
Cypriot Bailout Sends Shivers Throughout the Euro Zone - uvdiv
http://www.nytimes.com/2013/03/18/business/global/facing-bailout-tax-cypriots-rush-to-get-their-money-out-of-banks.html?hp&pagewanted=all
======
mixmax
_"After five years of bailouts financed largely by austerity-weary European
taxpayers, wealthy nations like Germany and the Netherlands have decreed that
from now on when a bank or country fails, it will be bond investors and
perhaps even bank depositors who will be forced to pick up a big share of the
bill._ "

This is so incredibly stupid that it would be funny if it wasn't so tragic.
They're basically telling everyone in the Eurozone that their money isn't safe
in the bank, and that if you want to make sure it keeps being yours you should
wthdraw it and move it to a safer place. Either under your mattress or outside
of the Eurozone.

They're basically asking for a bankrun across the southern European countries.
Didn't any of these geniuses take econ 101?

~~~
Atropos
Smug US/UK commentators have now been shouting for 3+ years about how
incredibly stupid the EU is, how the Euro will break up in two weeks... But
why is the Euro up 16% against the USD and 23.3% against the UK pound over the
last 10 years? Why are German bond yields lower than the US bond yields, and
why do some stable eurozone countries still possess a triple AAA rating by all
credit agencies, in opposition to the US?

Considering the population, Cyprus is more like a middle-size city than a
country. It joined the EU in 2004 and the Eurozone in 2008 - their problems
are much older than that. Other than for humanitary reasons, the EU shouldn't
and doesn't really care if they go under. If panicked investos withdraw their
money they shall - smarter investors will pick up their holdings and realize
gains; the doomsayers will end up as losers, like the US hedge funds ala
Paulson betting against the EU the last years.

~~~
jpdoctor
> _But why is the Euro up 16% against the USD and 23.3% against the UK pound
> over the last 10 years?_

You think it is something other than supply and demand? The Fed and BoE can
print; The ECB cannot. The result (which is related to printing) you failed to
quote: Greek deflation.

It's not complicated.

~~~
Atropos
What exactly is your point? If we see market prices as reasonably efficient,
the current Euro price shows that the typical "Stupid Eurocrats idiotic
mismanagement of the flawed Euro project will lead to European collapse in 2
weeks" simply doesn't have a base in reality.

Individual (small) countries may fail, the system will be fine, and
misinformed doomsayers will - as always - end up making fools of themselves.

~~~
jpdoctor
> _What exactly is your point?_

The euro is up 16% because there are more dollars in circulation chasing the
same number of euros. Same for the pound.

A deflationary environment in Europe (what are prices doing in Greece? What is
the Spanish unemployment rate?) is exactly what you would expect, and _the
Euro up 16% against the USD and 23.3% against the UK pound_ is evidence of
that.

Or to put it another way: You quote evidence that supports the point you are
trying to refute.

(Perhaps you are being confused by the term "up" in currency exchanges? It
makes exports more expensive, which makes the deflation worse since fewer
employees will be needed.)

~~~
Atropos
You do realize that I quoted numbers for the last 10 years? Since the
Eurocrisis started, the Euro has losses of around 6-10% against the other
major currencies, so your deflationary argument isn't really sound.

All I wanted to say is that in the long run, foreign exchange rates express
some form of judgment about the soundness of a currency. The markets still
consider the Euro a very sound and safe currency - at least more so than the
USD and the UK pound. A weaker exchange rate might be preferable, but that is
not a way Europe wants to go. Instead of printing money, the idea is to
restructure the economy. In the short run this will of course be super painful
and allow commentators to shout "Look, austerity has failed". Let's talk again
in 2025, bond yields for Greece,Italy,Spain are already down...

~~~
Turing_Machine
"You do realize that I quoted numbers for the last 10 years?"

No, you didn't. You compared two isolated data points.

If you look at the actual graph of the last ten years, the Euro has been both
considerably higher and considerably lower against the dollar over that
period.

