Cyprus parliament delays vote on deposit levy to Monday

http://www.reuters.com/article/2013/03/17/us-cyprus-parliament-idUSBRE92G03I20130317

by grist • 13 years ago

38 49 13 years ago

Karunamon• 13 years ago

Maybe this is a terrifically ignorant comment, but it seems like the government mismanages their finances, as a result, they want the everyman to throw away 10% of their bank deposits?

WTF?

aristus2• 13 years ago

The banks, not the govt. But the bailout as structured tends to conflate the two, which is part of the problem. Also it directly hurts retirees in country while protecting rich foreigners (eg, holders of Cypriot bank bonds). It's WTF from start to finish, a pretty shocking abuse of power by the rich northern EU countries. Fairness and good governance have nothing to do with it.

bitcartel• 13 years ago

The UK will compensate some of its expats:

"But I can tell you that for people serving in our military, people serving our government out in Cyprus – because we have military bases there – we are going to compensate anyone who is affected by this bank tax. People who are doing their duty for our country in Cyprus will be protected from this Cypriot bank tax."

http://www.guardian.co.uk/world/2013/mar/17/cyprus-savings-l...

Lazare• 13 years ago

When a bank goes under, normally losses would hit the bond holders first, and only after that would depositors start to lose funds on amounts over €100k. Any amounts under €100k would be perfectly safe due to deposit insurance which is ultimately backstopped by the central bank via its ability to print money.

Cyprus banks are short about €16B that the Cyprus government does not have. They went to the EU/IMF and got €10B, leaving a €6B hole. In the normal course of events, the bondholders would lose everything (not significant for Cyprus banks; they're financed by deposits), accounts with over €100k would lose around 30% of the amount over €100k, and all other depositors would lose nothing.

Instead, the bond holders lose nothing, the depositors with over €100k lose only 9.9%, and the retirees and Cypriots with less than €100k in their accounts lose 6.75%.

In other words, ordinary savers are having their life savings confiscated in order to protect bondholders and Russian mobsters.

And, again, these savers are citizens of a EU country and Eurozone member who have been promised deposit insurance by their national government with the implicit promise that this would be backstopped by the EU, IMF, ECB. But their interests, it seems, are less important than the interests of the Russian oligarchs; after all we can't have them losing a significant amount of their uninsured deposits....

kyriakos7• 13 years ago

part of the loss was due to Greece's bail out last year. Cyprus had huge investments in Greece and when Greek debts were written off Cyprus debt automatically went up overnight. add to that bad management from the government and banksters and you have an unmanageable debt.

lbarrow• 13 years ago

The government didn't mismanage its finances, the banks did. The levy would be to cover the banks' debt.

justincormack5• 13 years ago

The government did mismanage its finances too. The banks are much bigger though.

rdtsc2• 13 years ago

Either way it is probably too late, there will be a bank run. If I had any money in there you'd bet I would in line at the bank first thing in the morning to get it out.

return0• 13 years ago

Except that The biggest depositors, Russians, British and Greeks, wont even be on the island.

JumpCrisscross• 13 years ago

The banks, highly leveraged and competing for offshore deposits with interest rates double the EU average, mismanaged their finances. Consistent with being an offshore financial centre, the banks' assets are about 5x GDP.

When the banks started to fail, the bailout team had three options. It could refuse aid and let the Cypriot economy crater - Iceland, in a similar position in 2007, crashed 60% and is still 1/3 below pre-crash levels. It could also extend loans in exchange for austerity, similar to what was done elsewhere. This would mean the 1/2 of Cypriot deposits from Russia, Britain, and Greece would run for the doors, leaving the islanders to deal with the banks themselves. Or they could do something fast.

Europe has no euro-wide deposit insurance. When you leave the weak to completely fend for themselves they sometimes fall, and they often break. This exacerbates the differences between the strong and weak in a way that is often damaging for everyone.

P.S. When any government mismanages its finances, someone takes losses. Sometimes it's as a one-off tax, sometimes as a permanent tax increase, sometimes as a reduction in benefits, and often times as inflation or default.

jellicle• 13 years ago

Hint: this situation doesn't have anything to do with Cyprus's government being irresponsible with money.

omonra• 13 years ago

I am not convinced that Iceland did the wrong thing - given the alternatives. Perhaps the foreigners who irresponsibly lent the money should be the ones bearing the brunt of the burden, as opposed to citizen-bystanders.

