.
My belief is that there are a lot of moving parts, and while it is perfectly rational for everyone to come to some sort of deal, the principals have a lousy negotiating dynamic at work. Russia has been excluded and is feeling angry and abused, and the Wall Street Journal description of the 10 hours negotiations that led to the original deal sound nightmarish: confused, chaotic, dysfunctional. It’s proof of the old notion that people (in this case finance ministers) should never negotiate their own deals unless they are super experienced negotiators (and pretty much everyone overestimates their negotiating skills). And these all-over-the-map negotiations took place when the principals were in the same location. It’s worse doing this sort of things by phone and e-mail.
So the odds are not trivial that a deal fails to come together, not because a pact is impossible (as in there is appears to be a bargaining space where everyone could find a solution they could swallow) but that the key actors will be unable to get to that agreement before time runs out. Stay tuned.
Update 8:30 AM: As I was drafting this post, Reuters released a story quoting President Anastasiades saying Parliament was likely to reject the revised bill. This is not what either Mr. Market or the Eurocrats anticipate. They assumed Anastasiades’ Hank Paulson armageddon speech plus rational self interest (as in recognizing that blowing up the entire banking system would cost the citizenry more) would lead to sullen acceptance of the inevitable, just the way the Greeks (and to a lesser extent, the Portuguese and Spanish) have accepted being put on the rack. Apparently a fast seizure of funds is harder for the public to accept than a sustained grind-down into penury. From Reuters (hat tip Richard Smith):
“The feeling I’m having is that the house is going to reject the bill,” President Nicos Anastasiades told reporters. Asked why, he added: “Because they feel and they think that it is unjust and it’s against the interests of Cyprus at large.”
Asked what he would do next, he said: “We have our own plans.”
Unless Gazprom is about to ride in to the rescue, this is trying to make the best of an empty hand.
Update #2 It appears that there will not be enough votes for the revised bailout, either (in fact no-one’s going to vote for it). Let’s see what the trailed ‘Plan B’ is, if the Eurogroup bailout isn’t going to fly. The Cyprus Finance Minister, Sarris, has reportedly resigned (funny, thought he was flying to Moscow today). There are rumours that the President has not accepted his resignation. The Euro is sharply weaker. UK’s Ministry of Defence making sure that the 3,500 British servicemen stationed in Cyprus have some spending money despite the bank holidays, by flying EUR1Mn over, in a jet.
Update #3 Revised bailout terms have been rejected by the Cyprus Parliament, as expected; 36 (or so, reports vary) vote against, 19 abstain. So now we really are on plan B, whatever that is. Meanwhile, the Cyprus Finance Minister, Sarris, denies having resigned. And he’s in Moscow. That gives a hint about Plan ‘B’…
Why sit around and let your ox be gored a second time?
This seems to be the unwritten rule of both political and financial terrorism: there’s never just one bomb explosion or falling building.
It’s such a hoot when German FinMin Schnaeuble does his Schwartzenegger impression: ‘I’ll be back!‘
So if the deal goes down, does the ECB step up to the plate? Or does a European island sail off the edge of the world?
> Apparently a fast seizure of funds is harder for
> the public to accept than a sustained grind-down
> into penury.
What part of “the country cannot sustain this debt”
do we not understand? The seizure does not cure the
debt overhang – it is just another way of allowing
various vampire squid and corrupt officials to feed
off the citizenry. Better to leave the Euro now,
reboot the economy on an independent currency, and
free up economic flow to service prudent trade instead
of fraudulent and excessive debt which was set up
by people who don’t directly suffer from its existence.
Is there anyone who thinks the EU will centralize
taxing authority (let alone be able to make it work)?
Not. Gonna. Happen.
But I guess the waterboarding of various citizen’s
economies is awfully fun for the sociopaths, so we’ll
have to wait for death, first, (and full asset stripping)
before they lose interest, eh? (pun intended)
Tomorrow ECB announces they take Cyprus Shell Corporations as collateral for “liquidity injections”?
The tax haven issue(i.e. the Russians) are very much the elephant in the room. Search the internet and you’ll find a great deal of discussions about how honest the money that has been transferred there and what the money laundering controls are. Simply put, the Germans don’t want to be seen bailing out Russians engaged in laundering. I believe this was very much the behind the scenes discussion.
Why this is being revisited, maybe due to Russian posturing and to a larger extent the fears the bank levy is generating in other European countries.
Agreed, that it the line the Germans have sold their bailout-fatigued public on punishing British pensioners, perfectly blameless Cypriots, and Russian retirees who in many cases are not all that rich.
The numbers don’t even begin to bear out the German prejudices. The highest figures I’ve seen for Russian deposits are 38% of the total, and local sources indicate it could be as little as 1/4 as much, although that low seems way too low. And of that 38%, an unknown but not trivial percentage is perfectly legitimate businesses taking advantage either of the tax advantages or the English law aspects (as in doing international deals there because no foreigner in his right mind would ever subject himself to Russian law jurisdiction). The more legitimate “oligarchs” are no different than US hedgies or private equity guys using the Cayman, but oh, no, we refuse to see the similarities. The Caymans are OUR tax haven, after all. That makes it completely different.
Understood, I’m just not sure how prepared I am to equate the finances of American and European businesses with their Russian counter-parts.
There are oligarchs who are perfectly well behaved (I had one as a client) and American financiers who are thugs (Mike Milken used quite a few Mafia tactics, including once having three cars pin the Lincoln town car of a business rival on Park Avenue and fire shots at it to send a message. This account comes from a senior attorney who worked in the operation of the recipient, who decided to get a new job based on that incident).
And since it is common for banks to break into people’s home and take their property and neither return the goods or make restitution (or have the police treat it as a crime) when they make a mistake, I don’t see as much of a difference between the way our bank oligarchs operate and the Russian ones do (remember, Russia is a more violent society overall, witness the prevalence of drive cams, since road altercations are normal there, so you have to look at the actions of the oligarchs relative to social norms, not in a vacuum).
Agreed that Russia is more of a weltpolitik nation.
