Does Cyprus still believe the Euro is a “stable environment governed by EU laws and regulations”?

This last weekend was an example of the motto be careful what you wish for as the bailout of Cyprus turned into a bail in for bank savers there. Whilst Cyprus is only 0.002% of the Euro area economy I pointed out in my update of February 11th that the situation there had the potential to become yet another Euro area debacle.

So she needs help from her Euro area colleagues and the amount required for such a small economy would be like a mouse for an elephant. But as we know mice can unsettle elephants and if we look at an obvious solution which would be a debt haircut we find our elephant does indeed have a problem. You see it was badged as a “one-off”!

Indeed I then went further.

We also know that the “solutions” applied so far in the Euro area have invariably made matters worse and accordingly I fear for Cyprus and her economy.

As I review the shambles that took place over Friday night and Saturday morning I see that my worst fears did in fact come true. I would call the Euro area leaders comedians except for the obvious fact that as Fleetwood Mac put it the result is “Its not that funny is it?”

Cyprus has not been in the Euro for long

It was only on the 1st of January 2008 that Cyprus joined the Euro having used it to replace the Cypriot pound. So it has not taken long to go wrong has it?

Indeed this benefit of joining the Euro quoted by the Governor of the Bank of Cyprus now creates at best a wry smile.

in a stable environment governed by EU laws and regulations

So how did things go so wrong so fast?

I reviewed the situation concerning the Cypriot economy on February 11th but there have been two clashing issues.

1. Cyprus has become a favoured destination for Russian savers with some of the money being heavily suspected to be part of a mafia/oligarch web. In other words there has been a money laundering issue. Getting accurate measures of the scale is difficult but of the 68.4 billion in Cypriot banks as of the end of January some 20.9 billion were from non-Euro residents.

2. This moved from a policing/regulatory issue to a financial disaster when Cypriot banks took the advice given by many of the “experts” favoured by the BBC and decided to invest such funds in Greek government bonds. After all what could go wrong? Also exactly what have the regulators been doing?

As the Greek government bond market collapsed and then was hit by the debt haircut called the Private Sector Initiative as well this plan shot up the list of financial debacles and disasters. The Governor of the Bank of Cyprus put it thus.

The Greek PSI alone cost Cypriot banks nearly 25% of the country’s GDP, because of excessive concentration of Greek debt in the balance sheets of the two largest Cypriot banks.

And of course in a world of privatisation of bank profits but socialisation of bank losses this led to this.

The Cypriot taxpayer is now facing a bank bailout package that could be as high as €10 billion, which is equivalent to over 50% of Cyprus’s GDP. As a proportion of GDP it is one of the largest bank bailouts ever, second only to the 1997 bank bail out in Indonesia.

The proposed solution

Firstly we get the standard response of more austerity.

the adoption of consolidation measures amounting to 4 ½ % of GDP

As the Cypriots considered the downwards push given here to her economy they may have wondered about what “ further measures mobilising internal resources” might be?! Well here they are.

Bank savings/deposits up to 100,000 Euros will be taxed at a rate of 6.75% and those above will be taxed at a rate up to 9.9%

You may be wondering about the bank deposit scheme in Cyprus? Exactly and a rubicon has been crossed here. Those in the know would be aware that Cyprus (like Ireland for example) could not fulfill the promises made by her deposit guarantee scheme but her ordinary citizens are likely not only to have been unaware of this but of course to have been promised exactly the reverse by their leaders. Also there has been an implied European backstop by the way deposit guarantee schemes were all set at 100,000 Euros which suggested some type of joint liability without actually providing it.

If we look for responsibility for this we see that apparently nobody is! Denials are everywhere as we face the prospect of the proposal inventing itself. Actually tucked away in the corner sitting quietly is the European Central Bank which had threatened to withdraw support from Laiki Bank (no more Emergency Liquidity Assistance or ELA) if a deal was not done.

Also in return bank savers will get shares in Cypriot banks. You may think that this adds insult to injury on the current prospects! But the spin is that this is an asset swap rather than a robbery.

