Yanis Varoufakis: The Good, the Bad and the Extremely Ugly (Aspects of the Cyprus Deal)

Yves here. The longer you look at the Cyprus “rescue,” the worse it looks. As you can learn from our compendium in today’s Links, the Cypriot economy is already reeling. It’s straining under the extended bank holiday, which is scheduled to end Thursday. Moreover, the impact of losses radiating from number two bank Laiki are already propagating through the island. Businesses that had accounts and will suffer losses are reducing operations or closing and firing staff. Those firms are also canceling or cutting orders with customers, who in turn close or fire staff. Officials are now warning that losses on uninsured deposits in Laiki could reach 80%. It will be more like 100% by the time the dust settles. Paul Krugman argues that Cyprus would have been better off leaving the Eurozone, so it could depreciate its currency and boost its tourism and other businesses. While its Euro-denominated debt is a big offset, Cyprus is going to continue to be subject to the austerian predilections of the Eurozone, and we can see how well that is working out in Greece. A break, though more painful initially, might have been better in the long run.

And that’s before we get to the wider ramifications. Whether Germany understands it or not, it has delivered a fatal blow to the Euro project. How long it continues is anyone’s guess, but the Balkanization of the financial system that the Eurocrats have set in motion means they won’t be able to go the US/Japan zombification route.

By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog

There are some good features of the Cyprus deal and, of course, some bad aspects. However, its repercussions for the Eurozone as a whole are exceptionally ugly and will, I submit, mark a turning point for Europe; a point at which Europe took a nasty turn toward a set of mutually disagreeable outcomes.

The Good

• Unlike the Eurogroup’s original decision, deposit insurance for accounts up to €100 thousand will be respected. The reversal of the decision to ‘tax’ insured depositors constitutes a last minute restoration of common sense.

• Marfin-Laiki Bank’s bond and shareholders will be wiped out – as they ought to. The original Eurogroup decision to let them off the hook (especially the bond holders) while haircutting depositors (including those whose deposits were guaranteed by the state) would have been an indefensible re-ordering of a failed banking system’s creditors.

• The new deal treats different banks differently, as it ought to. The earlier Eurogroup decision imposed blanket haircuts on all accounts irrespectively of the bank’s bottom line. At least now uninsured deposits will be haircut in proportion to the size of the bank’s black hole, thus restoring a degree of private responsibility on the part of depositors viz. their choice of banker.

• By forcing losses on uninsured depositors and the banks’ bondholders, taxpayers have to bear a smaller burden of the bailout loans; and this is, ceteris paribus, a good thing.

The Bad

• The Memorandum of Understanding has not been written up yet and, thus, the deal is utterly incomplete. In particular, we have no idea what degree and type of austerity will be imposed upon a collapsing social economy. Given the troika’s track record, it is almost certain that yet again they will elect an austerian package bound to crush the weaker Cypriots with ever-increasing verve.

• The effect of the complete wipe out of the foreign depositors will have a devastating effect not just on the banking sector but also on the hotel and tourist industry. As a Russian commentator noted: “Now that the Russians’ deposits have been all but confiscated, who will stay in the €500 per night five star hotel rooms on the island? Mrs Merkel?” It is highly doubtful that the troika will factor in the deflationary effects of this aspect in their fiscal consolidation and debt sustainability plans.

• The transfer of €9 billion of ELA money from winding down of Marfin-Laiki to the Bank of Cyprus – it flies in the face of basic banking resolution principles, reflecting the ECB’s Taliban-like defence of what it considers to be its ‘realm’.

• Capital controls have been touted, even though it is not clear how they will be implemented, creating a second-tier euro: Cypriot euros that are no longer exportable (nb. Imagine Vermont dollars that cannot be taken out of Vermont: a logical travesty within a currency union)

And the Extremely Ugly

Setting aside the Cyprus drama and the tragedy awaiting its people, the repercussions of the past week’s shenanigans for the Eurozone as a whole are exceptionally ugly. As I wrote the other day, in one short week Europe has managed to put in jeopardy the sacrosanct concept of state guaranteed deposit insurance (even if, in the end, they took this threat back), to bring back into question the integrity of the Euro-area and to sacrifice the European Union’s single market principle according to which capital controls are inadmissible.

