More on Cyprus
Mar. 19th, 2013 07:02 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksAnd so, the Cypriot parliament has voted against the "bail-in". The Ministry of Defence has flown a million euros in cash to Cyprus to help out British troops there. The banks will remain closed until Thursday, at least.
I'm not quite sure what a collapse of a country's entire banking system looks like, but this seems to be making a damned good impersonation of it.
Once again, the "what happens next?" questions will be flying around for the next 12 hours. The media finally seem to have picked up that this is fast moving towards a Russia v Europe economic influence battle by proxy. Not a few Cypriots might well be saying "let's leave the euro, let's leave the EU, and accept a far greater degree of Russian influence".
That would be something that Wolfgang Schauble, a man who really should be hanging his head in shame given his blame-shifting of the past 24 hours (basically along the lines of "it wasn't me! it was him!" and pointing a finger at anyone who happens to be within 15 feet) might care to consider when it comes to writing his political obituary.
For it was Schauble who was the man who stood firm on the grounds of "A €5.8bn bail-in. We don't care how you do it" line, and it was the Cypriot PM Nicos Anastasiades who was therefore caught between a rock and a hard place. Now, fair enough, this was a rock and a hard place which previous Cypriot administrations had spent many years constructing. But the choice now facing Anastasiades was stark. Either bail-in the uninsured depositors by an amount so great that the Russians might pull out altogether, or bail-in the smaller depositors and risk national revolution.
So, the question has to be asked, because nearly all of the politicians are now realizing that the agreement announced at about 4.30am on Saturday morning is just about the biggest disaster since the crisis started:
How did it happen?
It all started earlier, on Thursday evening, in Belgium. The leaders of the eurozone were having a meeting. Anastasiades, fresh from an election victory, was congratulated by Angela Merkel.
On Friday the eurozone leaders had a honk shop. They were there for a summit; the journalists there were mainly politicos, not finance journalists. After all, there had been many of these bailout meetings in the past four years - usually Greece, sometimes Portugal, sometimes Cyprus. The rules of the game were simple -- the can would be kicked down the road.
So, when the eurozone leaders went home on Friday, so did most of the journalists. The finance ministers were left behind to sort out the nuts and bolts of the bailout.
But this time round, as I wrote yesterday, this time round the Finns were determined that depositors should take a haircut. If the Cypriots were to get a bailout, the depositors (mainly Russians unprotected by the Deposit Protection Scheme) should pay their fair share. Merkel, apparently, had agreed. At least, this is how Schauble, also enthusiastic for a bit of punishment, took it. Another new state of affairs was the the new "Mr Euro" was Dutch Finance Minister Jeroen Dijsselbloem, also a bit of a hawk.
Anyhoo, the discussions went through Friday night. Anastasiades was hit with what was seen as a blindsider -- €5.8bn would have to be paid by depositors in Cypriot banks -- via 15% tax on deposits over €100,000. Anastasiades reckoned that this would upset the Russians so much that a separate €2.5bn loan might be halted -- let alone the fact that the €30bn or so that Cypriot banks had on deposit from Russia might quickly find a more amenable home (preferably where, like Cyprus, not too many deep questions were asked about the source of the funds). So Anastasiades stormed out.
He soon came back. Dijsselbloem, whom I have to assume had some kind of mental seizure, said something along the lines of "how about 12.5% on the big deposits and 3.5% on smaller deposits". Anastasiades said in return (realizing that he had to come to some kind of deal to stop the bankruptcy of the nation's banking system) that 9.9% was the biggest he might get away with for the deposits over €100,000.
It's not clear whether Anastasiades realized what he had done, because more lowly officials were apparently told to go away and "do the maths".
They did, and they said that this meant there would be a 6.75% haircut on deposits under €100,000. Perhaps one or two of these lowly officials realized the implications of this. Perhaps they didn't. But that key moment when Dijsselbloem had first broached the participation of all depositors, rather than the "uninsured" depositors, had now become a train crash in slow motion.
The "news conference" (if you can count a conference where even most of the journalists had either gone away or succumbed to fatigue) at 4am Saturday morning must go down as one of the most underreported apocalyptic moments in history.