Consequences and Issues

There are a world of themes and issues here. Let me start with Cyprus and then widen the discussion to the Euro and the rest of the world.

Cyprus faces economic collapse

1. A weakened economy now has found itself committed to yet more austerity. We know what happens next from what we have already seen elsewhere in the Euro perpiphery. This has been given a further push by withdrawing between 6.75% and 9.9% of the deposits from the banking system. Cypriot residents had 42.8 billion Euros of bank deposits as of the end of January and this will shrink by at least 3 billion Euros now. So another credit crunch has been created with an extraordinary contraction in both the Cypriot money supply and the perceived assets of Cypriots. Actually it was already falling as of the end of January with some 1.7 billion Euros being withdrawn from the banking system.

So there are genuine fears for the Cypriot economy that we could see a collapse on the scale of Greece. Odd is it not that the word “rescue” in the Euro area then leads to a collapse and yes I will update my financial lexicon.

The Euro Area

There are issues here as the rhetoric does not match the actions. Let me quote the European Commission President Jose Barroso.

In other words, in the euro zone, we are now equipped for any crisis

Well apparently not even a relatively minor Cypriot one. Also should he pick up the phone to Russian President Putin he is unlikely to be calling to emphasise this.

President Barroso said that Russia and the European Union are making good progress in a number of areas of common interest

Wider Issues

Savers and bank depositors

What has happened over the weekend has emphasised quite a few debating points about the status of savings as it like money,wealth,income and so many other economic concepts faces a challenge. We have two initial impacts for savers, the first emotional and the second factual.

1. Shock and surprise no doubt followed by fear for the future.

2. An actual financial loss.

If we move on from the contractionary effect of this we get to some economic theory.

Savings and bank deposits are a (usually) short notice loan to a bank. The modern era of electronic banking and at times instantaneous movement of funds has moved the general perception away from this. In practice bank deposits have often become more flexible and usable than cash itself as we found ourselves at times asking the question,what is money?

But as has happened so often in the credit crunch era (some of this has been by chance and some by deliberate disinformation and misrepresentation) the flexibility which has made bank deposits look more like cash indeed if I may put it this way have more “cashness” than cash has hidden another trend which is that bank deposits have become riskier and riskier. How much the risk has risen depends to some extent on where you hold your money but in an increasingly interconnected system of “too big to fail” you cannot fully escape it.

I am sorry if this comes as a shock and I repeat that a lot of effort has gone into disinformation in this area so if you feel cheated right now then I feel that you are right to do so. For example consider bank savings guarantee schemes are often not of the scale required although there is an element here of this being a Euro area problem as at the limit countries like the US or UK can simply print more cash to settle debts in a way that individual Euro members cannot. However of course money printing has issues for the exchange rate and inflation as we are reminded yet again of the concept of Catch 22.

Where this has really lurched forward over this weekend is the way that one can call what has happened an asset-swap. Now whilst this is technically true we have seen a swap from an asset with value (cash) to one of little or no current value such as Cypriot bank shares. Otherwise there would be no point! We hit here a very significant point and we are right up to date which is the shift from a bank deposit to equity. I believe that this is very wrong and is a perversion of genuine finance but we cannot rule out that it will happen again and if you are not involved in Cyprus this is what is most significant about what has just taken place. The rules of the game just changed.

Comment

I have covered some fundamental issues today and consider this to be one of my thematic posts to which I intend to return. But before I leave the conceptual debate I would like to point out where this has really gone wrong. Those who point out there are two sides to a balance sheet in their rush to include savers and their money in their schemes need also to deal with the debtors too rather than only the savers. In the phrase balance sheet is the word balance after all…

As to events they are spiralling around today as new numbers emerge and then disappear and we have even had a rumour that Gazprom of Russia will step in. But perhaps the clearest signal of the omnishambles taking place is that the Central Bank of Cyprus is unsure whether tomorrow will be a bank holiday or not!

