Mitch Joel WARNING... LONG RANT! It takes a lot for me to both get angry and publish about it. Canada’s…
Europe and the EU – Cyprus
Hugo Dixon: Cyprus is edging towards euro exit
(Reuters Opinion) Cyprus is no longer centre stage. Nicosia has agreed a 10 billion euro bailout deal with its euro zone partners and the International Monetary Fund. A visible bank run has been averted by stringent capital controls. International markets, which only ever suffered a mild bout of jitters, have calmed down.
But it would be foolish to forget about Cyprus. The small Mediterranean island is edging towards euro exit. Quitting the single currency would devastate wealth, fuel inflation, lead to default and leave Cyprus friendless in a troubled neighbourhood. Even so, the longer capital controls continue, the louder the voices calling for bringing back the Cyprus pound will grow.
Cyprus Turks Share Pain as Banking Crisis Revives Talk of Unity
(Bloomberg) Turkish and Greek Cypriots have been arguing over territory for half a century, yet in the island’s Turkish-controlled north there are no signs of schadenfreude over the financial crash in the internationally recognized state to their south. Instead, Turkish Cypriots expect to share the pain because cross-border business has thrived since 2004, even after the failure of a United Nations plan to unify the country. …
“The rational or responsible thing to do at this point would be to solve the Cyprus problem because that would lead to economic development,” [Caesar Mavratsas, a professor of sociology at the University of Cyprus] said. “But in Greek Cypriot politics, rationality and responsibility have been very scarce.”
Sticking points in 2004, and in subsequent UN-backed talks, include property rights, status of settlers from Turkey and power-sharing in a remodeled state.
About three-quarters of Greek Cypriots found the UN proposals on those issues unacceptable, and voted “no.” Among the minority in favor of reunification, and one of the few leading Greek Cypriot politicians to take that position, was Nicos Anastasiades, who was elected president in February.
“This is a great opportunity for Anastasiades to become a true statesman,” Mavratsas said. “I’m not very optimistic because even members of his own party do not agree with him.”
(Forbes) Five Reasons You Should Care About Cyprus
1. The unthinkable is no longer unthinkable.
2. Offshore accounts just got a little scarier.
3. It almost brought Russia to the grown-up table.
4. It’s a reminder to check your deposit insurance coverage.
5. It’s the latest sign of how fragile an interconnected world is.
Bomb from Brussels: Cyprus Model May Guide Future Bank Bailouts
(Spiegel) Should the Cypriot bailout become a model for the future? The mere suggestion sent markets tumbling last week. But increasing numbers of European politicians would like to see bank shareholders and investors bear a greater share of crisis risk. The EU may be changing its strategy.
Bank of Cyprus big savers to lose up to 60%
Banks to pay for $20.5 billion bailout
(CBC) The deposits that converted to bank shares would theoretically allow depositors to eventually recover their losses. But the shares now hold little value and it’s uncertain when, if ever, the shares will regain a value equal to the depositors’ losses.
Europe has demanded that large depositors in the country’s two largest banks —Bank of Cyprus and Laiki Bank — accept across-the-board losses in order to pay for the 16 billion euro ($20.5 billion bailout). But officials had previously spoken of a loss to big depositors of 30 to 40 per cent.
Analysts said Saturday that imposing bigger losses on major depositors could further squeeze already crippled businesses as Cyprus tries to rebuild its banking sector in exchange for the international rescue package.
Robin Bew: The wider cost of saving Cyprus
(The Economist) It was touch and go for a while, but the euro zone’s eleventh-hour bail-out of Cyprus has averted financial collapse and, for now, kept Europe’s single currency intact. Although the bail-out deal has met with relief, my team of Europe analysts and I note its drawbacks. The levies on deposits over €100,000—along with the abandoned original plan to tap smaller deposits—will erode confidence in the security of deposits across the euro zone, potentially making bank runs harder to stop in the future. And capital controls will almost certainly stay in place for longer than officials hope, which would violate one of the founding principles of the EU and make investors nervous.
Winners and losers, in Russia and elsewhere, after Cyprus
For the first time in history, Russian companies lose money as a result of using offshore banking; but this may benefit some home entities
(Emerging Markets) … the Cypriot government has said it would introduce capital controls in order to prevent a run on deposits. Many of these deposits – around 19 billion euros according to IIF estimates quoted by analysts – are from Russia and Ukraine and while media reports talked about Russian oligarchs squirreling money away or about tax evasion and money laundering, the situation is more complex, with corporations and middle-class depositors now emerging as the most likely victims.
