“Destroy your career, betray your own people and give us their money or your economy will be destroyed” = extortion.
Of course, this plan will I’m quite sure destroy their economy anyway.
What are you talking about? No money is being taken from Cyprus, billions is being given to them. This tax goes to the Cypriot government, not the EU.
As of right now, it’s 11:45ish AM in Cyprus. It’s Monday, and a holiday. The MPs are debating the one-off tax and then going to vote on it. It hasn’t happened yet.
People pulling 400 euros out of their accounts via ATM isn’t much of a run on the banks. Sounds more like a publicity stunt.
Whatever, I didn’t realize this was GD, so I’m out. Sorry.
Too bad “you’re out”… as others have tried to point out, they CAN’T make a real run on the banks, they’re CLOSED, this whole deal is happening over a holiday weekend.
If you’re a government who has allowed backing the nation into a no-win corner where the only deal on the table is a political-suicide gambit, your political career deserves destroying.
This is crazypants.
Vote delayed again. They’re putting it off until Tuesday. Or maybe Friday.
For every crisis so far, these heads of government have always been able to rassle up enough votes at the last minute to keep themselves a member of this rickety mal-engineered system for a little while longer. The Germans are trying to point out that it wasn’t their idea to hit the depositors with balances of less than 100k, under the guaranteed insurance limit. We might see a compromise with the government hitting the wealthier accounts at more than 10% in order to spare the smaller amounts. This would leave the Russian depositors unhappy, but it might work to kick the can down the road another half year or so, until the next crisis inevitably happens.
Or this could be the time when a country finally says no.
So are they still planning to open the banks tommorow morning, because if they are there isn’t going to be any money left in them by 4pm never mind Friday.
And if they don’t re-open the banks soon, you’re going to see even more unrest as people start running out of money for necessities like food.
What’s this got to do with American interpretations? The move is retarded. Are you actually going to defend ordinary depositors losing 10% of their deposits, or are you going to use the stupid “le Anglo Saxon” card forever?
We’re seeing a pattern emerge: when a country requires a bailout the propaganda machine starts to ramp up. First it was the workshy Greeks, now it’s the dirty Cypriots hiding Russian mobster money. It’s a clever ruse: get everybody talking about the supposed benefits of the move without anybody actually examining how well-thought out or wise the move is.
Answer me this: why should I as a Greek, Spanish or Italian depositor trust my deposits in Eurozone banks now? It’s likely to cause a Continental-wide bank run.
What would that look like, a country finally saying no? That’s a serious question, not snark. What does that mean? Do they simply default on all of their debts? Do they leave the Euro? What would be the result?
So where did the money go? Did Cyprus indulge in a building boom (like Ireland)? Or was the money lent to criminals, and siphoned off? I know that a lot of shady Russian “beezneezmen” liked Cyprus-did the banks there have a “no questions asked” policy?
I can’t believe I’m in complete agreement with Der Trihs on this. That doesn’t happen very often in matters of economics or world politics.
Here’s the big issues:
(1) Theres almost certainly going to be a massive run on Cypriot banks the very minute they open.
(2) I have serious doubts the banks can survive once the RUssians start yanking their cash into other locations, which they will do ASAP.
(3) This “deal” evidently never ran past the Cypriot government - or at least the legislature. it was a deal between Finance Ministers of various EU govenrments, which makes its legal status iffy at best.
(4) I’m having trouble figuring out the basic problems in Cyprus’ banking system, but something important to consider is that it isn’t a Cypriot banking system. The banks are headquartered there and any problems will disproportionately fall there, but the problems seem to go much farther than that.
(5) Whether or not the money has shady sources, it seems to be invested in more or less legitimate destinations and legal protection.
(6) Cyprus, and by extension the entire EU, has just held up a giant sign to the world saying, “OUR BANKS ARE ENDANGERED! DON’T TELL ANYBODY!” The minute these Finance Minister morons considered eating into depositor insurance was the the minute they should have flung themselves of the roof to a grisly death. From now on, no-one, no-one will trust that promise.
(7) To condense the situation: The EU seems to have an awful lot of completely unique, one-time crises.
They held a lot of bonds/debt from Greece, among other things.
This is the thing i don’t get. How could anyone whose job involves finance possibly persuade themselves this was a good idea. Even if one person was crazy enough to suggest it, how was he not laughed out of the meeting by everyone else.