This entry was posted in Banking Reform, Banks, Euro zone Crisis, General Economics, Greek Financial Crisis, Quantitative Easing and Extraordinary Monetary Measures, Regulation and tagged , , , , . Bookmark the permalink.
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  • Justathought

    Hi Shaun,

    While many people are outrageously chocked by the latest Cyprus
    development, the debate could easily turn toward “morality versus legality”. A couple of days ago I suggested that societies are notorious to sacrifice their own population in order to maintain themselves. .. El Senior Draghi hasn’t proclaimed… we’ll do anything to save the “Zero”???

    In the meantime French President must be smiling to the angels, at last the “Zero” is weakening, especially that: ”Jerome Cahuzac, the Minister for the Budget, says France will pay “about 3 billion euros in 2013, 3.55 billion in 2014 and slightly less in 2015,” to the European Commission for non-applications of several Europeans tax rules ” http://www.lefigaro.fr/flash-eco/2013/03/11/97002-20130311FILWWW00246-la-france-doit-des-milliards-a-bruxelles.php

  • http://www.facebook.com/nathanarn0ld Nathan Arnold

    ‘The rules of the game just changed.’ Was my first thought on hearing the news, now how much money can I fit in a mattress?

  • james

    Great analysis as ever, Shaun, in the face of a simply unbelievable cock-up by the eurozone.

    The real mess that they have made is that:

    1. Taking a percentage of savings can be understood by the public;

    2. It looks remarkably similar to theft;

    3. It applies to real people with real money disappearing;

    4. It is clearly and directly related to the eurozone;

    5. The Germans have cottoned on (hear radio 4 this morning) to the fact that the bail-outs might cost them real money.

    How much easier it is to indulge in QE/ESM/troika/IMF/Other acronyms to suit the occasion – no-one understands or pays apparently and there don’t have to be any cuts.
    And yet they remain surprised that UKIP/Beppe Grillo get the votes.
    Unfortunately, the message taken by the eurocrats from this very public debacle will undoubtedly to
    1. Keep things secret
    2. Come up with more acronyms and less action
    3. No doubt to explain why there should be ever closer union.

  • Anonymous

    First rate analysis, Shaun. I was under the impression that it was agreed in 2008 that savings of citizens were protected up to €100,000… surely the decision of the Cyprus President is therefore unenforcible/illegal? Views would be welcome.

  • Andy Zarse

    Hi Shaun, I read this stunning news yesterday whilst travelling back from the Netherlands (will file my Dutch report soon; their trifling problems are now put into relative perspective).
    I was sat waiting for our a channel ferry at Dunkirk, and the “Dunkirk” metaphor induced a chortle that will probably be lacking in both Limasol and Moscow just now. But I’m sure there will be queues of shell-shocked Euros waiting waist deep in the choppy fiscal waters as a flotilla of little bank transfers comes to take them away. I guess the Swiss will have mixed feelings too. Money will be gushing into Swiss accounts in a torrent faster than a Cornish flash flood, such that if UBS had a branch in Boscastle it would be washed away. And all this happening just when it’s getting close to the Annual Easter Test-the-Peg competition…

    Anyway, my next reaction was to reach for my battered copy of Richard’s Lexion but it appeared to have run out of synonyms. There is no entry to describe where a depositor walks into a bank with his savings only to be mugged at knifepoint by the bank manager! If it happened here I would have no hesistation in making a strongly worded complaint and if that didn’t work then I’d refer the matter to the Financial Ombudsman’s Service. Surely even the FSA would have to set up a sub-committee to look into the matter.

  • pavlaki

    I received a couple of e mails back from friends and relations in Greece after I had asked if they were concerned for their savings and the reply was not what I had expected. Both said ‘what savings – we have spent it all just trying to survive’. I know that both of these families are quite prudent and would have had money put away in the past so it comes as a bit of a shock and to me a demonstration of just how bad things are. It is never-the-less a hot topic in Greece and folk are very nervous again after having just calmed a little. Well done the Eurocrats!

  • Drf

    Politicians can do anything they choose, until ultimately there is armed rebellion against them. There is no honour amongst thieves or politicians. They make up the rules as they go along.

  • DaveS

    I’m afraid Cyprus is giving us a glimpse of the future.