So far Iceland appears to be doing better than Ireland:

http://www.bbc.co.uk/news/world-europe-20936685

"By mid-2012 Iceland was regarded as one of Europe's recovery success stories. It has had two years of economic growth. Unemployment was down to 6.3% and Iceland was attracting immigrants to fill jobs. Currency devaluation effectively reduced wages by 50% making exports more competitive and imports more expensive. Ten year government bonds were issued below 6%, lower than some of the PIIGS nations in the EU (Portugal, Italy, Ireland, Greece, and Spain). Tryggvi Thor Herbertsson, a member of parliament, noted that adjustments via currency devaluations are less painful than government labor policies and negotiations. Nevertheless, while EU fervor has cooled the government continued to pursue membership"

http://en.wikipedia.org/wiki/2008%E2%80%932011_Icelandic_fin...

martinced• 13 years ago

It is way more complicated that that but basically it's the various eurozone government (just like many other governments) who did mismanages since decades and now the house of cards is starting to fall.

Here's an oversimplification: basically by running always on deficit the various eurozone countries have reached closed to an unsustainable point: at one point where the country has too much public debt the country is trapped in the "debt trap". At that point there simply is no way that you can get out because the interest of the debt alone is impossible to be paid without contracting more and more debt.

That is what happened to Greece, for example, where a state default took place.

Now people know that states are going to default so nobody wants to buy government bonds anymore: so the states are basically forcing the banks to buy govt bonds (with a last resort using the BCE as a "bad bank").

So when a country defaults, lots of banks are suddenly virtually bankrupt: they either need a bail-out or go bankrupt. Should they go bankrupt that would deal a huge blow to the economy. Nobody wants Deutsche Bank or BNP Paribas going down: that would probably mean civil war and the end of the western world as we know it.

So states are basically forced to bail out these banks. But, guess what, states are already way too indebted. So they're contracting even more debt, making it even more likely that they'll default.

Cyprus' banks happened to hold lots of govt bonds from Greece. Hence they got fuxx0red when Greece defaulted on part of its state debt.

Now of course if Cyprus defaults, more banks are going to be bankrupt and need a bailout or trigger massive civil unrest... etc.

Because after Cyprus it's going to be Spain, Italy, Portugal... In 2014 it's very likely that France won't be able to finance itself on the market at reasonable rates.

Nigel Farage explained this quite well in a talk in front of the european parliament: this cycle / state default / bank bailout / more state default is endless.

So the eurocrisis is first and foremost a crisis due to the various governments being ruled by clueless monkeys who can't count ("It's all lawyers, lawyers, lawyers" as Neil deGrasse Tyson wrote) and who've been hiding state debt behind growth.

Add to that a gang of banksters sharks always willing to try to create more money out of thin air with crazy leveraging and you get the crazy situation we're in.

It's now gonna end well because if you try to "analyze the curves" you realize we're going into a wall.

There is no way out.

Now of course the various politicians, most notably the socialist ones, are trying to tell us it's all the fault of liberalism and banksters but the cold hard truth is that when you run a country always on deficit at one point it becomes unsustainable.

Sweden got this in 1993 and in 20 years they went from a public sector representing 67% of the GDP to 49% today, meanwhile lowering they public debt from 70% of the GDP to 30%.

And that's a socialist country. And that's something socialists in the eurozone simply do not understand: the public sector is way too important, the private sector is way too taxed and we're going into a wall.

The solution is less state.

jstalin• 13 years ago

It's bald-faced confiscation of individuals' savings in order to bail out mismanaged banks.

airesQ• 13 years ago

If the Cyprus government, EU, FMI and ECB were to do nothing it is almost certain that the depositors would see much less than 90 cents on the euro.

The depositors are being rescued here. They trusted their money to banks that went on to make loans to the Greek government. The Greek government defaulted. A significant portion of the depositors money is gone. Nobody is confiscating anything. International institutions are helping Cyprus, by covering part of the losses. Unfortunately there is nobody willing to pay the amount necessary to make the depositors full again.

One might argue that this is bad, and that the EU/IMF/ECB should make the depositors full, without an haircut, but that is another story.

Game_Ender• 13 years ago

What about the bond holders though? If the banks go under they lose their money as well, it seems to reason they should be taking a hit as well, not just the depositors.

