The national debt of Cyprus is about 71% of GDP (from here) versus 80% for Germany. Their deficit is 6% of GDP Cite versus 8% for the UK. (And 9% for Spain.). Go to the country page there to compare. So this does not seem a government debt issue, but rather a bank issue. Of course if the government bailed out the banks it would be a government debt issue.
I agree this is another TBTF problem.
So, anyone know how the bankers that got them into this mess are doing?
From lisiate’s link:
I suppose this might help but even if I had less than €20,000, I might consider pulling it out for fear of what may come next week or next month.
Well even if the sheer lunacy of an across-the-board haircut is avoided, there are still other issues at play, namely
a) the faith of the irrational consumer
b) what it does to the intricate crossweaving of ratings and models predicated on very specific assumptions.
c) the added headache it imposes on the fragile EU.
News reports are the Cypriot Parliament voted down the proposal today by a nearly 2:1 margin
And bye-bye Cyprus economy. It was nice knowing you.
Video from CNN on what JRDelirious mentioned.
IMHO, their economy was as good as ruined the moment this proposal became public due to the inevitable bank runs, regardless of whether it passed or not. The only question at that point was the exact mechanics of its destruction.
Maybe they should consider selling off naming rights and capitalizing on all the press they’re getting…
*
AT&T’s Republic of Cyprus
Exxon-Mobil’s Bank of Cyprus*
… and so forth.
More importantly, that wasn’t 2:1 nay to aye. That was 2:1 nay to abstain. Not a single aye vote was cast.
At this point the question is whether there would be bank runs in Spain, Italy and Greece at a moment’s notice, or if this not passing will make depositors in those countries more secure.
I read that someone from the EU said that it was important for investors, not just other countries, to feel the pain. I doubt many of those with relatively small deposits consider themselves as investors.
Want to live dangerously? Put your money in a savings bank!
Never happen in a million years, but this is by far the most rational way to solve the crisis. Have Turkey buy the half of the island they seized in the 70’s for a couple billion. Greek Cypriots might not like it, but Turkey isn’t going to give back their half whether Cyprus recognizes it or not, so they mind as well get some money for it. And the military standoff between Greece and Turkey costs both countries billions they (especially Greece) can’t really afford right now.
Turkey gets its defacto control of Cyprus recognized (and the largest barrier to its entry to the EU removed), Greece gets to save billions in defence spending, NATO gets rid of its biggest interior military rivalry, Cyprus gets the money they need and presumably opening the border would be beneficial to the island economy. Its win, win, win, win. The only cost Cyprus giving up a purely theoretical claim to land they never had a chance of reclaiming anyways.
The price would have to be more like $6 billion to cover Cyprus’ share of the cost of the bailout.
Day two of the reaction here. my favourite moment - the UK sends a plane load of cash to pay it’s soldiers if the banks run out.
Well, they could make up the difference by selling off their rights to the natural gas deposits that have recently been discovered. Fairly sure they could cover it all with both things, though it’s probably politically impossible on either point.
The key though is they have to do something…and it looks like they still haven’t figured that part out. They are all patting themselves on the back for knocking down this proposal, but I haven’t heard anyone giving any sort of solid alternatives.
As Der Trihs says, they are screwed, and the only real interesting question (in the Chinese sense of the word) is whether this will be contained locally or will spread out to other parts of Europe.
If you’re Turkey though, why not just wait until Cyprus really implodes and is really desperate for capital with no relief in sight, then make an offer to buy the recognition on the cheap?
Pretty far off the discussion of the moment, but one odd thing I’ve noticed about the coverage of Cyprus is people talking as if they’d only become a major offshore banking destination in the last decade or so; in fact, they’ve been in that business at least since the Lebanese civil war got into full swing; the Russian money mainly replaced Middle Eastern money that had gone back to Lebanon, to Dubai, and other points.
I’ve heard suggestions that the UK should take on Cypriot debt, the Cypriots switch to GBP for a few years and the UK get some deal regarding to gas and oil fields supposedly around Cyprus, and then when things stabilise the Cypriots start printing their own currency again in a few years. Seems a bit wacky at first but: Cyprus has only been independent of the UK for the last 50 years, the UK still has a very strong connection with the island even today (the British base on the island effectively keeps the peace between the two halves, or has done until very recently), many British and Cypriot families reside in both countries, etc. and a Cypriot MP was on British TV last night saying that unless the issue is resolved in two days the Cypriot government is starting to print Cypriot Pounds again. I wonder how feasible it is?
In other news, the entire European continent has gone off the deep end, as now the Spanish are trying to implement their own depositors tax.
At this rate I won’t even be able to buy the popcorn for watching this train wreck.
Russia may come to the rescue.
It’s been pointed out elsewhere that even mentioning something like this in Nicosia would get you punched in the face, and any Cypriot government official who actually tried to move forward with such a plan would be liable to get assassinated. But Matt Yglesias doesn’t seem to understand that politics will stand in the way of his tidy and oh so clever solutions.
Err…he stresses that he knows it won’t actually happen in his column (you have to be clever enough to read all the way to the second sentence of his post to get to that part), and the first sentence of my post is that it “won’t happen in a million years”. Everyone understands the politics involved.
But its still worth pointing out that the politics are stupid.