However, the ugliest dimension that the new deal has introduced is the effective end of any hopes of a genuine Eurozone-wide banking union. Mr Dijsselbloem, the new Eurogroup head who seems terribly keen to be more amenable to German thinking than his predecessor, Mr Yuncker ever was, said so in no uncertain terms when rejoicing that the Cyprus deal paves the ground for new bailout arrangements such that the European Union “…will never need to even consider direct recapitalisation” of failing banks. This constitutes the death knell of both the direct recapitalisation agreement reached last in the EU’s June 2012 summit and, naturally, of any meaningful banking union. The message is thus clear: Each to his or her own! All plans to use the ESM in order to de-couple the banking from the public debt crisis are off the table.

The combination of (a) the denial of the need to effect public debt consolidation, (b) the derailing of a meaningful banking union and (c) the heavy-handedness with which Cyprus was treated over the past week, spell a new, uglier, state of affairs in Europe. Up to now, supporters of austerity and of the German approach to the Eurozone Crisis in the deficit countries (including France) have argued that we need to go along with Berlin and Frankfurt so as to inspire sufficient confidence in those who control the purse strings (in our willingness to ‘do our homework’) before they can yield to the inevitable eurobonds, to the logic of a banking union, to whatever it takes to bring about greater political and economic union.

Alas, the Cyprus deal reveals how wrong this view was: Even though peoples throughout the periphery (in Ireland, in Portugal, even in Greece and Italy) have, however grumpily, bowed their heads to severe austerity and the removal of labour protection laws, the powers that be in Berlin and Frankfurt are shifting away from unifying moves, adopting increasingly authoritarian, divisive policies that are pushing the Eurozone in precisely the opposite direction to that dictated by political and economic sustainability.

In short, while the bailing in of inane Cypriot bankers and risk-taking depositors is to be welcome, I would not be at all surprised if the Cyprus week-long episode does not register in history’s annals as a major turning point; as the moment in history when Europe moved beyond the pale.

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  1. Lune

    Doesn’t the instutition of capital controls in effect create a second currency for Cyprus? In that manner, they have actually left the Eurozone, as Krugman recommended. Since the Cypriot govt will accept Cyprus Euros (CEuros) for its tax payments, it is a viable currency. And if you’re that CEuro 500/night hotel owner (for example), you’ll probably accept fewer European Euros for that same hotel room. In other words, CEuroes will depreciate but (as long as the govt accepts tax payments in it), it won’t disappear. There will be a black market exchange rate between Euro Euros and CEuros (and potentially an official one, if the govt eventually allows exporting CEuros after payment of a “tariff”).

    For all intents and purposes, Cyprus has left the Eurozone and created its own currency. The only thing it lacks is an independent central bank (I’m assuming the Cyprus central bank won’t be allowed to print more CEuros).

    1. JustAnObserver

      Precisely. I will be intersting to track this (or these) unofficial “exchange rates” between CEuros and M(erkel)Euros. The question is: how to do this ?

      For example one might compare the price in CEuros for e.g. olives when bought in the country (info from tourist questionaires ?) vs. the amount in MEuros an exporter would get when shipping them to Germany.

      In fact these sort of stats may well be collected officially (even at the EU level) (*) so an enterprising Cypriot finblogger might start posting on these differentials.

      Of course when this CEuro devaluation starts to become obvious the other countries currently being subjected to the Troika’s economic waterboarding might take note … since it turns out that leaving the Euro is easy, just impose capital controls.

      (*) At least until it becomes too embarrassing and EU officaildom shuts off their availability.

    2. Systemic Disorder

      Lune, you are correct. It would have been better for Cyrpus to have left the euro and re-introduce its own currency, even with the short-term pain that would cause. At least there would be no ambiguity as there now is with the “Cypriot euro.”

      My understanding is that Cyrpus wouldn’t even be in the E.U. if weren’t for the Greek veto — the Greek government (then I believe an New Democracy administration — please correct me if I am wrong) refused to allow the ascension of the ex-Soviet Bloc countries unless Cyrpus was also allowed in. With friends like that …

    3. Lune

      To take things further, I would imagine that the govt can issue bonds in CEuros as well as EEuros (i.e. bonds that pay in euros that can be taken out of the country vs. euros that must remain within Cyprus) which means they can control their domestic interest rates (although this would ostensibly be constrained by Eurozone rules about levels of indebtedness, these rules have been flouted since their creation). And ironically, the interest rates of CEuro bonds *could* end up lower than EEuro bonds since the domestic population, unable to access international investment markets, may have no choice but to buy CEuro bonds…

      In essence, I would argue that Cyprus now finds itself within a gold-based currency regime with capital controls (gold-based because their money supply is externally constrained) i.e. the currency regime that dominated most countries before Bretton Woods and arguably continued to exist until the Nixon Shock of 1971. While this may not be the most ideal of modern monetary systems, it nevertheless may represent a step up from the current regime.