I conjecture that this might be a reason to bring the Russian Navy into play and backstop Greek Cypriots claim to the natural gas field, in exchange for extraction rights.
Which would be funny, as there are brit bases on the island…
Also makes me wonder if we will see Gazprom step in with a little “oops, I turned the shutoff valve! my bad! be back on in a week!” style action to tweak the EU into line.
Meh, I should read down further >.<
There’s no such thing as a perfectly well-behaved oligarch.
The reason why they’re “oligarchs” is because they were corrupt and ruthless enough to access auctions of the state assets on the cheap and exploit the peril of the economy to scoop up state assets and ride the boom to excessive personal private wealth.
Now, that’s not to say they’re evil, or that they won’t use that money to benefit the people of Russia and go to good causes in the end.
But the vast majority, especially the cowards in London (and the ones sitting in Siberia), are corrupt conniving individuals who tried to exploit the Russian people for their own private benefit of wealth accumulation.
American oligarchs are much the same, but are awarded preferential media and societal treatment. Re-engineering government to change tax and regulatory structures to benefit the über wealthy of high finance since the 80’s is in many ways analogous to the wealth-grab in post-Soviet Russian privatization.
As I indicated, I’ve worked with one. HBS graduate, had gone to high school and college in Russia, then came here and did software development at a big retailer. After HBS started up a software company, sold it 18 month later, and took his $100,000 or so proceeds and parlayed it into a fortune. Not litigious, very sensible and easy to work with, paid his bills pronto. Looks like a prince compared to Jamie Dimon.
It’s so ironic… what you say.
I believe we bailed these folks out.
Russia is least concerned about a $2.5Bln loan (which was primarily used for the Sea Block 12, “Aphrodite, gas field exploration and drilling and would see a return in the anticipated €18.5bn-€29.5bn, 103% – 163% of GDP, revenues irrespective of the ECB’s next step). The notion that Cyprus is perceived as a tax haven or a money laundering ‘Wash’n’Go’ shop for Russian business is immaterial. However, the $2.5Bln loan was seen by Moscow as a good will gesture regarding Cyprus’s previous administration’s confutation of NATO’s/US overtures.
What has really pissed-off Russia was when, despite denials and assurances from the US state department, a meeting was held in Ankara (November 2012) with the American Ambassador to Cyprus, John Koenig, along with British, Greek and Turkey government heads. The meeting discussed a plan: British bases in Cyprus will be turned into NATO bases – the ‘three-party guarantee’ of Britain, Turkey and Greece will be abandoned – and NATO will take over. America wants its ships there.
However, there was one small snag; for Cyprus, the plan is neither legal nor constitutionally permissible. When, last year, Nikos Anastasiades pushed for a majority in the Cyprus parliament to vote for and pass an act for the Cyprus to join NATO’s ‘Program for Peace’ (PfP); Cyprus being the only member of the 27-nation European Union that is not in NATO. President Christofias (whom helped broker the Russian $2.5Bln investment) vetoed it, citing that the act violated the Constitution and the separation of powers (one of Cyprus’ ‘basic principles’) as the PfP is neither “an international organization nor a treaty of alliance”.
Nevertheless, and much to the Russia’s chagrin, the UN Secretary-General’s Special Advisor on Cyprus Alexander Downer has continued to develop talks with, now, Prime Minister Anastasiades whereby British bases in Cyprus will be handed to NATO as part of a new ‘Cyprus Peace Plan’ (one that encompasses PfP).
How long the veto is, somehow, voided or nullified, is not an easy guess. So, if Russia can buy time, presence and influence in Cyprus by paying $30Bln to bail out Cyprus and save the day, it can keep NATO out and import all the couscous it wants; it’s a bargain.
Aha, this makes sense. Putin seemed way too upset about this; it was clear (as indicated) that Cyprus being so important to Russians as a financial center was bonkers. I could seem him not wanting it to implode (as the losses would be meaningful and might hit some players important to him hard). But the reaction to the deposit haircut seemed disproportionate, unless it was an issue of national prestige (as in about being excluded from the talks).
But this bit makes things make a ton more sense. And it ALSO make the President’s statement of the AM here make more sense too. Why would you EVER admit a vote was gonna fail? You’d push back the vote if you didn’t have the votes and renegotiate. The Germans don’t look like they are gonna budge, they have stuck their necks out on €5.8 billion. Even if someone was to relent somehow, I can’t imagine more than a climbdown of more than 10%.
I had figured €30 billion was the number and wasn’t certain contested gas fields were worth ~2X GDP in an economy that is clearly going to have a smaller GDP as a result of the finance sector inevitably shrinking. But the airbases are a different equation.
So is Anastasiades playing dumb like a fox, quietly cratering the unacceptable deal with the Eurocrats to let the Russians ride into the rescue? This would be pretty remarkable if it plays out that way.
Natural gas from Cyprus and Israel , maybe Greece present huge challenges to Russia. I don’t think it can be over-stated how important energy and funds from selling natural gas and oil are to the Russian economy. If Russia were to gain control of Cyprus they could at least control and partially profit from this.
I’m not sure Russia is so concerned about a Cyprus’ gas line,potential revenues,per se. Cyprus, optimistically, anticipates developing (fully) only 250 billion cubic meters of gas (Sea Block 12, also known as “Aphrodite,”) by 2020. Whereas, Russia has already developed 816 billion cubic meters of natural gas – and expects to develop additional 250 billion cubic meters natural gas reserves by 2020
I don’t think the absolute quantity of the reserves is as important to Russia as is cementing its monopoly over the provision of gas to Europe.
The following offers a brief overview of the geopolitics involved, and in the contest between Russia and the US, Russia is winning hands down:
http://www.worldenergy.org/documents/congresspapers/140.pdf
Cyprus is in direct line or a possible pipeline from Isreal Tamar and Leviathan gas and oil fields to the southern Turkish coast,a route which also passes Lebanese and Syrian off shore gas fields in the eastern mediteranean. With total estimated reserves of 345 tcf (9.7693 tcm) of gas in the area that’s no small deal and competitive to Russian reserves.
http://oilprice.com/Geopolitics/International/TURKEY-ISRAEL-Gas-Pipeline-Rumors-Are-Geopolitically-Tectonic.html
Add to that the Quatar 896 trillion cubic feet (25.4 trillion cubic metres) or more, and the balance is not so heavily in the Russian favour as might have seemed in 2009.