TillE• 13 years ago

It sounds like they can't get the votes to approve it, which makes sense. It's gotta be political suicide. Either way the banks are going to be destroyed.

bradleyjg• 13 years ago

These banks were paying 9+ percent interest on some accounts. If it sounds too good to be true, it probably is.

mjn2• 13 years ago

Same happened with the Icelandic banks: in mid-2000, I knew several Americans who rather ill-advisedly created accounts with forex brokers just to get ~8% interest on ISK, a currency and economy they otherwise knew nothing about. Seems to have been common, because the Icelandic banks had large deposit inflows up until the crisis hit.

kyriakos7• 13 years ago

as a Cypriot who will lose part of his money I believe voting for this measure is the best of the two options even though both are bad for us.

ctdonath2• 13 years ago

What's the other option?

In the USA, taking 7+% of everyone's savings on short notice would initiate a civil war. Can't imagine how another alternative would be worse.

MoreMoschops• 13 years ago

What would the two sides be? One side is presumably every citizen, but that leaves no citizens on the other side. Sounds more like a revolution.

justincormack5• 13 years ago

The other option is taking more than 7%. The suggestion was a 40% currency devaluation. Although no one really knows what would happen in detail.

rdtsc2• 13 years ago

So that is they prefer to instead skim a little bit off the top slowly through inflation. In the end it doesn't matter, but it just prevents people from revolting.

tptacek• 13 years ago

A civil war over 7%?

http://www.google.com/finance?chdnp=0&chdd=1&chds=1&...

kyriakos7• 13 years ago

The Cypriot government during the loan negotiations at Eurogroup on Friday was essentially blackmailed. They were presented with the deposits haircut and increase in corporate tax. Our president threatened to leave the negotiations cause stealing depositor's money is unacceptable and was threatened that if not accepted the European Central Bank on Tuesday will stop providing liquidity to one of the main Cypriot banks which would lead into: the bank shutting down immediately, taking down the 2nd largest bank with it; 8000 people would instantly lose their jobs (Cyprus population is just 700k) and by the end of the week all small and medium sized companies will cease operations. The country would then default and be kicked out of the eurozone with all the consequences that it would bring.

revelation• 13 years ago

That doesn't seem like "blackmail", but a frank assessment of the situation.

jpdoctor• 13 years ago

bjornsing's blog post is a good read, and gets it right imho. http://conscienceofanentrepreneur.blogspot.se/2013/03/whats-...

kyriakos7• 13 years ago

lets not forget that Cyprus has recently discovered natural gas and possibly oil in its exclusive economic zone expected to be exploited in the next few years. call it conspiracy theories but a weakened Cyprus is easier to manage..

omgyeah2• 13 years ago

No, dude. Let's call it pure coincidence. Once in a billions.

opminion2• 13 years ago

Why good financial management is not a competitive factor amongst banks?

As in: bank with us because we are financially sound (instead of: because we pay higher interest, or whatever). It's not happening yet.

untog• 13 years ago

There's no reason it couldn't be. Within the US there are public figures available stating which banks have been the best and which have been the worst in the last few years.

There is nothing to stop customers banking on this basis. They still don't, perhaps largely because the government insures up to $1xx,xxx in deposits (I forget the number) so a lot of people are covered no matter what happens to their bank.

akama• 13 years ago

I believe in the US the government insures up to $250,00.

kyriakos7• 13 years ago

Deposits in Cyprus and the whole eurozone are covered by 100000 euro insurance per account. The problem in the particular case though is that Cyprus Central Bank in case the banks close down will be required to pay depositors a total of 30 billion euro which it doesn't have.

opminion2• 13 years ago

So, silly idea here: would reducing the government guarantee improve anything?

mjn2• 13 years ago

Rather than recapitulating the same discussion of the general issue, might be better to consolidate it in this other story that's been on the front page longer: https://news.ycombinator.com/item?id=5387228

yk2• 13 years ago

So the Greek bonds get a haircut and in the process the Cyprus banks are thrown under the bus. At the same time Germany, the Netherlands and Finland enjoy the capital influx of insurances and some fonds, who are regulated such that they can only invest in the Eurozone. These capital influx creates a nice boom, low unemployment and ensures the reelection of the idiots who did throw Greece under the bus in the first place.

This crisis would be so funny, if it would occur on any continent I don't live on.

pasiaj• 13 years ago

Who do you think threw Greece under the bus?

yk2• 13 years ago

For example Germany. ( I am not sufficiently knowledgeable on the interior politics of the other eurozone members to assert with any confidence that they were purely motivated by their chance of reelection. )

rosser• 13 years ago

I'm asking out of complete naïveté in matters of global finance, but what's to stop Cyprus from pulling an Iceland?

omgyeah2• 13 years ago

sold out politicians

kyriakos7• 13 years ago

eurozone - cyprus cannot devalue its currency.

Cyprus parliament delays vote on deposit levy to Monday

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