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.
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.