Some very interesting speculation.
There’s another, simpler explanation though, which doesn’t necessarily make the above any less relevent or accurate.
Cypriot MPs really don’t want to burn the local, and international, Russian mafia. They know where they live.
Anastasiades isn’t dumb but he’s most certainly supporting Russian (and concomitantly Cypriot) interests, even if inadvertently so.
But, note (reports the Guardian) that it was Anastasiades whom, according to Wolfgang Schaeuble, the German finance minister and his former deputy, Jörg Asmussen, that “Anastasiades balked at anything over 10% for the wealthy, said EU sources, and settled on the symbolic figure of a 9.9% “tax” on depositors with more than €100,000. That meant the rest of the €5.8bn had to come from the more modest savers, at a one-off rate of 6.75%.” Anastasiades, must have known at the time that this was politically unacceptable at home and would be rejected, while at the same time reassuring the EU Finance ministers at the meeting that he would “push it through”.
Presently, Cyprus Finance Minister Michalis Sarris is in Moscow, for several days, ostensibly discussing the $2.5 Bln loan. Apparently, in recognition that affirming a binding contract, written under English International Contract law, which, essentially, provides a guaranteed a return of principal plus 4.5% is not something that that can be done via a conference call or by respective Embassy mandarins.
So, Anastasiades precipidated this, playing “Let’s you and him fight!” with the Russians and the Germans?
There’s a geopolitical dichotomy in Cyprus right now, but it’s not philosophical it’s purely about the money and who’s the better sugar daddy There are two plays going on: Domestic and International.
Domestically, Anastasiades benefits least from Russia’s $2.5Bln, Christofias most. Christofias’ got his and he’s keeping it; he’s been promoting Russian “development” in Cyprus for the longest time (perceived as a hardline supporter of Russian investment) and calling Russia a “strategic partner'” of Europe and a “pillar of capitalism”.
As such Anastasiades has/had been pushing for a constitutional amendment to get around Christofias power of veto and allow NATO/CfC in. Once the amendment is passed there would be a concomitant “Foreign Bases Land Reform Act” that would better define the terms and conditions for leasing bases to NATO than those that currently exists with
Britain (which, under it’s present agreement pays, practically, nothing). Needless to say, there’s $Bln’s and land in them-there bases.
But, implicit to any Anastasiades constitutional amendment was that the European Union would continue to support Cyprus’ debt until Gas revenues (for which Anastasiades has
a greatest personal interest) come on stream beginning 2015.
However, I suspect one of two developments: 1.) the European Finance ministers didn’t get the US’-NATO memo and that Anastasiades’ (Cyprus’ parliament) hand was forced into this present play with Russia once they demanded a haircut on deposits. 2.) It could be everyone got the memo, but a ‘sensitive’ Germany is saying to the US/NATO: ‘you want the bases there; you pay the Russian/Cyprus banks” off.
Thank you, Claudius, for pointing out the U.S. hand in this situation. From the Cyprus Mail, 13 March:
Man, I feel sorry for Cyprus. Transitioning from being Britain’s poodle to America’s doormat is a humiliating step downward.
So do Anastasiades’s “other plans” involve Ben Bernanke?
This scene is uglier than I imagined.
AND the link …
http://www.cyprus-mail.com/alexander-downer/us-welcomes-stronger-ties-nato/20130313
In the contest to control the region’s natural gas, however, the US/NATO alliance has taken its gunboats to the bargaining table, and the Russians have taken their checkbook.
So far, as the following report explains, the Russian’s bargaining strategy has won the day:
http://www.worldenergy.org/documents/congresspapers/140.pdf
“…the Russian’s bargaining strategy has won the day…”
I wouldn’t be so sure about that. In the past the Russians have been all hat, no cattle, when it comes to offering assistance.
When Iceland blew up and needed money, the Russians initially offered money, about 2-5 billion, but then backed out. It was mostly a publicity stunt, another Putin-chest-puffing episode. (For 10-15 billion they could actually have built a base there, in a very strategic position.)
So I wouldn’t be surprised if the Russian intervention in Cyprus is just mere posturing.
Sure the Germans use a lot of Russian gas, but there will be a pipeline from Norway coming on line soon, plus the Germans can always bring in LNG on ships. The Russians need the Germans too. If the Russians threaten with their gas lines once too often, then Europe can go elsewhere (admittedly at high price) and won’t come back.
The Russians are not reliable allies (sorry, nothing personal). Wherever they go they bring their Mafia-disease — just look at Bulgaria and Serbia. The Cypriots must surely be aware of this. If they thumb their noses at the West, they will end up like Serbia, with its average annual per capita income of 7000 Euros.
There’s a Mexican journalist of Lebanese extraction, Alfredo Jalife-Rahme, who argues I’ve got my battle lines drawn in the wrong place.
He argues that China is now the Evil Empire in the eyes of the US, and that the US is making nice to Russia to lure them into an alliance against China.
Of course there’s also the possibility that the battle lines and alliances are fluid and changeable, depending on changing circumstances.
There’s also a third theory that’s become quite popular, and that is that the future holds not a bipolar world, but a multipolar world.
In a multipolar world, there’s so many brush fires breaking out in so many different places that committed neocon, full-spectrum-dominance types like Hilary and Barak don’t know whether to order the military to come here or sick ’em.
But I can’t see that Iceland had any strategically important assets, while Cyprus has 2, the gas and the airbase. Completely different equation.
And if you think the Trokia is nice to have as a partner, take a look at what they’ve done to Greece.
to From Mexico actually . . .
If USA-GB are hoping to win Russia into an alliance against China they are doing it very poorly. Offending Russia by trying to NATOize the British bases on Cyprus won’t make Russia more likely to partner up with NATO.