      1. Bridget

        That is a really interesting take. Really, really interesting. If you are correct, the result would be less leverage for the Troika in future negotiations with troubled member countries.

          1. neretva'43

            “For all intents and purposes, Cyprus has left the Eurozone and created its own currency. The only thing it lacks is an independent central bank (I’m assuming the Cyprus central bank won’t be allowed to print more CEuros).”

            Key phrase is the “only thing it lacks” and it makes all difference. They are not in control of monetary policy.

    4. Abe, NYC

      There are precedents for that. After the Soviet Union broke up, initially all the former constituent countries stayed on the Soviet rouble, then one by one they introduced their own currencies, first pegged to the old rouble or dollar, then let them float freely. There was a lot of pain and very high inflation at that time, but I don’t think switching the currency was the reason.

    5. Thor's Hammer

      Capital controls? A euro that only comes in 300 euro daily doses? Those regulations are for the little people.

      Meanwhile the back door of UK and Russian branches of Cypriot banks has been conveniently left wide open, and any player who isn’t brain dead has already moved their money elsewhere, leaving the fish remaining on the island gasping for air.

      Funny how money and power operate on the same model everywhere.


  2. Milton Arbogast

    Cyprus is Germany’s 2013 version of the Warsaw Ghetto.

    Isn’t that what you’re trying to say? I hope it is, because that is the reality.

  3. monday1929

    The Rule of Law.
    The Property recordation and transfer mechanism.
    The Constitution.
    The segregation of customer brokerage funds.
    The safety of Savings accounts.

    The striking of the stage set is near complete.

    The Elites are not being subtle.

    1. F. Beard


      All those things are inevitable given our current money system, which is a government backed/enforced usury for stolen purchasing power cartel.

      My father used to say “If you’ll lie, you’ll cheat and steal too.” In a similar manner, our wicked money system also produces evil fruit.

      1. neretva'43

        “If you’ll lie, you’ll cheat and steal too.”


        My mother raised me with the same motto, but her version is extended and ending with: “…those who steal they will kill”.

        lie > deceive > coerce > murder that’s is fact of totalitarian society.

  4. LillithMc

    On the ground the people had to go without access to money for a week. They look desperate in the photos at the ATM. Time for grass roots to create a survival system apart from the finance games if it means using script, trading goods, access to local food. When the banking system was willing to take “insured” savings to pay for banking crime, the 98% not in the casino knew they needed to take care of themselves. As they say, Iceland had the fish. They could tear down their banking system and still survive. It is a new day and the banks no longer deserve trust or the money of the little people.

  5. TomDor

    Debt service outside Cyprus – screw it – debt jubalee. Sovereign Cyprus – Sovereign over land, resources and currency. Cyprus needs to reclaim itself from the clutches of claims upon its resources, labor, capital and economic rent that flies outside it’s borders. Tough times

  6. RueTheDay

    Anyone want to place bets on whether they actually open the banks tomorrow, and if so, how long they remain open?

    I’m thinking they likely will attempt to reopen them tomorrow, but they’re unlikely to remain open much more than an hour or so, as deposit flight will be an order of magnitude worse than their already gloomy projections.

    1. Systemic Disorder

      Ah yes, communism [sic] has been dead for more than 20 years, so it must be the fault of those devious communists. The recurrent crises of capitalism couldn’t possibly be the fault of capitalism, despite the uncontested terrain it has had for decades. Yes, the E.U. is really a clever communist plot and we’ve never been able to see it! I must run now, because I want to see the flock of flying elephants that just flew by.

      1. MyLessThanPrimeBeef

        Just don’t mention GDP sharing. Not a few people might not make it back again tomorrow.

  7. MyLessThanPrimeBeef

    Where will Russian money go now?

    Are Russians calling for their government to do something?