------
chestnut-tree
People across Europe will react with horror to this latest development in the
Eurozone crisis. This will not strengthen the case for stronger European
integration but turn many more against it.

Notice too how the supporters of these measures attempt to frame the debate
around wealthy foreign tax evaders while minimizing the plight of ordinary
Cypriots.

This extract from an opinion piece in The Guardian says it all

 _"..the debt burden has been transferred from the banks, where it properly
belongs, to households, who had no part in their lending decisions.

As part of that propaganda campaign, the focus has been on Russian oligarchs
and tax evaders who have been laundering funds through Cypriot banks. In fact,
among those caught in the upper savings bracket are bound to be pensioners for
whom this represents their entire life savings, and others who have recently
borrowed enough money to buy a modest home. But even if only oligarchs were
affected, this is surely an admission of guilt by the European and
international authorities, who are responsible for the global regulation of
banks and co-ordinating anti-money laundering activities. Their own failure
can hardly be a justification for expropriating the small savers of Cyprus."_

[http://www.guardian.co.uk/commentisfree/2013/mar/17/savers-h...](http://www.guardian.co.uk/commentisfree/2013/mar/17/savers-
horror-troika-raid-cyprus)

~~~
pavlov
Reading British newspapers for Eurozone financial commentary is like reading
Soviet Pravda for its poignant analysis of American life. The rhetoric is so
thick and the motivation so obvious that it's easy to forget that there's
always someone who will take it seriously.

~~~
uvdiv
I think what most resembles Soviet-style propaganda is the public denouncement
of Russian oligarchs as a pretext for collective punishment of Cypriot
depositors.

------
sausman
_It's an entire crony bankster program. Those who lent money to Cyprus’s banks
by buying their debt rather than by depositing money at the banks, will suffer
no losses at all. Those who lent money to the insolvent Cypriot government,
will be paid off at 100 cents on the euro. In other words, the banksters are
protected. Only depositors with banks will suffer losses in this International
Monetary Fund engineered plan. It's as blatant example of who the IMF really
works for._

[http://www.economicpolicyjournal.com/2013/03/what-to-keep-
in...](http://www.economicpolicyjournal.com/2013/03/what-to-keep-in-mind-
about-tax-on.html)

------
bitcartel
The banks are supposed to open on Tuesday. Extending the bank holiday and
blocking international transfers is most likely a violation of the EU treaty
which guarantees free movement of capital.

[http://ec.europa.eu/internal_market/capital/framework/treaty...](http://ec.europa.eu/internal_market/capital/framework/treaty/index_en.htm)

------
uvdiv
_The government also extended a bank holiday that was put in place to try to
stop a run on the banks. The holiday was supposed to end Monday night. Now,
banks will not be opening their doors Tuesday, as planned. There was talk that
they might not open Wednesday, either._

 _[...] “As soon as banks in Cyprus reopen, people will rush to take all their
money out, because they don’t believe this is a one-off deal,” he said. “When
a bank run happens, the E.C.B. will have to pump in liquidity,” he added, “and
what you will have is a shell of a banking system supported by E.C.B.-eligible
Cyprus bonds, which will rocket the debt of Cyprus out of control.”_

~~~
samstave
There was a comment that a lot of russian mob money is held in Cyprus banks. I
wonder if this is actually an attack on them in an effort to take the money
from the russian mob.

I also predict acts of vandalism on the banks. Where the goal is to cost the
banks money to repair their facilities given the situation.

~~~
Lazare
Definitely not.

The confiscation is 6.75% on small accounts (mostly EU savers and pensioners)
who are covered by deposit insurance, and 9.9% on large accounts (yes, a lot
of which is Russian money). Overall it will collect a total of around €6B.

If you wanted to get €6B from just the accounts that aren't covered by deposit
insurance you'd need to confiscate around 30%. So, basically, the EU had a
choice of either taking 30% from the (mostly Russian) wealthy and 0% from the
poor and middle class (a lot of whom are pensioners), or taking 9.9% and
6.75%, and they went with the latter.