Probably Russia is more likely to thicken/deepen its connection to China and other Eurasian countries through Shanghai Cooperation Council. If Russian foreign policy thinkers are influenced by the geopolitical mystic Aleksandr Dugin, Russia will try recruiting some European countries into an Even Greater Eurasia.
If China’s Prime Directive is to divert all possible natural resource flows into China, then maybe China would be happy to see Russia’s relations with its European gas customers so spoiled that China becomes Russia’s only natural gas customer by default. That would be a lot of gas for China to capture. Would China risk being seen to do such a thing?
Iceland is indeed strategically located half-war between Europe and North America and an important route to/from the recently revalued Arctic Sea. The USA had an important air base there until 2006. Iceland is a NATO member.
Said that, I don’t think that right now Russia wants to directly confront the USA by moving into Iceland, nor the the Icelanders would be happy about losing their relative tranquility by doing such a move without clear need. It’s not like they have a dictator like Uzbeks who decides for them on who-knows-what grounds.
Iceland also has a highly qualified worker class and is self-sufficient in energy thanks to the unusual geothermal sources it has in abundance.
@ Claudius
Great stuff, Claudius.
It leads one to believe that beneath all the ideological and financial kabuki there’s some real politic going on.
Speaking of U.S. hegemony, here’s an excerpt from Ambassodor John Koenig’s bio:
So Cyprus is just a pawn in the Great Game, with the US and Russia both vying for influence.
How much is an ‘unsinkable aircraft carrier’ in the eastern Mediterranean worth to either of them?
Let the auction begin! Five billion … do I hear five billion?
The Anglo-American agenda has not changed for 100 years.
Veblen, even though a little heavy on economic ideology and a little light on real politic, pegged it here:
The real Anglo-American agenda is and always has been to keep Russian and Germany out of the arms of each other.
Yves Smith said:
This is the thing that always bites the liberal internationalists/imperialists in the butt. They’ve been so thoroughly brainwashed that they have come to believe their own fictions — that all or most people are rational maximizers.
Eric Hoffer, who spent his lifetime studying mass movements such as Christiantity, Bolshevism and Nazism, realized that most people, at least in some epochs and under some conditions, are not rational maximizers, and can become completely selfless, willing to self-sacrifice themselves on the altar of some cause, which can be either this-wordly or other-worldly, that is deemed to be sacred. That that cause can be either benign, as in early Christianity, or evil, such as in late medieval Christianity, Boshevism and Nazism, Hoffer believed was entirely conincidental.
And as Hannah Arendt notes in The Origins of Totalitarianism:
Thats the thing with the Social Sciences. The Technocrats ruling todays world, in their omniscient wisdom, sort of seem to view the social sciences like other sciences, and come to the view that the actions of people can be easily predicted through simple methods like perceived ‘rationality’ and so on and so forth. Our elites, by assuming that things such as markets and people are rational, are in their own way showing the incredible narrow-mindedness and fallibility of their collective worldview.
Of course I am generalizing very strongly here: the worlds elites are of course not perfectly interchangeable, with many differences among them and their interests and views. But the holier-than-thou mentality that comes with power ‘generally’ makes them arrogant and results in them assuming their stratagems will result in victory, when in fact their strategems rest largely upon the assumption of certain class and cultural biases.
Maybe it is the Cypriots who will Leave Ugly, and burn the Euro down on their way out the door.
Some primates are inequity averse, i.e. not rational maximizers:
Adolph Hitler called Christianity “Bolshevisms” creator…………
“hey’ve been so thoroughly brainwashed that they have come to believe their own fictions — that all or most people are rational maximizers.”
Well, “rational” as defined by the technocrats. Ironically, their insistence in the truth of their defnition of “rationality”, coupled with their belief in their own infallibilty, really proves they are truly irrational. In other words, given the long human history of what is at best a sort of “quasirationality” and the growing body of scientific evidence that humans are not Vulcans, only a crazy person would believe that any human could be rational in sense of neo-classcial economics.
Either that, or these folks have been pushing this fantasy on the public as one of the greatest flim-flams of all time.
Informative comments that seem to confirm my suspicions that Cyprus has become a Russian pawn in a geopolitical confrontation Putin intends to use to unravel the EU/NATO
bloc that expelled Russia from Europe 20 years ago. Ideal situation for Putin. Small place with a lot of Russian influence. Legislature of only 58 members. Not too hard to block any deal and force Cyprus out of the EU.
I’ve read many articles on the situation in Cyprus and I have yet to see even one that gives the impression that the parties most responsible for the problems are being held accountable in any way. As I understand it, depositors are getting a haircut while bondholders in these banks are being protected. Have the bankers who created this mess lost their jobs, much less had their recent bonuses clawed back?
These bailouts are very hard to sell to the public unless there’s a sense of fairness and those responsible are paying a steep price. It may not be rational in the economic sense, but many psychological studies have shown that people will knowingly accept a worse alternate outcome if they perceive that the deal offered is unfair to them.
Cui,I agree with you 100%. Its the bondholders who should be responsible for the losses. And yes the bankers bonuses had to be fraudulently gotten, if the banks had economic troubles. Where is the media when it comes to common sense? MIA I’m afraid.
Just curious… maybe more educated folks here can infom me. It is easy to get caught up in the details and the players, but one thing keeps getting lost IMHO. This decision came from Finance Ministers in Brussles. After all the money they have poured into every concievable place, they decided to go after small investors deposits over bond holders.
Why? Why Cyprus? Why now? Did they really undertake this decision to do “that which must not happen” without the thought of reprocussions? Does a farmer break into his seed corn in the middle of winter without thought of the next growing season? This is very much a point of no return that is being crossed, and even if it is not in the final bill, it seems to say a great deal about the Finance Ministers in Brussles.
This is in response to Slick March 19, 2013 at 11:20 am (can’t tell which Reply works for which comment.)
Wise words, Kemo Sahbee.
I hope (and at this point even reasonably expect) that they say no. Customers are not stockholders: if the baker downstairs goes bankrupt, I don’t lose any money, why would any non-partner have to pay for the loses of a private business?