    I spent a lot of time and angst looking at safe havens a few years back – bought gold, equities, index linked certificates and index linked gilts. Looked at offshore accounts and offshore gold custody schemes. At one point was trying to invest in farm land.

    But in the end I realised that unless I was prepared to flee then in the end a bankrupting government will always cease its citizens wealth – there is no escape unless you remove yourself from their jurisdiction.

    We are seeing the start of this here – wealth taxes are coming. Initially the ridiculous Mansion Tax, but this is just the start. Milliband is keen on Land Value Tax, I expect pension taxes (like Ireland has already done). Eventually I think we will see capital controls, restrictions on foreign equities, gold seizure (like USA did in 30′s), pension nationalisation (seizing of pension pots) and finally seizing of deposits (like Argentina did).

    If you successfully hedge yourself against inflation, then those hedges will become valuable and will eventually be targeted by the government. Its hard to believe that this can happen, but there are plenty of historical precedents and who would have predicted a Eurozone government stealing guaranteed deposits ?

    As Shaun said, the rules of the game have changed – except that is for the very wealthy, they play a different game.

    .

  • Alex

    “But the spin is that this is an asset swap rather than a robbery.”

    You just couldn’t make this stuff up could you?

    So if you mug someone in the street, but issue them an IOU in return, then its not a robbery but an asset swap, even though the victim doesn’t get a choice in it – and as likely, when they come to claim their IOU they’ll find you penniless and in prison?
    But they can’t put you in prison because its not a robbery. Duh! me….

    The wider implications must surely be, what can happen in one EuroZone country can happen in another?? Is your money safe and is this likely to kick off further cash withdrawals in other countries?

    and there is those magic words right at the bottom – do we call a Bank Holiday?

  • James

    Two other small poins, Shaun:

    1. I thought that the reason for saving the banks was to protect depositors. Perhaps protect could be added to your lexicon and be defined as “steal”;

    2. I had a vague feeling that saving was supposed to be a good thing, rather than feckless spending. This is hardly going to encourage the idea of saving.

  • Justathought

    Hi Dave S,

    Its hard to believe that this can happen… always been that way!
    When the citizens believe that their culture is no longer worth saving than
    societies collapse…I think that we are still far from this threshold, however personally I already reached it.

  • Pavlaki

    I like that! Mug someone and give them an I.O.U so it’s an asset swap!! Very good! At least they can’t take away our humour.

  • http://fabadger.blogspot.com/ Dan Hill

    Even supporters of Land Value Tax wouldn’t support it coming in without the removal of other forms of taxation. I haven’t heard of Milliband being keen on it. Burnham flirted with it during the Labour leadership contest. Where did you hear it?

  • forbin

    Hello Shaun,

    Hmm, I think a closer look at bank deposits needs to be done this week – I expect MiniTru to run NO stories what so ever about UK banks being emptied …..

    Now this Cypriot Solution brings to mind what our “leaders” were saying a while back – put your money into shares – look we’ve cut normal savings rates !! put you money into these stocks and shares ISAs – oh god ! we didn’t so they’re after our cash another way !

    Cash for paper IOUs – now this Cash for IOU scam

    DaveS is right – in the end read your history – money is taken from the middle class to give to rich – the poor don’t have any .

    Nathan asked – how much money can you stuff in a mattress – enough to keep you warm for a night once the Gov changes the notes – remember they took the old £50 note and altered the design ” because of too many fakes or what not ” …

    worthless over night , klick of a politicians fingers – ” klick! ”

    And taking over pensions ? Post Office comes to mind …..

    Nationalise the Pensions like Henry VIII did with the cathedrals…

    Don’t worry folks the show’s not over yet – didn’t they tell you it was a Farce?

    Pop corn in hand

    Forbin

  • Pavlaki

    I have now read many articles about the Cyprus bank raid in the German, French, Greek and Spanish press and whilst all of them express outrage not one asks the fundamental question – Is the Euro worth this? Surely people must be thinking that this is only a common currency experiment and that they were better off ( emotionally if not financially ) with their own currency? I am still amazed at just how much suffering the Eurocrats are prepared to inflict to keep this dream alive and I am even more surprised by how much folk are prepared to endure!