(The Economist) After an abortive first attempt, Cyprus reached agreement with the IMF and the European Union on a €10 billion ($13 billion) bail-out. The controversial levy on insured bank deposits was ditched. Instead Cyprus agreed to wind down Laiki, its second-biggest bank, wiping out its bondholders and uninsured depositors. Insured deposits will be transferred to Bank of Cyprus, its largest bank, which will also be restructured. Many Cypriots still felt their country had been bullied into accepting the deal, with the threat held over them of being chucked out of the euro if they refused. See article»
High price of bailout dawns on Cypriots
(Financial Times) The tough conditions imposed in return for the bailout are likely to decimate the economy’s foundations – its offshore financial industry … Cyprus’s economy could shrink 15 per cent this year, and then 5 per cent in 2014, predicted Fiona Mullen, a local economist who heads Sapienta Research. See also Russians seek ways to beat Cyprus curbs Most deposits of more than €100,000 are owned by Russian beneficiaries, which means Russian businesses and depositors will pay much of local bailout
(The Guardian) Cyprus bailout: last-ditch deal agreed
• President threatened to resign over bank restructuring
• Insiders: Troika: 25% levy on Bank of Cyprus savers with over €100,000
• Cyprus ATMs cut withdrawal limit, readers say
• Archbishop of Cyprus to appeal to Russian businessmen
Gavyn Davies: The eurozone after Cyprus
(Financial Times blog) … Although Cyprus is tiny enough to be completely overlooked in most circumstances, its economy and banking system have characteristics similar to other, much larger, eurozone countries. Cyprus is certainly at the extreme end, but an over-leveraged banking system, with insufficient capital and reliance on foreign funding, is familiar territory in the eurozone.
Cyprus is therefore, in some respects, a microcosm of the entire eurozone crisis, if a microcosm on steroids. The manner in which the crisis has been handled by the Eurogroup and the ECB will have demonstration effects on other economies, for good or ill.
Cyprus in last ditch EU talks to save economy
(Reuters) – Cypriot President Nicos Anastasiades held fraught last-minute talks with international lenders on Sunday as doubts grew about whether a deal could be reached to save the Mediterranean island from financial meltdown.
Facing a Monday deadline to avert a collapse of Cyprus’s banking system, Anastasiades spent hours arguing with the heads of the European Union, the European Central Bank and the International Monetary Fund over terms for a 10 billion euro ($13 billion) bailout after a first attempt collapsed last week. … EU diplomats said the president was still fighting to preserve the country’s business model as an offshore financial center that drew huge funds from wealthy Russians and Britons.
Republic of Turkey, Ministry of Foreign Affairs: Statement Regarding the Claims of the GCASC on Hydrocarbon Resources in the Eastern Mediterranean
The idea of the Greek Cypriot Administration of Southern Cyprus (GCASC) to offer the natural resources of the island as collateral for a solidarity investment fund or any other borrowing scheme to be established due to its current economic crisis, ignoring the inherent rights of the Turkish Cypriots who are co-owners of the Island, is a dangerous manifestation of the illusion of being the sole owner of the Island, which may lead to a new crisis in the region. The views of the Presidency of the TRNC, expressed in the statement of 21 March 2013 are shared. The Turkish side is committed both to protecting the rights and interests on its own continental shelf and to maintaining its support to the Turkish Cypriot side.
Trouble in the Eastern Mediterranean Sea – The Coming Dash for Gas
(Foreign Affairs) In recent years, resource disputes in the South China Sea have made headlines across the world. But another body of water — the Mediterranean — is rapidly becoming as volatile as its eastern cousin. Exploratory drilling near the coasts of Cyprus, Egypt, Israel, Lebanon, Syria, and Turkey has unearthed vast reserves of natural gas.
… Since Cyprus signed a maritime border agreement with Israel in 2010, it has become the second main beneficiary of the gas boom. The island straddles Israel’s most likely gas export route to European markets. Cyprus also lays claim to its own gas deposits. The Aphrodite field, which is adjacent to Leviathan, may contain up to seven tcf of natural gas — enough to meet Greek Cypriot domestic consumption needs for decades to come. Yet even that field is contested by others. The breakaway Turkish Republic of Northern Cyprus claims co-ownership of the island’s natural resources and has opposed Nicosia’s attempts to unilaterally secure offshore drilling contracts.
Like Northern Cyprus and Lebanon, Turkey has viewed the Israeli-Cypriot gas bonanza with apprehension. Ankara does not recognize Cyprus’ border agreements with its neighbors and fears that Turkish Cypriots will be excluded from Nicosia’s future gas profits. Turkey also sees a possible gas export route through Cyprus and Greece as a threat to its own ambitions as a transit country feeding Caspian and Central Asian gas to the European market. Ankara has thus protested cooperation between Israel and Cyprus and supported Lebanon’s position in boundary disputes with Israel. (20 March 2013)
Merkel Can’t Contain Anger over Cyprus
(Spiegel) Together with Finance Minister Wolfgang Schäuble, she left no doubt as to her frustration with Nicosia’s new plan for raising €5.8 billion in badly needed capital.