Also the whole affair seems to be illegal according to EU regulations, which obligue states to organize insurance for all deposits up to €200,000. So even if the banks go bankrupt depositors would retain at least that much, what is a safety net for the working class and much of the middle classes if banks go bust. This “tax” (armed robbery) actually violates those regulations and should be challenged at the European Court of Justice.
But what is most important is that, as happened in Iceland (but not in Ireland, Portugal, Spain nor Greece), it seems that the will of the People is managing to overrule the rulers, thanks to the stubborn dissidence of some key representatives (the government has the most tight majority imaginable).
Anyhow, “leaving the euro” is not a legal option, as it is not to expel any country from it unless there is unanimity among ALL other member states, not of the Eurozone, but of EU. Only in such case a state may be suspended from membership in EU but I think that is more likely to happen to quasi-fascist Hungary than to Cyprus. Of course, Cyprus is still sovereign and can rescind its EU agreements unilaterally (secession) but why would they?
IMO it is more likely that Germany leaves the Eurozone before anyone else does: it’s too tricky business to be done without strict need. If necessary you can always sabotage and boycott Eurogroup agreements unilaterally: they can’t really do you anything other than imposing fines that you can still not pay. It’s not like the door out of the euro is so easy to open for a state, much less a small bloc, to be kicked out.
Cyprus is still sovereign and can rescind its EU agreements unilaterally (secession) but why would they?
Best reason would be to follow the Argentine playbook: (1) Redenominate bank liabilities into Cypriot pounds; (2) Default on external debt, then offer 30 cents on the euro settlement; (3) Boom for a decade while the EZ periphery remains mired in depression.
The Cypriot pound only disappeared at the end of 2007, so the loss of their own currency is a more recent event for Cypriots than for the rest of southern Europe.
I don’t see how dividing your GDP by three helps in any way, Jim. Because that’s what you do when all prices are redenominated in a new currency that is worth 1/3 of the former as you seem to suggest. It’s a “Latvia success story” several times aggravated. Sure: the economy could only go up but the initial fall would be terrible.
Anyhow, redenominating from scratch is very risky business and capital evasion would be just brutal, precisely what Cyprus does not need. The only way to redenominate successfully (and that in a larger country than Cyprus with a much larger and more diverse economy) would be to go hardcore socialist: nationalize and intervene everything so that not a cent, much less a machine, can move without government authorization, so to say.
As I have said many times on Greece: there are two courses possible: the one to Cuba or the one to Haiti. Cyprus is trying to play Iceland but we have yet to see if they can get away with that.
Anyhow, Argentina did not have to print or redenominate all currency: it just cut parity with the dollar and devalued freely. The only issue there were bank accounts issued in dollars, which were redenominated in pesos in the so-called “corralito”. It was still hard times but it did not happen in the context of a global mega-crisis. Now rebounding is much much harder.
UK MEP Daniel Hannan: ‘DEFAULT, DEVALUE, DECOUPLE.’
http://www.youtube.com/watch?feature=player_embedded&v=Ui1Ttd4Gx4U
The maximum level of protection under Cyprus’ Deposit Protection Scheme is €100.000.
http://www.centralbank.gov.cy/nqcontent.cfm?a_id=8158&lang=en
“Also the whole affair seems to be illegal according to EU regulations, which obligue states to organize insurance for all deposits up to €200,000.”
The EU regulation is, if I’m correct, from 2008. I don’t know why Cyprus has not adapted but they are in theory obligued, as all other member states.
from wiki:
“According to Art. 7 (1a) of Directive 94/19/EC all EU Member States were expected to increase the amount to EUR 100,000 as of 31 December 2010. This is the case in all EU countries. For countries with non-EURO currency the limits are near to EUR 100,000 e.g. in UK it is GBP 85,000 which is near to that limit, depending on EUR-GBP rate.”
http://en.wikipedia.org/wiki/Deposit_insurance#European_Union
Thanks. I stand corrected: I had read something but had the figures mixed up. :(
The geopolitical insights here, in addition to the financial details, have been most enlightening. I noticed these stories about Russian naval ship movements the other day and originally attributed it to the situation in Syria:
http://www.rferl.org/content/russia-navy-fleet-mediterranean/24930973.html
http://en.ria.ru/military_news/20130317/180069468.html
wouldn’t the Euro *strengthen* if Cyprus leaves? is this like gold going up in value during times of deflation?
The Euro was meant to be an alternative for the dollar. Without the “underperforming” periphery countries, the Euro is just a bloated Mark. The German coast line can get you to the North Sea, and….well…
Greece shipping has more value to non-Europeans than German cars. Cyprus is a major trading hub for a number of sectors. The Germans don’t want to lose these countries despite what Germans might think about less races.
In the short term, idiots and machine traders would love this move as the Germans getting tough with those lazy Cypriots, but in the long term, it might give the Greeks ideas or cause other problems as natural gas lines and commercial cargo carriers can’t just redivert into any old port.
The US is already in most of the former British colonial bases elsewhere. There are two in Cyprus either side of the Greek/Turkish line (Limasol/Farmagusta) and also plenty of deep harbour possibilities. The facilities would be ideal for bombing Iran.
The banks in Cyprus are only 18 months out of their stress tests and one has to wonder how they became some multiple of ‘worthless’ so quickly – their balance sheets have very little equity or senior debt, so what have they been doing with the deposits? If they are being bailed out at around 50% of claimed total value and worth ‘nothing minus’ without it where has the money gone? The stress tests were probably fraudulent and money in since has probably paid off losses covered-up then. Why would we give these people any further ‘cash’ without a criminal audit?
Where they on the other side of some of the derivatives created the bigger financial institutions ? Designed to eat them up and spit them out, and loot the country in the process ?
And then there’s that naval base explosion in 2011 — a $2 billion hit to the Cypriot economy. Coincidence, I’m sure, but ….
FWIW, I actually talked to someone who claimed to know about that.
If it is the same situation, there were explosives that needed to be watered in the heat of the day to prevent them from overheating and igniting. The two guys who were supposed to do the watering-down, using something like garden hoses, missed a session and in the heat of the sun – kabloom!