  • James

    I have seen this too. It is probably because Miliband expects it to be a way of dealing with those wicked property developers. When he discovers that it will involve a valuation for every one of the voters in the UK, I think that council tax will suddenly seem an attractive option..

  • forbin

    oops its already starting

    “never believe anything until its officially denied ” category

    Cyprus bailout: Savers in UK banks ‘well protected’

    http://www.bbc.co.uk/news/business-21827739

    Yeah right …..

  • forbin

    +10 !

    sorry is it possible for them do do less action ?

    as for 3 – yes its their jobs they’re protecting here !!

  • http://www.facebook.com/jason.aris Jason Aris

    This says it all…

    http://vimeo.com/43762138

  • DaveS

    Thats the flaw with mansion tax – how do you identify those .properties worth over 2 million ?

    I live in Islington and there are big anomalies in the valuations for council tax – things have changed a lot since early 90′s and are still changing rapidly.

    “Mansion Tax” has great kerb appeal for the voting public but it will be a mess. Won’t be long before its replaced by a “fairer” Land Value Tax….

  • DaveS
  • Anonymous

    Shaun,
    The genie is out of the bottle as even if ruled illegal the levy/asset swap threat is a clear option once EU law is changed!
    Everyone heading North to the illegal state with the Turkish currency?
    What were the IMF thinking (sorry forgot Lagarde in charge) still same old solution to export their way out of this with privatizations paving the way?
    Cypriot banks were paying 4.5% interest and apparently 10 year backlog on registering businesses for tax purposes – so some initial problems.

  • Jan

    Yes the euro was supposed to unite the citizens of Europe. I don’t think it’s worked.

  • DaveS

    “is this likely to kick off further cash withdrawals in other countries”

    What would you do if you had deposits in Greece for instance ?

    More critically global wealth will start to pull out of the Eurozone banking system and eventually the UK. This was one of our few remaining advantages – the rule of law protecting private wealth. The desperate attempt to pull back now is making it worse as they are threatening up to 40% tax on big deposits to protect small depositors. Doesn’t really matter what they do now – they have lost the confidence in the banking system.

    What chance do we have when we are governed by fools ?

  • forbin

    Hello Shaun,

    Sorry for posting too many times

    but why couldn’t Cyprus just let its banks , well , you know, sorta go …

    protection for the normal bank holders is in place ( erm sorta of ) so we could have a very nice test case for letting the banks take the rap – those Russian crooks ( as if they made the majority of the deposits – aren’t they a cover story ? ) would suffer as intended ??

    ah I’m forgetting this is the same old saga of protecting the UK, French and German banks , isn’t it?

    Forbin

  • Anonymous

    make sure you get the type with long side zipper for ease of access

  • Rods

    French UKIP party in Le Pen’s National Front. If she gets into power then she not only wants to remove France from the Euro but also from the EU. She thinks the EU is past its sell by date and not fit for purpose. Seems a sensible analysis to me.

    Where they have been getting stronger and more votes, the next French election may well be very interesting as they have caused some shocks in the past with their popularity in elections.

  • Anonymous

    Thanks forbin. It should read “well shafted”

  • quelgeek

    Like others here I was amused by the official denial from Mark Neale (of the Financial Services Compensation Scheme) that anything similar could happen here “because deposits are protected by the FSCS”.

    Like the Greek PSI which was deemed “not a credit event”, thereby not triggering the credit default swaps, so the Cypriot confiscation/corralito is not a bank failure and would not trigger compensation were a similar thing to happen here.

    Except that I have no idea where to put any compensation except a bank, I’d suggest the rational thing is to trigger a bank run and failure, to preempt confiscation.

  • DaveS

    From the Guardian

    “Another Conservative MP, Jacob Rees-Mogg, asks Greg Clark whether he would advise UK citizens in Ireland, Portugal, Greece, Spain and Italy to repatriate their funds.
    Clark replies that it is clear that the situation in Cyprus is unique”

    A unique cock-up.