No, the Eurozone has done that, not the EU. There’s people on other forums talking about removing money from Dutch accounts and putting them into British banks. There’d be a revolution in the UK if they tried pulling this shit here.
OP: What happens next?
Enter dummy media making unsubstantiated and totally BS claims such as this opening paragraph (originated at Associated Press):
http://www.huffingtonpost.ca/2013/03/18/cyprus-bailout-tax-stock-markets_n_2899840.html
There is no chance in hell that anyone can make a call like this without some serious analysis of who moved how much and where to. And those who could probably make some assesmnet in such a short time would rather not make any claim as there are just too many factors affecting the stock markets.
But, it’s out there and that’s all that matters.
No chance of the banks reopening before it’s decided.
Either they get the bailout and the corresponding monetary lifeline from Frankfurt, about which there would be continual press releases to calm the public before the doors open… or the vote fails and they keep the system shut down for however long it would take to accomplish the ridiculous ad hoc procedures required to break from the euro and devalue. They need cash. They’ll get cash from Europe or they’ll magic up some of their own.
It takes some time to untangle. Let’s back up a bit.
They don’t have any money, so they can’t pay their debts.
If they had their own central bank and were borrowing in their own currency, rather than having foolishly decided that people in Frankfurt should determine their monetary policy, then there would essentially be no possibility of strict default. If they couldn’t pay their debts, they could make up some money and pay debts with the new money.* Sounds bad, but it’s generally less bad than the alternatives. As it is, though, they’re stuck. No money. Their banks had a lot of stuff like Greek bonds as assets (whoops!), and the banks have deposits as liabilities. Those assets? Naturally, they’re worth much less now, so the banks are in trouble.
The Cypriot banking sector did business out of proportion to the size of the economy. We have to remember that “deposits” aren’t cash. Most of us think of our deposit balance as essentially the same as the paper banknotes we hold, but really, it’s not. Those deposits are liabilities of the bank. Deposits are bank debt, owed to us. And Cypriot deposit liabilities are enormous, since they were a banking haven. With their assets blown to hell, the liabilities are too heavy. So the entire financial system is on the brink, and it was so large relative to the rest of the economy that the government doesn’t have nearly enough oomph to support it. This thing was going to go down.
The people who do have the money, on the continent, don’t want to just give it out. They want to put some pressure on. They call Cyprus a “special case”, so they said essentially, “Look, we’ll support your banks. We’ll keep your financial system from falling apart. But you guys gotta take a cut, too. You have all those deposits from Russia – liabilities that your banks owe to people outside the country – so why not just ERASE those liabilities?” The move is essentially a wealth tax, but it’s a very very strange one. They’d planned to go into those banks’ books and say, “You know how we said we owed you 100 euros? Psych! We only owe you 94 euros now!” The money isn’t being transferred anywhere. It’s just that the debt (the bank deposit) is being erased.
The assets got blown to hell, but if the deposit liabilities get cut, too, well then their books are in much better shape, right?
The Germans say they only suggested making the cut to the big accounts, greater than 100k, but the Cypriot government apparently didn’t want to piss off its international deposit base too much, so they apparently decided to share the pain with the natives. Apparently. This is a ridiculous move. Such a deposit forfeiture isn’t entirely unprecedented in financial history, but it’s the kind of dumbass action that governments take when they’ve already used up the rest of their available dumbass actions. Finance is based on trust, and when the twerps in charge piss so flagrantly on that trust, it’s simply impossible to get it back.
But without cash, the financial system implodes. They need cash. Either they get the cash from Europe – which means accepting a deal where deposit holders take a hit – or they could tell the EU to fuck off. Which leads to your question. What happens then?
What would happen is that the banks stay closed for however long it takes for them to devise a new currency from scratch. They need a financial system. They need institutions that clear transactions between parties, that can make loans, that can manage the records. With a new currency, the banks can kinda-sorta “pay back” the money that is owed to their depositors because their government can create as much of this new money as they want to support the banks’ liabilities. It also means that the government itself can kinda-sorta “pay back” the money it owes in government bonds. But yes, this is default because they won’t be paying back the money in euros. They’ll be paying back these debts in the New Cypriot Pound, or whatever they call it.