I was told this story as one of those, ‘the system is only as good as the weakest link, and when the weakest link is a guy with a garden hose in a era of Global Warming, expect trouble…” tales.
But take my tale with a grain of salt; I can’t verify.
Nevertheless, I recall the story because it was so weird and if true an ominous global warming tale.
And what if Cyprus goes to the Russian government for bail out assistance ?
Would the Russian demands be more exeptable to Cyprus, and is this permissable under the EURO regs. ?
There is a bigger game play here than just a bank bail-out.
Excuse me if this has already been covered, I’m not through the whole comments section yet.
The geo-politics of energy could remap the atlas. Northern Europe and western Russia; Siberia and Mongolia-northern China; southern Europe-the Mediterranean-north Africa and Mideast oil; Iran and South Asia; Southeast Asia-south China and the South China sea; Gulf of Mexico and KXL for the Americas, etc.
Cyprus reached the top right of the Times print version today. NC readers, however, have been aware since the weekend. Just saying…
Look over here, folks! March Madness!
The best option remaining at this point is for Cyprus to exit the EuroZone and drop out of the EU altogether, and then default on all foreign debts. It can then either start its own currency (but not the Cypriot Pound, which was linked to the UK) or adopt the Ruble for the interim. The UK/US bases on the island should then be turned over to the Russians. Also, the gas deposits should be exploited by the Russians.
This will stop the aggression from the EU and IMF, and it will also put the Turks on notice. It will also rebalance the situation in the Middle East and cut to size NATO’s aggressions in the area. Cyprus will be safer and so will the entire area.
Any other solution, especially those involving this psychopathic EU and IMF will only lead to disaster. You do not negotiate with the devil – you kick him out of the room.
But The American Turkish Council won’t like that and will get angry. “You wouldn’t like me when I’m angry,” says The Incredible Hulk.
And what will Turkey do if Mamma Russia flexes her muscle?
Ah, the Grand Chess Board lives. Hm, what made Russia flinch in 1989?
Update (2:28 ET):
“Cyprus Rejects Deposit Levy in Blow to European Bailout Plan”
http://www.bloomberg.com/news/2013-03-19/cyprus-rejects-deposit-levy-in-blow-to-european-bailout-plan.html
Good job, Cyprus! The world applauds you!
Kick this criminal European Union off of your island!
Send the parasites back to their frigid northern European wastelands! Never allow them on your sunny shores again!
The German publication Deutsche Wirtschafts Nachrichten reports that in the days leading up to this decision, about €4.500.000.000 was withdrawn from Cypriot banks and transferred overseas – seemingly mostly by politicians and others in close proximity to the government: “So sollen allein in der Woche, bevor am Wochenende die Entscheidung über die Zwangsabgabe fiel, hunderte von Bankkunden Kapital in Höhe von fast 4,5 Milliarden Euro ins Ausland gebracht haben. (…) Einige der ungenannten Quellen gehen davon aus, dass die Kapitalflüchtlinge vor der Steuer auf Einlagen gewarnt worden seien. So hätten nämlich vor allem Regierungsmitglieder und Personen aus dem Umfeld der Regierung ihr Kapital ins Ausland gebracht. Insgesamt flossen seit Anfang des Jahres bereits 20 Milliarden Euro ins Ausland.”
Unnamed sources caveat in play but how could it not be true?
http://deutsche-wirtschafts-nachrichten.de/2013/03/19/in-letzter-minute-zypern-politiker-pluenderten-ihre-bank-konten/
We see this again and again. It has become the new normal. Bailouts or bail-ins without even a general audit of the banks and their procedures. How can you fix a problem with little or no real information? This leads me to the simple conclusion that the intent is not to fix anything which accords well with the kleptocratic perspective.
I have an idea: round ’em up, line ’em up. I’ll throw the first 9 MM.
Yves writes,
“People in glass houses should not throw stones. How exactly are tax evaders like GE and Apple any different than Russian oligarchs (some of whom evade taxes via perfectly legitimate big companies?) As Nicholas Shaxson pointed out in his book Treasure Islands, the biggest tax haven in the world is now run by the US, between Delaware and Wyoming corporations (you can hide ownership just as well via Wyoming limited liability corps as Isle of Man shells) and our friends in Caymans.”
This is rather a telling part of the media narrative in the West about Russia (two key components to their disinformation campaign): Putin’s totalitarian grip (vastly overstated) and the so-called ‘oligarchs’.
Bush, in some international press reports, was challenged for his fascistic behavior in foreign policy and domestic surveillance. But the media consensus isn’t the same the way it is with Putin, where people just accept that he’s an undemocratic totalitarian. Yet our ex-president had a Supreme Court intervention (arguably it didn’t make a difference, but it’s certainly bad for the “image”) to get into power and had used his executive power to really squeeze our civil liberties and general peace/freedom.
Regarding the second point, does anyone call Bill Gates an “oligarch”? Absolutely not in the western media. Yet the United States, in many measures of income/wealth inequality (especially the very top 0.1%), is far worse off and more oligarchal than Russia.
Numerous Russian tycoons have pledged their wealth to benefiting charity (as Buffett, Gates, et al have), yet they are labeled “oligarchs” rather than “philanthropists”.
Here’s a report from Global Financial Integrity on Russian money laundering:
“Beginning in the 1990s, many Russian corporations established subsidiaries in Europe to function as buying offices. In addition, hundreds of corporations established their own “pocket” banks to handle their trade documentation and financial transfers. By selling exports to their foreign subsidiaries and by buying imports from their foreign subsidiaries and by utilizing their own pocket banks to handle the transactions, Russian corporations have been able to transfer hundreds of billions of dollars out of their country”
http://russia.gfintegrity.org/Russia_Illicit_Financial_Flows_and_the_Role_of_the_Underground_Economy-HighRes.pdf
Russia’s corruption is amateurish. That’s why it’s identified by international organizations as criminal, rather than the complex “legitimate” institutions in the United States that involve lobbying, banking, and political power directly.