During that conference, no-one actually mentioned the levy on deposits. Christine Lagarde just talked about "burden sharing". Luckily, one of the reporters had actually read the official release. He asked Dijsselboem if it was true, if smaller depositors would have to pay 6.75% of their money. The Dutch finance minister's response was:
"We found it justified".
I somehow doubt that Merkel felt this when she woke up on Saturday morning. That must have been a genuinely "OH MY GOD!" moment. Schauble would have been summoned and I would imagine that Merkel's first words would be the equivalent of "WHAT HAVE YOU DONE????"
At which point Schauble would have begun looking for someone else to blame.
So, how did it happen? It happened because Schauble/Merkel, Dijsselbloem and the IMF/Lagarde wanted to penalize the Russian depositors, but SChauble took the line of "we just want the €5.8bn -- you can get it any way you like". Then Anastasiades had the choice of penalizing the smaller depositors (which he thought he had a small chance of getting away with) or seriously hitting the larger depositors (which he was sure he had no chance of getting away with). Then Dijsselbloem became the first to mention "the elephant in the room" -- taxing the bigger uninsured depositors at less than 15%, so long as the money was made up elsewhere from the smaller depositors.
And then the number crunchers came up with the figures in the final release -- 9.9% for the bigger depositors and 6.75% for the smaller ones.
And, at first, no-one really noticed. It was only as the day wore on that people started to say "er, hang on, this is rather big news".
That night's negotiations will surely go down as one of the finest examples of staggering incompetence within the European leadership, where no-one is joining up the dots, and the result was that nearly all of the occupants of southern Europe will start wondering where to put their money so that it is safe.
+++++
What happens next? Any number of things. I don't see Cyprus going straight for a default. There will be more talks. But this time, thanks to Schauble, Dijsselbloem and Anastasiades, it will be against the background of a country where the banking system has ceased to function. They will have a lot of trouble putting this genie back in the bottle, and I think that Russia will have a big part to play in the "emergency" talks over the next 48 hours.
Oh, and, yes, the euro finally DID fall, because the "if they can get away with it this is euro-positive" scenario just got thrown out of the Cypriot parliamentary window.
I'm not quite sure what a collapse of a country's entire banking system looks like, but this seems to be making a damned good impersonation of it.
Once again, the "what happens next?" questions will be flying around for the next 12 hours. The media finally seem to have picked up that this is fast moving towards a Russia v Europe economic influence battle by proxy. Not a few Cypriots might well be saying "let's leave the euro, let's leave the EU, and accept a far greater degree of Russian influence".
That would be something that Wolfgang Schauble, a man who really should be hanging his head in shame given his blame-shifting of the past 24 hours (basically along the lines of "it wasn't me! it was him!" and pointing a finger at anyone who happens to be within 15 feet) might care to consider when it comes to writing his political obituary.
For it was Schauble who was the man who stood firm on the grounds of "A €5.8bn bail-in. We don't care how you do it" line, and it was the Cypriot PM Nicos Anastasiades who was therefore caught between a rock and a hard place. Now, fair enough, this was a rock and a hard place which previous Cypriot administrations had spent many years constructing. But the choice now facing Anastasiades was stark. Either bail-in the uninsured depositors by an amount so great that the Russians might pull out altogether, or bail-in the smaller depositors and risk national revolution.
So, the question has to be asked, because nearly all of the politicians are now realizing that the agreement announced at about 4.30am on Saturday morning is just about the biggest disaster since the crisis started:
How did it happen?
It all started earlier, on Thursday evening, in Belgium. The leaders of the eurozone were having a meeting. Anastasiades, fresh from an election victory, was congratulated by Angela Merkel.
On Friday the eurozone leaders had a honk shop. They were there for a summit; the journalists there were mainly politicos, not finance journalists. After all, there had been many of these bailout meetings in the past four years - usually Greece, sometimes Portugal, sometimes Cyprus. The rules of the game were simple -- the can would be kicked down the road.
So, when the eurozone leaders went home on Friday, so did most of the journalists. The finance ministers were left behind to sort out the nuts and bolts of the bailout.