  8. dsj

    “The new deal treats different banks differently, as it ought to. The earlier Eurogroup decision imposed blanket haircuts on all accounts irrespectively of the bank’s bottom line. At least now uninsured deposits will be haircut in proportion to the size of the bank’s black hole, thus restoring a degree of private responsibility on the part of depositors viz. their choice of banker. ”

    While this sounds like a good idea in theory it is absolutely impossible in practical terms for those not operating at extremely large scales. A business owner with a couple hundred thousand in capital or individuals with life savings are in no better position to evaluate the stability of a large bank than the “regulator experts” were in 2007/2008.

    If the EU and the FED find it hard to map out and understand the counter party risks in a banking system (ie. Lehman) what hope have the small fish?

    1. Eric377

      Good points, but does it have some particular meaning with respect with how to deal with the existing situation? Do other countries’ taxpayers somehow owe more consideration to uninsured depositors in insolvent banks because it was hard to understand the actual risks invovled? Above the insured limit of 100K euro it was always a risk. Would it be fairer to put some haircuts on every deposit in Cyprus, if Cypriot officials announce they did a horrible job and it was just a matter of luck that some banks were in terrible shape and others were okay? Isn’t that where the conversation was 10 days ago to the horror of many right here? If you are one of the hated ‘Germans’ and get told that certain Cypriot depositors are very angry about their portion of the haircut, so your ‘haircut’ (taxes) should carry more of the weight, does that sound convincing?

      1. Eric377

        Beyond that, if I follow a good portion of the money as reports indicate, deposit money bought a lot of Greek debt, which got spent as per the priorites of democratic governments of Greece and eventually very seriously defaulted on. When I hear a Cypriot depositor ranting against the perfidious nature of phoney-baloney Greek public sector employment or the cadre of Greek dentist tax cheats, I will find it more refreshing than hearing about Frau Merkel again and again.

  9. chicagogal

    Thank you for the continuing coverage and explanations in such a way that us non-economists can understand things easily. This is really horrifying to watch from afar and it has to be infinitely worse being forced to live through it. When the next crash comes here in the US, this is likely what will be done to us, so it’s good to start having the discussion about what to do to stop it now.

    1. JGordon

      Non-economists have a much better chance of understand economics than economists have. The heads of economists are full of unfalsfiable superstitions that are incredibly difficult to penetrate once they set.

      1. MyLessThanPrimeBeef

        There is a very nice quote from Mark Twain about that.

        It goes like this:

        The longest and darkest night I have experienced was one sunny day I spent with an economist – everything was dark and impenetrable.

  10. JGordon

    I knew ahead of time that the Russian mafia would have their money out of Cyprus before the haircut came; the only question to me was how they were going to do it. That’s why I don’t think they particularly cared if depositors got haircuts, all though they did care *when* it would happen.

    By the way, a slight oversight in the article above: I didn’t see anywhere in there that stated that the Russian oligarchs already have pulled their money out of the Cyprus, “despite” the capital controls, although I am not sure which category that factoid would have fit into in the above. Good? Bad? Ugly?

    1. MyLessThanPrimeBeef

      That’s in a quantum mechanical category: good for the oligarchs and ugly for the 99.99%…simultaneously.

      And people still insist that a thing must either be good or bad?

    2. Cynthia

      All reports do not distinguish between commercial accounts and individual accounts. Many businesses have large payrolls to make and large supply purchases as a part of running the business, either of which might need balances exceeding 100,000 euros for a medium sized enterprise. This sounds like a serious problem far beyond an individual saver. Profitability could be impaired to the point that the business simply shuts down and all employees are out of a job and suppliers might cascade the problem. The whole thing is playing with fire.

      So while everyone’s off the mark talking about the Russian gangsta angle, it’s the actual working Cypriot economy that’s really going to get smashed here.

      1. JGordon

        It looks like a prelude of what will be happening everywhere else to me. When you have a tiny, nearly fixed amount of underlying collateral and exponentially rising claims on that collateral (in the form of fresh currency units created by the central bank and politicians) then situations like Cyprus are an inevitable result.

        That is why it is so important to have an expanding economy to soak up the new currency being issued. Injecting more currency into a stagnant economy is a recipe for societal collapse.