If anything, this entire debacle is an effort to protect Russian (and Cypriot)
oligarchs at the expense of ordinary people. As a bonus, it also makes bank
runs, the collapse of the EU financial system, and the destruction of the
eurozone much more likely.

Very odd.

~~~
samstave
Thanks for that info.

What was the potential impact of doing nothing? As this action "makes the
collapse of the EU financial system... much more likely" -- what would the
impact have been to the EU financial system had nothing been done at all.

------
fernly
Forget the lawyer-talk and economist-talk. To 90% of all depositors, they have
a simple contract with the bank: I give you my money and you can use it to
make more money (loaning it out at interest, etc) on one condition: you keep
it absolutely safe and give it back when I ask.

That's it, that's the deal as far as almost all depositors care. And if they
think for one microsecond that the bank might welch on the deal, they want
out, now. Not tomorrow, n.o.w.

This is an brazen raid on personal deposits: a new, unexpected tax on funds
people thought had already been through taxation and were safe. People will
hate it. And they'll see the banks as both having breached their understood
contract and being the cause of an unfair tax.

If the government puts in rules restricting withdrawals, they'll just take it
out at whatever rate is allowed and send it elsewhere, or invest it in
tangibles like gold or gems and put those in private lockboxes.

The net result over the next year will be a steady flight of small-investor
capital out of every country that is even slightly suspected of this scam. A
lot of it will just disappear from the economy. This will depress those
economies for years if not decades.

------
codesuela
It would be pretty ironic if the Cyprus bailout of 2013 will noted in history
books as the event that lead to the collapse of 21st century banking (next up
bank runs). Is it probable? No. Is it possible? Maybe.

~~~
adestefan
Here are your options: lose all of your money or lose 10% of your money. What
do you choose?

~~~
codesuela
Option 1: Make rational decisions and rely on everybody else being rational

Option 2: Panic and make rash decisions

~~~
GHFigs
Relying on everybody else being rational is irrational.

~~~
codesuela
I guess that boils it down to one option :)

~~~
cpeterso
Option 3: Make rational decisions and rely on everybody else panicking? :)

------
mikecane
They can't reopen the banks without limiting the amount of money people can
withdraw. Thus the death spiral of the entire worldwide financial system
begins.

~~~
jk4930
No. We'll see some bank runs mostly in southern countries, but the deposits
are power law distributed and thus the financial majority (in sum, not in
numbers of accounts) will probably act more rational than members of the
frightened, over-emotional masses that withdraw their 5-10K or so. The
rational will transfer their accounts to more stable banks, e.g., in Germany
and won't put their money under the mattress.

Of course, it's a bit dirty to grab the money from those <100K too, it
destroys trust, no question. But the essential players and movers were
protected, that's why we created this small injustice (yes small, compared to
what's possible).

~~~
mikecane
>>>The rational will transfer their accounts to more stable banks, e.g., in
Germany

Ah, so Cyprus will just collapse on its own then without any repercussions
elsewhere? I don't think so.

~~~
jk4930
Cyprus won't collapse (and even if, that's not the end, they'll stand up again
and as an EU member state they'll receive help as they did before). Their
banking sector is overblown and the intention is to reduce it to EU average by
2018. They tried to copy Luxembourg, but screwed it up. Now they have to come
up with something different.

Anyway, that's far away from your "death spiral of the entire worldwide
financial system." :)

~~~
mikecane
>>>Anyway, that's far away from your "death spiral of the entire worldwide
financial system." :)

We'll see. Bank accounts are private property. This is an unprecedented
confiscation. And if this happens without open rebellion, nothing is safe for
anyone anywhere.