Merkel disapproves of the Cypriot proposal, which involves bundling state assets into a “Solidarity Fund” that includes the country’s retirement fund to back bond issues. According to reports on Friday, she is not alone. The troika, made up of the European Commission, the European Central Bank and the International Monetary Fund, agrees with her assessment.
Paul Krugman — Cyprus: The Sum of All FUBAR
At this point the Cyprus situation is pretty clear — and clarity does not bring reassurance. In fact, it looks as if Cyprus has managed to combine in one place everything that has gone wrong elsewhere.
… As a number of people have pointed out, Cyprus is arguably better positioned than Iceland to do an Iceland, because devaluing a reintroduced Cypriot currency could bring in a lot of tourism. But will the Cypriots — who haven’t even reconciled themselves to the end of their round-tripping business — be willing to go there?
Can the US trust the EU after the Cyprus debacle?
(The Guardian) The EU is bullying Cyprus, much as it did Greece. That tactic won’t work when the EU and US negotiate more trade deals
Cyprus is small and largely unable to fight back, either politically or financially. Its shabby treatment is consistent with how the EU has treated other countries when it perceives it has the upper hand, including Greece and Portugal. In each of those cases, some members of the EU have relied on cultural stereotypes to explain why financial negotiations had to turn against a country. In the case of Greece, leaders including Germany’s Angela Merkel painted the country as full of lazy, pension-reliant, sun-worshipping Mediterranean gadabouts to justify the need for austerity. It’s not just that it’s offensive, it’s false: before the crisis raised unemployment rates, you’ll find that Greeks, Italians and Spaniards all worked longer far hours than Germans every week. Somehow those inconvenient facts get lost in the economic finger-pointing.
Analysis: ECB prepared to let Cyprus go, protect others
(Reuters) – The European Central Bank is prepared to cut off funding to Cyprus and let the Mediterranean island succumb to financial meltdown if it has to, confident it has unlimited firepower to protect the rest of the euro zone.
Cyprus propelled the 17-nation bloc into uncharted waters on Tuesday by rejecting a proposed levy on bank deposits as a condition of a 10 billion euro ($12.9 billion) EU bailout.
Without the aid, much of it to recapitalize Cypriot banks, the ECB says they will be insolvent, and it requires banks to be solvent for them to receive central bank support.
(Reuters) – Cyprus overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing international efforts to rescue the latest casualty of the euro zone debt crisis into disarray.
Cyprus seeks Russian bailout aid, EU threatens cutoff
NICOSIA (Reuters) – Cyprus’s finance minister pleaded with Russia for help on Wednesday to avert a financial meltdown after the island’s parliament rejected the terms of a European bailout, raising the specter of a looming default and bank crash..
Protecting Their Own, Russians Offer an Alternative to the Cypriot Bank Tax
John Cassidy: What’s Wrong With Europe? Cyprus Edition
(The New Yorker) After all Europe has been through in the past three years, I doubt very much that its leaders will allow tiny Cyprus to bring the whole thing crashing down. By rejecting the terms of the bailout, the Cypriot parliamentarians have effectively called the bluff of Germany, Europe’s dominant power, which insisted on imposing harsh terms. … Absent a blow-up in the markets, nothing much gets done. When the markets are calm, as they have been this year, the politicians slip off the leash and respond to their own constituencies. In Germany in particular, that means balking at handing over more money to southern Europeans, whom many Germans consider shiftless, and to countries that have turned their banks into parking garages for the capital of rich Russians, whom Germans see as tax evaders.
… The euro zone won’t survive an indefinite economic malaise—no political settlement could. Assuming it scrapes through the current crisis, and there’s really no reason it shouldn’t, its fate hinges much more on events in Germany than on what happens in places like Cyprus and Greece. In such an unwieldy multi-national structure, strong leadership is desperately needed.
Terence Corcoran: We are all Cypriot savers
Cypriot and EU officials are now said to be reviewing the plan, but there’s a lesson to be learned from the EU bank tax debacle, and from the fiscal crisis across Europe and elsewhere. In the final analysis governments have no money of their own. The only money they will ever get their hands on is yours, no matter where it is.
Anger in Cyprus: ‘They Can’t Just Penalize Us Because of the Banks!’
(Spiegel) Changes are coming to the bailout package for Cyprus, but people in the country are furious nonetheless. A forced levy on savings accounts in the country has enraged depositors and brought protesters onto the streets. Germany is the focus of their anger.
Frantic day ahead as EU tells Cyprus it can rethink controversial bailout terms as key vote postponed
Cyprus postpones crucial vote on controversial bank deposit levy as stocks plummet around the world
(The Independent) President Nicos Anastasiades was in talks with MPs yesterday to try to reach a consensus on a package to take back to the IMF, the EU and the European Central Bank. Opposition politicians had indicated they would vote against the current deal – a vote that could potentially force Cyprus to default on its debts and leave the euro.