But this time round, as I wrote yesterday, this time round the Finns were determined that depositors should take a haircut. If the Cypriots were to get a bailout, the depositors (mainly Russians unprotected by the Deposit Protection Scheme) should pay their fair share. Merkel, apparently, had agreed. At least, this is how Schauble, also enthusiastic for a bit of punishment, took it. Another new state of affairs was the the new "Mr Euro" was Dutch Finance Minister Jeroen Dijsselbloem, also a bit of a hawk.
Anyhoo, the discussions went through Friday night. Anastasiades was hit with what was seen as a blindsider -- €5.8bn would have to be paid by depositors in Cypriot banks -- via 15% tax on deposits over €100,000. Anastasiades reckoned that this would upset the Russians so much that a separate €2.5bn loan might be halted -- let alone the fact that the €30bn or so that Cypriot banks had on deposit from Russia might quickly find a more amenable home (preferably where, like Cyprus, not too many deep questions were asked about the source of the funds). So Anastasiades stormed out.
He soon came back. Dijsselbloem, whom I have to assume had some kind of mental seizure, said something along the lines of "how about 12.5% on the big deposits and 3.5% on smaller deposits". Anastasiades said in return (realizing that he had to come to some kind of deal to stop the bankruptcy of the nation's banking system) that 9.9% was the biggest he might get away with for the deposits over €100,000.
It's not clear whether Anastasiades realized what he had done, because more lowly officials were apparently told to go away and "do the maths".
They did, and they said that this meant there would be a 6.75% haircut on deposits under €100,000. Perhaps one or two of these lowly officials realized the implications of this. Perhaps they didn't. But that key moment when Dijsselbloem had first broached the participation of all depositors, rather than the "uninsured" depositors, had now become a train crash in slow motion.
The "news conference" (if you can count a conference where even most of the journalists had either gone away or succumbed to fatigue) at 4am Saturday morning must go down as one of the most underreported apocalyptic moments in history.
During that conference, no-one actually mentioned the levy on deposits. Christine Lagarde just talked about "burden sharing". Luckily, one of the reporters had actually read the official release. He asked Dijsselboem if it was true, if smaller depositors would have to pay 6.75% of their money. The Dutch finance minister's response was:
"We found it justified".
I somehow doubt that Merkel felt this when she woke up on Saturday morning. That must have been a genuinely "OH MY GOD!" moment. Schauble would have been summoned and I would imagine that Merkel's first words would be the equivalent of "WHAT HAVE YOU DONE????"
At which point Schauble would have begun looking for someone else to blame.
So, how did it happen? It happened because Schauble/Merkel, Dijsselbloem and the IMF/Lagarde wanted to penalize the Russian depositors, but SChauble took the line of "we just want the €5.8bn -- you can get it any way you like". Then Anastasiades had the choice of penalizing the smaller depositors (which he thought he had a small chance of getting away with) or seriously hitting the larger depositors (which he was sure he had no chance of getting away with). Then Dijsselbloem became the first to mention "the elephant in the room" -- taxing the bigger uninsured depositors at less than 15%, so long as the money was made up elsewhere from the smaller depositors.
And then the number crunchers came up with the figures in the final release -- 9.9% for the bigger depositors and 6.75% for the smaller ones.
And, at first, no-one really noticed. It was only as the day wore on that people started to say "er, hang on, this is rather big news".
That night's negotiations will surely go down as one of the finest examples of staggering incompetence within the European leadership, where no-one is joining up the dots, and the result was that nearly all of the occupants of southern Europe will start wondering where to put their money so that it is safe.
+++++
What happens next? Any number of things. I don't see Cyprus going straight for a default. There will be more talks. But this time, thanks to Schauble, Dijsselbloem and Anastasiades, it will be against the background of a country where the banking system has ceased to function. They will have a lot of trouble putting this genie back in the bottle, and I think that Russia will have a big part to play in the "emergency" talks over the next 48 hours.
Oh, and, yes, the euro finally DID fall, because the "if they can get away with it this is euro-positive" scenario just got thrown out of the Cypriot parliamentary window.
no subject
Date: 2013-03-20 09:44 am (UTC)Imagine an ordinary man in the street who walks into a casino and deposits his entire net worth on red only for the ball to fall into a black cup. If he went to the cashier and said, "That was fun but I'd like all my money back." He isn't going to be surprised when two burly men appear and take him outside for a seeing to.