  11. allcoppedout

    The Cyprus banks will open Thursday and then shut for Easter. I would guess we may find out how much money is really left in the banks and who was able to beat the public announcement of the bail-in ‘sometime next week’. Later we will discover there was less money to sequestrate than first thought and the debts bigger than so far estimated. By then there will be bigger fish to fry. Bankia and others will be leaking Hawking radiation.
    We seem to understate the collapse of the banking Ponzi if viewed from where asset prices would be without QE and the other dodges. 15 billion Euros will look small and maybe Cyprus will be the start of Plan B – a serious chasing down of illegitimate wealth?

    1. MyLessThanPrimeBeef

      The banking Ponzis believe their rich Reich will last a thousand years.

      All you undesirable, deadbeat 99.99% will be rounded up in various concentration camps.

  12. The Dork of Cork.

    I can see the euromasters do one more little thingy to make the situation even worse then it is.

    Cyprus gets a sort of national currency back but must pay its debt in euros……..
    Which means it has a national currency without national assets – a even more darkly absurd concept then capital controls in the eurozone.

    We must ask what is the names of these financial powers that can overrule everything in the interests of a distant Mammon.

    Obviously corporations are not sentient beings – they are owned by someone.
    Who exactly owns us ?

    Yves – you are close to finance.
    I guess you should know their names.

    Do us all a big favour & name these characters.

    We can put a piece of paper in a time capsule at least.
    Perhaps someone will pick up a bottle after the coming dark age and learn something.

  13. JustAnObserver

    Given that Cyprus’ main export earner is now going to be tourism I wonder how long it will be before we start seeing hotel/bar/restaurant prices being quoted directly in


    and, yes, even in some of the East European currencies. Oh what an irony it would be if e.g. the Polish Zloty became known as a “hard” curreny even if only in little Cyprus.

    A little exchange rate risk in traded for the huge advantage of being able to take your bundle of $20 bills out of the country.

    1. Yves Smith Post author

      I read lira were accepted before. Expect more of that. And pounds and roubles probable. Dollars, which went out of fashion as an alternative currency in the Eurozone with the Euro being so strong, might even get a decent foothold.

      1. JustAnObserver

        Expect the next shipment of cash from the UK MoD to the squaddies & spooks in Cyprus to be in Sterling & not Euros … instant local pay rise.

        Irony #2: Actually, thinking about it, there’s a huge opportunity for all those (sob! sob!) unemployed City types to make an offer to rebuild Cyprus’ offshore banking industry but with a Sterling base instead of a Euro one. Since the legal system is already a UK style one all this would need is a (minor ?) re-jigging of the tax treaties so that they apply to Sterling accounts held in Cyprus branches of UK banks since capital controls don’t apply to these (?).

        Are you listening StanChart ? HSBC ?

      2. AbyNormal

        @Yves, USD hasn’t looked back since mid Jan 2013 and closed today with a hard spike. im off to dreamland…while unbelievable amounts of mula will be transferring.

        i learned a lot today…Thank You & NC’rs for the maximum Loads hauled today

  14. Synopticist

    I can’t help thinking they should re-introduce their local currnecy, but keep the insured depositiors in Euros, and also the bailout money.

    Then let the new currency float (plummet downwards in other words), but allow both curencies to be used simultaniously.

    It would mean Cyprus would get the advantages of having a cheap currency, especially tourism and maybe agricultural exports, while normal Cypriots kept up to 100,000 in hard Euros. You could keep paying pensions and govt wages for a while in Euros with the bailout money, gradually increasing the share paid in Cypriot currency as the price stabalised.

    I’m still trying to get my head around exactly how this would work mind you.

    1. John

      I don’t think it is not impossible that Cypres will not be able to ever pay (back) is debts.

  15. casino implosion

    “…I would not be at all surprised if the Cyprus week-long episode does not register in history’s annals as a major turning point; as the moment in history when Europe moved beyond the pale…”

    You’ve got your double negatives mixed up and this means the opposite of what you mean to say. Check Orwell “Politics and the English Language”


    ” I am not, indeed, sure whether it is not true to say that the Milton who once seemed not unlike a seventeenth-century Shelley had not become, out of an experience ever more bitter in each year, more alien [sic] to the founder of that Jesuit sect which nothing could induce him to tolerate. “

  16. Jim Haygood

    Reuters offers some details of CapControls 1.0 (beta version):

    Among measures imposed to prevent savers from stripping the bank vaults clean when the doors open: withdrawals will be capped at 300 euros ($380) per day, travelers may take no more than 3,000 euros abroad per trip, and funds can be sent abroad only by businesses that can prove they are paying for imports.