  • DaveS

    From the BBC

    Joerg Asmussen, a member of the European Central Bank’s governing council, said that, as Cyprus’s banking structure was different from others in the eurozone, with fewer private bondholders, there had to be a tax on ordinary savers.

    What does fewer private bond holders mean ?

    They did the haircut on Greek bondholders – why not Cyprus ?

  • James

    I see that the Cypriot banks have now shut until Thursday. I suppose that they all hope that, by then:
    1. They can sort out the confiscation (sorry, tax) so that no-one suffers or at least only rich people
    2. We will have forgotten that they had designs on stealing money saved by normal real people
    3. They can go back to business as usual
    4. We plebs will finally realise that this mess has nothing to do with the Eurozone and will be happy to leave everything again in the very safe hands of the eurocrats…
    I can only assume that the eurocrats believe that we have an IQ of 3 and treat us accordingly.

  • Justathought

    Hi Shaun,

    Portugal’s annual inflation rate skidded towards a halt at the start of this year, and was at 0.2% in February, down from 0.4% in January. Inflation is collapsing now VAT and other hikes have dropped out of the system. Inflation is way below the close to 2% target of the ECB, and getting perilously close to deflation. The debt to GDP ratio (both public and private) will surge as nominal GDP falls.

  • Rods

    Hi Shaun,

    Another great piece of analysis.

    Apparently the Cypriot banks are in trouble where they spent 160% of Cypriot GDP of Greek bonds and the 75% haircut has left a big hole in their balance sheets!

    Russia and Cyprus have a very favourable double tax agreement that is also used by Ukraine. This has not been updated since the Soviet Union was dissolved and it has made Cyprus a good destination for savings.

    I no doubt that some of the money in Cyprus is dubious, but a large percentage will be legitimate as it was much safer to have your money in a Cypriot bank, rather than Russian or Ukrainian one.

    This is not because there is a risk of bank failure in Russia or Ukraine, but for personal security. Corrupt bank employees will sell account information to third parties who will try to take advantage of this. So if you are a businessman who is doing well, it comes down to keeping only relatively small amounts of money in your Russian or Ukrainian bank accounts for security reasons.

    I was reading over the weekend the recently published book “Heavens on Earth – How to Create Mass Prosperity” by J P Floru a Senior Research Fellow at the Adam Smith Institute. It is a good read on what countries like China, Hong Kong, Singapore New Zealand and Chile have done to get where they are today in terms of wealth. One of the interesting things is that there is very little bank regulation in Hong Kong and they know there will be no Government bailout after the failure of a bank. There was one in 1961 and two in 1965, when the authorities, basically said tough, these things happen in a capitalist economy. Since then their banks have been much more prudent and this might also explain why HSBC has been the only major UK bank since 2008 with no liquidity problems.

    A though of mine is that these bank problems have all occurred since various EU Directives to start to form a single market in financial services and bodies like the FSA have been created to regulate them. I’ve read that it takes between two and three years to get a bank licence in the UK. Could the problem thus be two much regulation, where the regulators scrutinize and view every ticked box but in reality see nothing! This regulation also forms a high barrier to the entry of new banks, so we have just a few too big to fail ones!

    If we had much simpler regulation so there were more banks on the high street and the Internet, but they had to produce quarterly accounts, with capital reserves, their loan book, by sector and non-performing and bad debts clearly shown and this was in tandem with widely available third party deposit insurance (the banks not allowed to sell so it is not another PPI scandal) then the market would price a bank’s risk. The banks would then have to tread a path between risk and profit and if you personally decide not to take out deposit insurance, that is your risk, so no Government bailouts are required.

    I think your idea of personal liability, is a good one, if you are senior management or an investor at an investment bank, which I would make legally separate from retail banks, would mean they would take a strong personal interest in keenly quantifying risk!

    If we continue with more and more regulation after the previous regulation failure and the horse has bolted (literally in the case of the other FSA!), then surely there is a danger of just creating as you would put it “a more unstable lifeboat” with greater regulation failure and even bigger banking problems!