But, if you were to take that exerpt from the report and replace “Russia” with “United States” and “Europe” with just about any tax haven on earth, you see that they’ve merely been trying to replicate the American MNE model of transfer pricing and “tax avoidance”. So it’s legal when you’re smart enough and experienced enough to pay the consultants and international lawyers to set up the firms and networks to achieve the money laundering. But if you’re new to the whole capitalism thing (as Russians still very much are), the institutions are more crude and thus looked down upon by the most sophisticated purveyors of Western corruption and oligarchical powerplaying.
Actually, look at where “international organizations” are headquartered. The ones funded by or headquartered in the US or its allies — they usually condemn “corruption” or “deprivation of civil rights” abroad but whitewash any crimes committed by the US government….
(There are of course a few genuinely grassroots US organizations, such as Amnesty or the ACLU, which are honest about how god-awful the US has become.)
Now, look at any “international organization” headquartered in the Muslim world. Most of them will whitewash the crimes of the Muslim countries, but will happily point out all the crimes committed by the Western governments….
There used to be a set of Communist-bloc international organizations which would whitewash Russian and Chinese crimes while pointing out everyone else’s crimes. They fell apart. The Russian government does not appear to feel that there is a need to rebuild them; it doesn’t feel that it needs the cover of “international organizations”.
The ECB has promised to not fund any Cyprus banks besides ‘ordinary lines of credit’ which leaves the two largest banks on the brink.
First problem is wrong moves by the ECB, which has known about banking issues in Cyprus for years. A negotiation to restructure Cyprus’ English law bank bonds should have been undertaken starting last summer. This would would have forced a cramdown on juniors and the depositors would have been untouched.
Instead, Draghi stalled believing his Goldman partner would win the Italian election. The squeeze would then be applied to Italian pensioners, instead. Both Monti and Draghi lost and it is too late to negotiate w/ creditors. The 11th hour plan became to cram down depositors rather than taking on investors who would sue.
All of this is Draghi’s fault, the ECB should stump up the needed ten-billion euros and the Germans should shut up about it … and push for Draghi’s replacement.
Secondly, the entire euro-idea is falling apart, it’s a live hand grenade. The idea is to toss the grenade around and hope it goes off in the hands of someone blameworthy. Anyone besides Merkel.
Nobody in the EU caught on to the hand grenade idea, they believe the euro is going to live forever. This includes the Cypriots. They are the perfect fall guys: a small country, closer to Damascus than Berlin, one-third occupied by Turkey, vacation paradise for thousands of hated Brits, small economy that uses rubles and Turkish lira alongside the euro, over-filled with gangsters and smugglers. It’s small, out of the way, over-leveraged and unfashionable. It never should have been admitted to the euro-family in the first place. Having it blow up instead of Spain would take the euro-establishment off the hook. It would allow the eurozone to (hopefully) restructure … and get back to the task of wiping out the world’s last petroleum reserves … sustainably, of course.
Merkel would not get blamed, neither would Draghi.
Cyprus’ managers should have realized this. They should have sent Russian funds deposited in their banks to Germany instead of Greece. They chased Greek yields, believing that they could close any positions or otherwise escape from harm in time. They believed the entire business was a business matter not a political scheme to fix blame. They were wrong. The Cypriot bosses needed to play safe and let the hand grenade go off elsewhere.
Now … Cyprus is the guy with the grenade. Even after the down-vote of the depositor robbery, Cyprus is still the guy … with a grenade. If one grenade doesn’t go off another will be handed over.
Nigel Farage: “Do not invest in the eurozone. You have to be mad to do so — as it is now run by people who do not respect democracy, the rule of law, or the basic principles upon which Western civilization is based.”
http://www.youtube.com/watch?feature=player_embedded&v=JMf_KwQ2Xlk
Before this is over, he’ll be telling us to ‘shun the Hun.’
The Euro Crisis Explained To Grannies: For a very simple (and funny) explanation for the euro crisis, just write on your search engine: wordpress blog The euro crisis explained to grannies
British and European bankers have become quite adept at looking the other way when black Russian money shows up for laundering so it can be made white. Little of it comes directly from Russia, where mobsters in and out of government are just as adept as moving it from one off-shore account to another until its origins can barely be seen, let alone traced.
For example, money from Moscow may move through a handful of banks in Dubai, the Caribbean, Hong Kong and Macau, and possibly even the Vatican before it shows up in a trust account in Cyprus. It then might get invested in a phony business such as a Spanish resort-and-condo development which is always fully booked but never has any guests or residents. The “profits” then are moved again, after a handful of split-second stops at still other banks along the way, to a totally legit financial institution in, say, The City of Lichtenstein by which time there isn’t a bank examiner or tax authority in the world who would be able to figure out that the money started with drug trafficking that originated in Afghanistan under the nose of the Americans, moved through former Soviet Republics (where the rulers took a bit of vigorish for looking the other way) en route to Moscow where the heroin was cooked, cut and sold before the cash began its global tour.
Is this a cheap shot, reminding readers of this?
http://www.nakedcapitalism.com/2013/02/philip-pilkington-the-fear-industry-austrian-school-propaganda-and-the-gold-market.html
I’ll take that risk, was it only last month?
Whilst not a Cypriot…no man is an island.
Gold has barely budged in dollar terms since the Cyprus haggling has been on.
You were saying?
You will recall there was a delayed reaction to Bear Stearns. I note gold is higher in USD though Euro more so. For obvious reasons the Euro is more a bellwether for gold.
As to exact timing FOMC Wednesday will be the moment gold futures traders are waiting for, Cyprus or no Cyprus. With a very large short interest presently, what are the chances that Bernanke talks about an early exit strategy tomorrow. Believe it or not, that is what the shorts are expecting. I’m not.
The physical trade out of GLD has seen more than 10% of the gold holdings taken out of their possession since Jan 1st. So, if one follows these things closely, that is a signal that the demand for physical gold (and possession thereof) has been very strong recently. What could have caused that?