And yet, when the so-called elites gamble their wealth away in their financial casinos it is the ordinary man who has to reimburse them at the cashier's desk.
What sort of "democratic" EU with its three unelected presidents is this? It would appear that anyone who wishes to enter politics, banking or the corporate environment is of the opinion, "I'm not working class anymore. Yippee! Race you to the trough and to hell with anyone else!"
If you earn a living through work then you are a worker. You may have "middle income" but you are not "middle class". In fact you probably have nothing in the form of class at all.
no subject
Date: 2013-03-20 08:16 pm (UTC)Iain
no subject
Date: 2013-03-21 01:08 am (UTC)1) I agree with Mike's response to the last post -- separating depositors using the bank for day-to-day operations, and savers putting the money in for the higher interest rates. A levy on fixed-terms savings products, or other such "interest-sensitive" products might have been achievable
2) It would not have been unreasonable for the Germans to have said "OK, we'll bail you out, but you'll have to forgo the extra interest you were shown to entice you to Cyprus". But they didn't say that. They said something else which, while the impact was not dissimilar in practice, was very different in psychological effect.
3) I take a somewhat amoral view of this. Banking piracy is only an outrage in my eyes because it's a bloody stupid thing to do (as we can see from the fall-out). As John Dodds pointed out elsewhere, you NEED a banking system that people trust. If you have lived in Cyprus all of your life and built up savings, it would take quite a level of financial sophistication to choose a German bank at 1.5% rather than a Cypriot bank at 4.5%, because you considered the risk to reward ratio too high in the latter. case. Sure, you possibly SHOULD have thought that way, but most people don't.
3) Hitting the unsecured depositors might have been reasonable, but, as the Greek president decided, that would annihilate Cyprus's banking system from a different direction. Hence the rock and the hard place (of Cypruss's own creation, but in existence nevertheless).
4) For €10bn, this really was a rather dumb place for the EU to make a stand on principle. There are times when pragmatism is the better route to take, I think.
Pete
Dumb indeed
Date: 2013-03-21 11:30 pm (UTC)As I pointed out at the time of the Greek not-a-crisis farrago (and you agreed), any sane federated entity not indebted to the voters of a particular party (the CDU) in a particular country (Germany) with a particular set of historical obsessions (hyperinflation of the Mark) would have taken the reasonable stance that, well, we screwed up but it's only 1% of the GDP of the federated union.
The failure to do that back in 2010 has been biting these so-called technocrats in the bum ever since, but that's OK, because they've learned, haven't they?
Apparently not. Leaving aside the morality of an ethnically divided island trying to solve its problems via either (a) Polly Peck or (b) laundering the money of Russian oligarchs, we're talking about a triviality here. What, 0.2% of EU GDP? With an admittedly busted bank system?
Hell, the ECB should have been given the power to federalize all the banks, take on the nugatory debt on behalf of the EU in general, and tax the fuck out of the Russian money launderers. Cyprus would then be left to its own devices, which over the last thousand years or so (back to and including the conquest by the de Lusignans) appear to be mostly whining about how other people don't treat them proper.
In other words, business as usual.
And a rational German (not a common thing) would have to admit that this is a price worth paying and indeed an essential price to pay.
Apart from the bleedin' obvious fact that this is clear evidence that the Euro was fucked from 2007 onwards, if not at birth. The longer this drags on, the more expensive it's going to be for German banks exposed to irredeemable debt and for the German taxpayer stumping up for that thing where the ECB shuffles euros around to make sure that the ATMs are still full.
It should die now. It will only get worse.
While Zeus Sleeps
Date: 2013-03-24 12:41 am (UTC)There, I think, you have it. Absolutely nobody I can find has asked this fairly straight-forward journalistic question. (We can leave the what, the where, the when and the why for later.)
It strikes me that we are presently in something of a dead spot for informative media commentary, and this worries me. The Fourth Estate is not exactly covering itself in glory on this one.
We are also presently in something of a dead spot for pragmatic political decisions by our dear distant leaders, but that doesn't worry me so much. The buffoons have been acting this way for twenty years at least, and the can is still firmly kicked down the road.