    The controls, announced in a finance ministry decree, would allow unlimited use of credit cards within Cyprus, but set a monthly limit of 5,000 euros for Cypriots using credit cards abroad. Payment by cheques would be banned.

    The central bank would review all commercial transactions between 5,000 and 200,000 euros, and scrutinize any larger transactions on a case-by-case basis.

    A central bank official said the measures would initially be imposed for four days, and would be reviewed and relaxed as soon as possible.


    If you seriously believe that these controls will be relaxed in four days, then I respectfully request you to share the bong with me.

    These controls are going to last for months or years. And Version 1.1 will be a tightening, not a relaxation.

    Capital flight doesn’t evaporate in four days. It just goes on and on, until some kind of capitulation occurs (such as a devaluation big enough to reverse capital flight to an inflow).

    1. allcoppedout

      I’ve been wondering what they’ve been smoking too and whether my nightcap was spiked with it. I have the inane desire to say ‘It’s science Jim, but not as we know it’. I suspect we still have no real clue what has happened in Cyprus. I’m for a criminal enquiry. I might well have started with some bong seizures as bargaining chips in initial interrogation. I guess we will see some of the horrors inflicted on ordinary people next week.

  17. different clue

    When Mr. Varoufakis says the outcome will be very ugly, I assume he means for preserving the Eurozone and the Euromoney. But if the breakup and disappearance of the Eurozone and the abolition of the Euro would be better for all the “peripheral people”, then perhaps the Cyprus events are really very beautiful in the long run.

  18. Abe, NYC

    I may have missed the discussion, but I’m a bit puzzled by the question: Why only Cyprus?

    I mean, supposedly the problem with Cyprus was that its banks stuffed themselves to the gills with Greek debt. Is that exceptional? Is there no other country where the banks loaded up on Greek debt? Why don’t we hear about that? What’s the next domino to fall?

  19. Ms G

    Meanwhile, from the reality on the ground in Cyprus. With the “capital controls” (confiscation measures) in place, the great state of Cyprus is massing “private security from G45” [what is this?!] 800 strong, around the banks in anticipation of the reopening tomorrow under the new “conditions.”

    “Our presence there will be for the comfort of both bank staff and clients, but police will also be present,” he said.
    Argyrou said he doesn’t foresee any serious trouble unfolding once banks open their doors because people had time to “digest” what has transpired.”

    Translation: “Let’s hope the Alka Selzer worked – otherwise, ouch.”

    1. Ms G

      In addition to the reassurances about Cypriots having “digested” what just happened to them, there’s little to worry about — “There may be some isolated incidents, but it’s in our culture to be civil and patient, so I don’t expect anything serious.”

      In this context “civil” and “patient” sounds more like a warning from the state to its people to “behave” because otherwise private security + police, etc.

  20. Hugh

    This is the choice of kleptocracy. Europeans can have a Europe worth living in or they can keep their rich and elites. They can not have both.

    Anastasiades was always going to sell out the people of Cyprus. We have seen this again and again. The elite political leaders whether in Spain, Italy, Greece, Ireland, the UK, France, the list goes on, and no matter their party, when the crisis (usually manufactured) hits, sell out their fellow citizens. The same happens here in the US and it will continue to happen as long as people vote in these self same elites from the self same parties.

    The belief in Europe, the attachment to party, and the trust in elites remain very strong. Yet it is only when these are disgarded that any real progress can be made. So just as in the US, the 99% know something is terribly wrong, but they refuse to accept the changes that would be necessary to set things right. We can try to educate, but the sad truth is that things are going to have to get a lot worse before people are willing to drop their old allegiances and be open to adopting new ideas and new allegiances. But there will come a time when they will because the one certainty in all this is that things are going to continue to get worse.

    1. The Rage

      That is because no changes will work. That is what the “elites” know and why your intellectually driven “cures” won’t work.

      Capitalism is in crisis and nothing can be done to save it without another huge innovation surge.

      1. Hugh

        What elites know is looting. They have no interest in fixing anything that might help the rest of us. Oh, and what we have now is not capitalism but kleptocracy. I am neutral on capitalism. I would say that at most capitalism can only work within sharp limits within certain spheres.

  21. Chris Engel

    The thing that boggles my mind is the market reaction (non-reaction?).