  • DaveS

    Good day to bury other news perhaps ?

    “New fears about inflation as ONS quietly downgrades RPI”

    http://blogs.telegraph.co.uk/finance/ianmcowie/100023471/new-fears-about-inflation-as-ons-quietly-downgrades-rpi/

    They will steal by inflation and if you hedge inflation they will eventually steal your hedges – its just a matter of time.

  • http://www.facebook.com/TheRealFinney Andrew Finney

    It seems like so many problems have at their heart the hubris of government’s delusion that it can make life risk-less for it’s citizens: No need to scrutinise your savings bank or pension provider, don’t bother wondering what’s in your ready meal or whether the drugs your taking will cure your illness. We will handle all of this and more in your best interests, and we’ll make anything we judge a poor decision illegal..

  • Anonymous

    I wonder what the best way to drain accounts is under the radar? If I take out £1K a week for a bit and then claim I have a gambling addiction? You have to register when you buy physical gold in the UK. They really do have all the exists covered for Joe Avg.

  • Justathought

    Progrock, Do you fancy a little trip to Brussels? No questions asked…no ID required…http://www.goldforex.be/servlet/javaparser?pgm=lst_or_new&lg=uk

  • Neophytos

    Well from my contacts in Cyprus the possibility as i understand it of Cypriots rejecting the bailout and causing outright bank collapses is not negligible. i would rate it at 30-40%. If that happens will we see the first country out of the Euro and the dominoes starting to drop?

  • Anonymous

    And a good solid lock….

  • Noo 2 Economics

    Hi James,

    bail out banks to protect depositors, silly you someone (I think it was Forbin) has said on here before “Government of the banks by the banks for the banks”

  • Anonymous

    Hi James

    Thank you and your second point 3 was in one of the Barroso speeches I quoted from. Take a look at this in his home country of Portugal.

    “The European project was and still is not just a project for peace, but also for freedom, democracy and solidarity……
    We knew that sharing a common European destiny did not mean losing ourselves in a vast structure but, on the contrary, finding in that structure the inspiration and the strength to affirm our values and defend our interests.

    More than ever before, the European Union is the guarantor of the ideals of peace, respect for human rights, freedom and democracy on the European continent.”

    Er what about the economic collapse in Portugal Jose?

  • Anonymous

    Hi Ray

    Thank you. The wheeze on display here is that this is a tax and also that as the banks have not gone bust then a deposit guarantee scheme is not required etc.. Plenty of work for my financial lexicon there!

    This has carried on tonight where the latest EuroGroup statement -apparently they have realised something has gone wrong- tells us this.

    “The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below EUR 100.000.”
    Ah treated differently! We await to see what they mean by this (assuming they know…)

  • Noo 2 Economics

    Hi Forbin,
    Couldn’t agree more. This has definitely given Ravin Dave and Boy George ideas, they will be cursing themselves for not “thinking outside the box” like the ECB has.

    Now we begin to understand what Draghi means by “we will do whatever is necessary”

  • Anonymous

    Thank you Jason, I enjoyed the South Park view on all this and will tweet it out…

  • Noo 2 Economics

    “surely the decision of the Cyprus President is therefore unenforcible/illegal?” – seconded. Surely they need a law to do this? What’s tostop all the savers invoking the 100,000 euro guarantee and demanding a refund of the difference between the market value of their issued bank shares and the cash taken off them?

    I would be interested in a serious answer to this. Of course they can change the law eventually but I don’t think they have changed it so it’s illegal right?

    If not then, should this come to pass in the UK I would not hesitate to go into armed rebellion (in fact it would be a pleasure) against this Government. If they don’t want to bother with the law then neither will I!!

    I think the Cypriots and the Greeks for that matter should revolt and overthrow their Governments in an act of true Democracy. I don’t understand why they haven’t already.