Eurozone finance ministers put out a statement last night saying they were willing to tweak the terms of the deal, including putting less of a burden on Cypriots with modest savings, as long as the total amount raised stayed the same. “The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below €100,000,” the statement said.
As public anger on the island grew, Russia’s President Vladimir Putin yesterday joined strong criticism of the move. “Putin said such a decision, if taken, would be unjust, unprofessional and dangerous,” a spokesman said in a meeting with economic advisers. Russian companies have an estimated £12.5 billion in the country.
The Cyprus bail-out — Unfair, short-sighted and self-defeating
(The Economist | Schumpeter) The euro zone’s bail-out of Cyprus, which was sealed in the early hours of Saturday, did get the bill for creditor countries down from €17 billion to €10 billion, as had been rumoured. But the way it did so was somewhat unexpected.
Almost €6 billion of the savings for taxpayers in euro-zone countries came from losses imposed on depositors in Cyprus’s outsize banks. A one-off 9.9% levy will be imposed on all deposits over the insurance threshold of €100,000 before banks reopen after a bank holiday on Monday. That idea had been in the air for a while, not least because a lot of those uninsured deposits came from outside Cyprus, and from Russia in particular. The politics of saving wealthy Russians with money loaned by thrifty Germans were always going to be tricky.
… There is an argument to be made over the principles of bailing in uninsured depositors. And there is a case for hitting everyone in Cypriot banks before any taxpayer in another country. But there is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched, as appears to be the case here; or not imposing any losses on sovereign-debt investors in Cyprus; or protecting depositors in the Greek operations of Cypriot banks, as has also happened. The euro zone may cloak this bail-out in the language of fairness but it is a highly selective treatment. Indeed, the euro zone’s insistence that this is a one-off makes that perfectly plain: with enough foreigners at risk and a small enough country to push around, you get an outcome like Cyprus. (That is one reason why people are now wondering about the implications of this deal for little Latvia, also home to lots of Russian money and itself due to join the euro zone in 2014.)
Why the EU is right on Cyprus
(Reuters) The reaction to this weekend’s European Union bailout deal for Cyprus has gone from initial shock to rather predictable condemnation. “Europe botches another rescue,” ran the headline on an editorial in the Financial Times. “It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying ‘time to stage a run on your banks,’ ” Paul Krugman, the economist and New York Times columnist wrote on his blog.
As widely reported, the deal has an important claw-back component: a one-time tax on the deposits of everyone who has a bank account in Cyprus ‑ Cypriots and foreigners alike ‑ aimed at raising 5.8 billion euros of the total rescue package of 17 billion euros. …
In fact, there are two compelling reasons why the EU actually has gotten this one right.
The Cypriot Crisis?
Eric Reguly of the Globe and Mail reports, World markets roiled as radical Cyprus bailout deal stall:
(Pension Pulse) … people should keep in mind are the origins of this crisis and how Cypriot banks were basically coerced by corrupt ministers into buying Greek sovereign debt, another scandal that receives little attention. Hot money flows inflating property prices exacerbated the problem. Some think the property scandal will prove far more costly to Cyprus than having to swallow Greek’s sovereign debt write off.
So will the Cypriot contagion spread across Europe and spur yet another euro crisis or worse still, World War III as the Russian navy dispatches a permanent fleet to the Mediterranean?
Of course, I’m being overly dramatic but if you read the weekend comments over at Zero Edge, you’d think capitalism has just been dealt a death blow and the world is coming to an end all over again.
Even informed economists are over-dramatizing the Cypriot bank bailout. Yanis Varoufakis writes Cyprus’ stability levy is just another sad euphemism
How Europe Let Cyprus Get Into This Mess
(Bloomberg) Even though Cyprus is a militarily and ethnically divided country with a history of banking secrecy, it was allowed to become a member of the European Union in 2004 and a member of the inner sanctum—the euro currency zone—in 2008. Under the nose of the European Union, Cyprus developed a banking system that’s too big for the national government to support, with assets of seven or eight times the nation’s annual gross domestic product.
Cypriot banks took in billions of euros in deposits, including from Russian oligarchs who’ve set up business on the Mediterranean island nation. Naturally, they had to put all that money to work somewhere. Reaching for attractive returns, they invested depositors’ money heavily in Greek loans and bonds—and took a beating when Greece’s economy skidded. The Cypriot banks also invested heavily in the sovereign debt of Cyprus itself, a fatal embrace in which any losses forced on the holders of government debt would wipe out the banks.
All this happened under the supervision—clearly too lax, in retrospect—of the European Union, the European Central Bank, and the International Monetary Fund.