    Next month, a lot of the money that Spain, Italy, Greece was cutting itself for is going to run out, there has to be some point where the market reacts, and it has to be soon.

    I’m not a big market-watcher, but I do respect the power of markets and it seems that if they don’t move that there’s nothing to worry about (for now?).

    1. The Rage

      Because its impact on the market is small. Your not getting it. Money doesn’t “run out”.

    2. Hugh

      “I’m not a big market-watcher, but I do respect the power of markets and it seems that if they don’t move that there’s nothing to worry about (for now?).”

      Oh, come on. The markets didn’t see the housing bubble although many of us had been warning about it for years, and they were blindsided by the bubble bursting in August 2007. Similarly, many of us watched, popcorn in hand, for the next year wondering which event was going to be the one to trigger a meltdown. In September 2008, markets once again didn’t know what hit them until after the fact. Markets are casinos filled with gamblers who watch delivery men arrive, bring in a bomb, set the timer, and leave. And all the time they continue to gamble until the bomb goes off. That’s markets and their predictive power.

      The next time will be the same. Markets won’t know a collapse is occurring until it is well underway.

  22. Roman

    Some points from academic common sense that everybody seems to ignore including Nobel Prize winners :

    -To devaluate a currency increases exports but makes imports more expensive. A conventional economist knows that if Cyprus create his own currency there will be a big inflation and this will interact with mistrust of the currency markets. In short, in some weeks this currency will be destroyed by the markets and the consequences for the population will be the lost o any deposit with this denomination.

    -To say that a control of capitals means the creation of a new currency is ludicrous. I can extend on this but it is so absurd that is difficult even to argue against. Lets say that a control of capitals is a temporary measure to stop de panic of the first days. Even if it gets forever has nothing to do with a new currency since the exchange rate will be determined by the bank where are deposited and not by its own nature. To be surprised by the fact that Euros are bought with Euros and infer from this that are two currencies, throw a student in university to a zero.

    -An finally, it is tiresome that each time that a measure is took by EU authorities, there is a group of economist warning that the trumpets of Apocalypse are playing. Ok, lets face it, the banks of Cyprus are in bankruptcy and if nothing is done everybody will loose their money. The authorities need to act to stop a banking panic. Whatever they were going to do before, what they will do now is what everybody from Bagehot to our days knows that must be done. All the nonsense about a tabu of touching the deposits is ludicrous. The guarantee was for 100 000 Euros so everybody knew beforehand.

    I cannot understand how everybody founds so funny to speak about economics with the level of passion and ignorance used by sports commentators.

    1. Calgacus

      On devaluation: In short, in some weeks this currency will be destroyed by the markets and the consequences for the population will be the loss of any deposit with this denomination. Nope, unless the country is ludicrously import-dependent and has nothing to export. The floor of the foreign value of the currency is provided by exports, so at worst the country will just buy imports with exports. Won’t go to zero, and inflation won’t go to infinity.

      To say that a control of capitals means the creation of a new currency is ludicrous.Depends on how strong the controls are, and how much monetary sovereignty, how much of a central bank the state has.

      And finally, it is tiresome that each time that a measure is took by EU authorities, there is a group of economists warning that the trumpets of Apocalypse are playing. Ok, lets face it, the banks of Cyprus are in bankruptcy and if nothing is done everybody will loose their money. The authorities need to act to stop a banking panic. Whatever they were going to do before, what they will do now is what everybody from Bagehot to our days knows that must be done. All the nonsense about a tabu of touching the deposits is ludicrous. The guarantee was for 100 000 Euros so everybody knew beforehand.

      People warn about the Apocalypse because the measure that the Euro authorities take is invariably to blow those trumpets. Without apocalyptic warnings and resistance, the Euro authority madmen wanted to break the 100,000 Euro guarantee. They broke the tabu, because they are criminally insane. This could be a good thing if enough Europeans learn that their finances are being controlled by mad moronic monsters.

      Cyprus banks are broke because of investments in Greek debt, which the Euro authorities have systematically caused to depreciate. The moral onus on Greece to repay its debts is greatly lessened by the actions of creditors to make them unpayable by destructive austerity. The Greek haircut defrauded Greek creditors, with the USA behind it, to avoid Wall Street’s credit default insurance (unpayable without another, politically dangerous, bankster bailout from Uncle Sam) from kicking in. The authorities need to stop creating banking panics.

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