  • Anonymous

    Hi Dan and welcome to my part of the blogosphere
    When I was involved in the debate as to how housing costs could be added to the CPI ( a relatively simple issue on which they still managed to drop the ball) I noticed quite a few establishment views that we had has a land price boom. So maybe they have been manoeuvering in the background for this sort of thing.
    In reality of course we had a house and (some) land price boom

  • ernie

    It means the main bondholder is the ECB, either directly or through posted collateral from such as the Greek banks. In other words, someone might “find the lady” and they wouldn’t be able to keep running the scam if they lost on these bonds.

  • Anonymous

    Hi Hopping Pot
    You may well find that in my financial lexicon for these times as I like it!

  • Anonymous

    Hi Forbin

    Initially I would expect money to come to the UK from the Euro area because of this. Maybe some has already today although the 1% rise in the pound £ versus the Euro may put some off. But there is plenty of scope for our gaffe ridden establishment to drop the ball…

    As to the other issue it is governrment of the stock exchange index by the stock index for the stock exchange index.

  • http://fabadger.blogspot.com/ Dan Hill

    The nature of politics and the media is that the public can only be fed that there are two choices with anything. EU project protectors bank on that. Hence we are constantly reminded that the inevitable consequence of there being no EU is war.

  • Anonymous

    Hi Dave

    It was the Greek PSI which screwed (technical term….) the Cypriot banks and of course they told us it was unique.Ooops!

    Actually Cypriot banks have a structure which has a lower amount of bond holders than you might expect. This is course yet another risk which did not seem to trouble the regulators. But I would as discussed before on the other bailouts/ins make them pay their share.

  • Anonymous

    Hi quelgeek and welcome to my blog.
    There is a phrase I use regularly which was originally stated by Otto Von Bismarck but I prefer to attribute to Jim Hacker of Yes Minister.
    “Never believe anything until it is officially denied…”

  • Anonymous

    Hi Justathought
    Yes the strong Euro -which is still just about true in spite of todays falls- has had a disinflationary impact. Also as you point out the VAT rises are falling out of the annual numbers so we could see sustained disinflation as well as deflation (falling aggregate demand) not a pretty mixture.
    And yet we see pavlaki and others reporting price rises on their trips….

  • Anonymous

    Hi Rods
    I didnt know the driving force behind the flow of Russian cash to Cyprus so thanks. Also even if it is not mafia money it may be driven there by the Mafia.
    I have a curious stat back. The Bank of Cyprus has more branches in Russia than in Cyprus. Although actually maybe it is not that curious…

  • Anonymous

    Hi Dave
    Sore losers arent they? Actually it is only taking away their kite mark which if you think about it is actually a compliment.
    Those scaremongering like Ros Altman with her “there might be no RPI tomorrow” might like to read the actual document which was released last week which states correctly that the ONS has a “statutory duty” to produce RPI stats. As they are already at the bottom of the report it will not be easy to demote them further!
    That bit by the IFS spokesman was shameful as his “broad agreement” was in fact 8 out of 406. He should go into politics!

  • Anonymous

    Hi Neophytos and welcome to my part of the blogosphere.
    In the Euro debate in the UK I have often pointed out that for the UK if we wish to join a currency union it would be more logical for us to join the US Dollar. In that spirit maybe you might be considering the Rouble although perhaps Cyprus might be better off with her own currency and then the dominoes would start to fall I think.

  • David Lilley

    Shaun,

    I think it is a good idea. Just make it legal by keeping the E100k protection but make the above E100k deposits progressive. A sliding scale. The bank shareholders have already taken their hit following the Greek PSI.

    The bank depositors are stakeholders just like the bank shareholders. They are capiltalists and there is nothing wrong with that. They made their opportunity cost decison. They pay this way or via increased taxtion.

    There is no possibility of contagion due to the EZ wide E100k guarantee.

    Cyprus is a tiny EZ economy and a very special case.

  • ernie

    David – good luck with that explanation. So far, all the bailout countries have been special cases. I’m sure you’re right. Cyprus is a faraway country of which we know nothing. Phew! Peace in our time at last!
    Don’t forget that the bondholders (ECB) took a risk but somehow they didn’t get hit – the eurocrats must have just forgotten I suppose.