------
hippich
From fbme.com (large bank in Cyprus):

 _16 Mar 13 2.00pm 17 March 2013

The authorities in Cyprus have announced the delay of a Parliamentary debate
on the provisional agreement signed by European Union finance ministers for a
bailout package for the Government of Cyprus. Though there is considerable
media speculation on the detail, some of it no doubt unfounded, the Cyprus
authorities have yet to confirm arrangements within the agreed package and the
implications for the banking industry and its customers. These are under
discussion at the present time.

FBME Bank is in close contact with the authorities in Cyprus and is monitoring
the situation with regard to Parliamentary and Regulatory Authority
discussions. We will keep our customers informed as to developments and expect
to update this statement each day in the coming period as soon as information
becomes available. Please refer to our website www.fbme.com for the latest
statement, which we expect to update during the course of Monday, 18 March
2013 and thereafter.

At this moment, we wish to assure all our customers that the financial
condition of FBME Bank is sound and depositors’ monies benefit from the
strength of the Bank’s dynamic and well diversified Balance Sheet, which at
all times meets European Capital Adequacy and Liquidity Standards. It
continues to be the Bank’s intention to keep a very high liquidity and strong
solvency position. If there is further information required please email
pr@fbme.com_

~~~
Turing_Machine
"The more he spoke of his honor, the faster we counted our spoons." -- Ralph
Waldo Emerson

------
piyusht
Taxing those who are saving rather than the ones who are earning more. Call it
a case of misaligned incentives. And what about the long term implication on
the banking system? How far it will limit the effect of central bank to
control inflation now since people will think twice before putting money in
bank account?

Would love to see some macroeconomics views on this.

------
brisance
Couldn't the large account holders just split the large accounts into smaller
ones and just save themselves the 3.15% margin? Even taking transaction fees
into account, it would still be a lot.

------
brador
How safe are bank deposits in northern coutries? Germany, uk?

~~~
Turing_Machine
The UK isn't on the Euro, so they won't be impacted directly. Panics have a
way of spreading, though.

------
martinced
There's something worse that lawyers who can't count. Lawyers who think they
can.

The problem is that politician dream up of an european union to make sure no
more french / german war would happen. But politicians can't count: they're
for the most part lawyers.

So they build this monstrosity: the European Union. A mad bureaucracy /
technocracy where every document is translated in 27 languages (including
obscure ones): small countries love it because they can send people to get
jobs in Brussels at crazy high salaries. For what? Paperwork. Nothing but
paperwork.

Then they dreamed up the most stupid thing ever: a common currency (the euro)
without a common fiscality. Only stupid lawyers can come up with nonsense like
this. Economists did warn them, before the first euro even circulated, that it
would end up in precisely the current situation (even the default of Greece
and Spain had been forecast).

Nobody listened.

Wanna know what's coming next? It's easy: go read what economists who
predicted the current situation are saying. They're from the Milton Friedman
school of economics thought. Keynesians lost is and lost it a long time ago.
Nothing to learn there: they never predicted anything more than a few years
(two or three) before it happened. If you want to predict 15 years+ ahead you
have to read Friedman and its disciples.

What coming next is simple: these stupid politicians and lawyers who created
all this crazy paperwork and non-sense laws are going to try anything they
can, including more and more non-democratic measures, to try to save the euro.

But they can't save it: it's fundamentally flawed. Countries have to get out
or the entire eurozone is going to split and go back to national currencies.

The cost is going to be about 15% of the GDP for all the countries exiting.

If the euro ain't split in the few years coming we'll be going to have the BCE
defaulting (the BCE basically already became a bad bank, drowning under state
debt from states who are going to default) and massive civil unrest: people
losing everything.

Here we're talking about a worldwide GDP drop of about 30%.

So either we bit the bullet now and take about a 15% GDP loss by going to
national currencies or we try desperately to save the euro and we'll end up
creating a _much_ bigger problem.

We're witnessing history. We're seeing a bunch of clueless politicians (who
are mostly lawyers) totally f^cking up the entire economy of a continent (and
probably of the entire world).