Based on these observations I am therefore comfortable with what I am saying…
Whilst preparing my afternoon’s repast, I happened to tune in Glenn Beck on the wireless (something I do occasionally out of morbid curiosity). Beck is all over the Cypriot bail-in today, as well. Somehow, though, he managed to make it about (you guessed it) the 2nd Amendment. Mind-blowing…
And then, even more bizarrely, the sponsor for his show is Buy Belize which, according to Beck, is the last best tax shelter/real estate investment opportunity. Surreal and disconcerting…
Worth pointing out:
When the US Credit Union corporates failed after the 08 collapse (see Westcorp), individual natural person credit unions had to “write down” their shares; there was no TARP money here. In a sense, credit unions in the US were treated like the depositors in Cyprus. In turn, they had to reduce rates on savings, raise fees, and offer less competitive rates for loans. The net effect was to tax people by passing on the costs of survival.
can’t somebody figure this out with the IS-LM curve?
If they set the deposit fee at an equilibrium level, can it be negative 23%? After all this it might be.
If you plot it on the x/y axis it looks like 12 hyperbolas and 3 n-degree polynomials where n is an odd integer greater than 5. Of course, but most of these equations cancel each other out if you can factor math. Then you’re left with i = -23 at equilibrium.
Sometimes the math and all the the graphs make it more confusing than it needs to be. If you have a computer and a PhD, you’re probably so lost that nothing but a GED can save what’s left of your brain. If you can explain it to yourself, that’s only the first step.
Who can understand any of this? Nobody I know. Maybe the IS-LM curve will work like a Hail Mary. Anything can happen at the equilibrium point if your graphing the real world.
Let’s see if Putin has the balls to step in. If not, he’s nothing but another wimp who can be bought and sold by the West for a few dollars.
Come on, Putin. Show us you’re the man! I dare ya!
Here’s a truly brilliant restructuring idea: http://www.google.com/reader/view/user/-/state/com.google/reading-list#stream/feed%2Fhttp%3A%2F%2Fmacro-man.blogspot.com%2Ffeeds%2Fposts%2Fdefault
TMM, incidentally, is always knowledgable, almost always entertainingly snarky and (as in this case) often extraordinarily helpful…
Direct link…http://macro-man.blogspot.com/
Google “Cyprus bank exposure to Greek debt”, and you’ll find lots of articles circa 2011 and early 2012 predicting that contagion from the Greek bailout (wherein which existing bondholders took a big haircut) would have a devastating impact on the assets of the Cyprus banks. It’s mystifying why there were any deposits left in banks in Cyprus…..misplaced faith in deposit insurance, I suppose. I don’t imagine that Cyprus is going to allow those banks to reopen without first imposing massive captial controls.
My Libertarianish suspicion of the machinations of governments desperate for money is experiencing solid confirmation bias.
And then there is this:
http://www.bbc.co.uk/news/world-europe-21854353
The troika hasn’t finished with their threats yet, down but not out.
It seems to me that since the depositors are guaranteed up to 100,000 Euros, the citizenry should be screaming bloody murder to let the banks fail, then at least the small depositors woud get all their money instead of 90% if they don’t fail.
I think we will know for sure, soon enough.
Should Cyprus’ Finance Minister Michalis Sarris symbolically return to Nicosia aboard an Antonov-225 ($30Bln weighs about 302,092Kg), I believe we can assume there’s a Russian bailout aboard.
What’s Cypriot-Greek for: “Grease in our time”?
STOOPID IS AS STOOPID DOES
The impact of refusal of the Cypriot parliament will have an affect beyond just that island in the Mediterranean Sea.
From the NYT:
*About Cyprus: {The backlash in Cyprus and, indeed, around the world has prompted fresh concerns about solidarity in Europe and the ability of the currency union to hold together in the long run with such divergent economies and public interests.
*About Angela: {Along with the International Monetary Fund and the European Central Bank, the Germans are sticking to the principle that countries that mismanage their banks and government finances must endure pain as the price of financial help — even if ordinary citizens are the ones who suffer.
Christine Lagarde, the managing director of the International Monetary Fund and one of the officials who worked out the Cyprus plan in Brussels last week, said Tuesday in Frankfurt that she was in favor of changing the plan to burden ordinary depositors less. But she quickly added that Cyprus would still need to contribute $7.5 billion to the bank rescue, as promised.}
Frankly, it is difficult to disagree with her. the EU political “leadership” spotlight is almost uniquely centered upon her. The rest of “the boys” are lackluster by comparison – having nothing to say and mouthing platitudes whenever something serious happens that escapes the limits of their comprehension.
Merkel has every right to be obsessed with the financial balances of countries and, because she has little faith in the present EU Political Leadership surrounding her, she is also right to talk in tongue-lashing language. Of course, because she is a woman, her matronly manner rankles “the boys”.
MY POINT?
Europe is exiting a 60 year period of nearly constant growth subsequent to WW2. Much of that time, money was easy because economies were booming. The slowdown came in the early 1990s, when China brought down its Bamboo Curtain during that decade. Twenty years later, the ravage to EU Unemployment Numbers is obvious. The economic wealth that shifted eastwards to China from Europe was massive.
Its political leaders, with the exception of Angela, have no solutions. They have never had to manage during the bad-times that have now befallen them. They have no experience whatsoever of containing debt, since tax-revenues always permitted ongoing debt management (aka “kicking the can down the road”).
Germany has not had this problem because it was under Socialist Schroeder (in the 1990s) that the country bit the bullet and freed labor from the shackles of regulatory mismanagement. (For instance, have a look at comparative retirement ages here.)
These regulatory relaxations propelled Germany out of a major recession and into its current rather well-off circumstance. Germany has always been a world-class exporter.
Major EU countries, however, like Italy, France and Spain refuse to go the entire ten-yards to reduce workforce regulations that keep Labor Input costs high and their economies uncompetitive.
IT’S ALL ABOUT “WE, THE SHEEPLE”
Stoopid is as stoopid does – as Italy has shown yet again when a populace prefers to elect a non-governable government than face the consequences of their own refusal to make profoundly fundamental reforms of county’s labor laws.
Are you suggesting that major EU countries like Italy, Spain, France downgrade their labor regulations to make their labor China-priced and therefor China-competitive?
Re my comments above, gold still sitting but Bitcoin is surging…oh my!