The transition? Crazy. Painful. Difficult to imagine. The New Cypriot Pound won’t be worth nearly as much as the euro, but where would it stabilize? How fast would it stabilize? Would it even manage to stabilize at all, or would they descend into hyperinflation? Nobody knows. And how quick could they pull it off? Nobody knows that either. If I were the Treasury minister, I might have already had a box of totally innocuous-looking Hello Kitty stamps stockpiled in a warehouse somewhere, ready to be delivered to every bank in the country on a moment’s notice. When the axe comes down, I could deliver the stamps, they could imprint that adorable face on every “euro” in every bank’s possession and thereby transform those “euros” into “New Cypriot Pounds” until I come up with a semi-secure way of printing more that aren’t too terribly easy to counterfeit. But having a plan like that is inherently risky in itself. If people discover those Hello Kitty stamps and suddenly make the connection: “He’s ordered these entirely innocuous-looking stamps to disguise his secret plans of breaking from the euro!” then financial panic ensues anyway. Finance is based on trust. The act of merely considering breaching that trust is, in itself, a breach of that trust. Which is yet another reason why erasing these deposit liabilities so arbitrarily is a terrible idea.
So that’s where they stand. They’ll either be receiving a big ole spigot of moneys from the continent, after accepting some sort of deal… or they’ll be creating their own money and instituting some very strict regulations (“capital controls”) on the banks to keep the system working at some minimum capacity until they get things sorted out. Lots of other countries in Europe have faced a very similar choice, and the others have all chosen to agree to EU terms and get the money spigot rather than break off and do their own thing. So far, everyone has chosen the devil of the pain they know, over the great unknown of recreating a currency from scratch on extremely short notice.
The eurozone was simply a terrible idea.
*Countries can’t continually do that, or creditors start demanding payment in a foreign currency like dollars, but borrowing in your own currency is a great buffer against default for countries that can pull it off.
Boy, ain’t that the truth.
This is some bizarre stuff, whether it is legal or not. They are worried about the capitalization of their banks, so they contemplate doing something that will make everyone pull their money out of the banks. They don’t want spending cuts because that will stifle growth. So they destroy the confidence of every investor in Cyprus by ruining their confidence in the banks.
Banking is/was such a disproportionately large part of their economy, I would have thought they would know how to deal with it a little better. If they are worried about the Russkis depositing money with them, why aren’t they targeting only deposits from foreigners?
And the worst thing about it is that they aren’t going to be able to un-scramble those eggs. Confidence in their banking system is gone, gone, gone, no matter what they do.
Regards,
Shodan
Word is going round on the various news feeds/finance journos on twitter that the banks aren’t going to open until Thursday.
Hmmmm.
This is a disaster in the making, and not just in the Eurozone.
gulp
I can’t yet decide who was more moronic, but I’m going with the Germans: while the “universal haircut” is basically a financial nightmare and could spell doom for the entire Cypriot banking system, it was also a necessary move to try and preserve some kind of credibility. I don’t think it would work, but without this, it’s telling every major account holder everywhere that their money is up for grabs when convenient, and would absolutely spell doom for the banks. Once they decided to go down this road, the only choice was to pickpocket every acount to some degree. The German “solution” would have been to effectively erase the entire banking sector of Cyprus.*
I don’t think it’s going to work, and I expect that the Cypriot banks are doomed, Doomed, DOOMED! anyway, but my best guess is that Cyprus was grasping any straw available. And of course, this entire mes is started because of… yes, the Euro, which made Greece look like a vastly better investment than it was and led to the collapse of Cyprus, which may now force all of Europe back to barter and cash-n-carry. I’m curious what the pro-Euro groups in the UK are saying, if they believe that it’s still going to be a relatively short-term interruption, or if they are souring on the currency union?
*I want everyone to know that I thought of no fewer than three Nazi jokes and refrained from Godwinizing the thread.
I really don’t understand this. How can any sane person, let alone people who are Finance People in Charge, think it’s an okay idea to announce they’re going to take the money, then postpone the vote, then close the banks for a week?
Seriously - how are people going to get food or medication? My payday is Wednesday - would I just have to hold a paper check or have my direct deposit locked in there? Even if I could get my $400 from the ATM - what if I couldn’t because I live paycheck to paycheck?
This is so bizarre to me…nothing good will come from this, and it will fuck the Eurozone for a lot time.