Cypriot Austerity Measures

[bazaarboy]

the tragedy is that most folk in Cyprus are decent, had nothing to do with this mess but are footing the bill
Three of the causes of this mess are the following:
1. Greece's banks borrowed too much from Cypriot banks, then went bust and the debt was written off. The principal directors in the Cypriot banks must be prosecuted for what amounts to criminal negligence.
2. Cypriot banks relaxed the lending policies excessively, giving millions to "property developers" who have build > 100,000 homes (of sub standard quality, which remain empty). Here's an example: the CEO of Bank of Cyprus was at the same time CEO of a large house building firm, and personally approved loans for his construction business!
3. The left-wing governing party AKEL dithered and did nothing for months, when a previous set of measures was put on the table. That set of measures would have been far better than the outright fleecing we have today.

 

[Freakbro]

It's the same level being used, but it would not have been illegal to tax savers below the 100k.

The protection exists against bank defaults. The bank isn't defaulting - a new tax is being levied by the govt - so the protection does not kick in. The fact that the low level savers would receive 100% of their money back if the bank went bust instead of the initially proposed 93% they would get by 'saving' the bank is neither here nor there in the eyes of the politicians.

the two are not connected.

Ahh ok, I thought they were under the same legislation.

 

[ntg]

It encouraged expansion of banking systems, and Greece was even more affected by disparate economies following a singe economic policy thus their collapse and the collapse of Greek bonds.

Which EU economic policy was it that caused the collapse of the Greek economy?
The Greek economy failed because the government borrowed too much and their banks were semi-forced (by the gov) to buy their bonds in the first place. Nothing to do with EU policies.

Between poorly thought out economic policy that only suited the wealthier nations in the Eurozone and the banking sectors incompetences, the depositors in Cyprus (and no doubt in other nations as soon as the precedent is set) are being asked to foot the bill.

Again, nothing to do with the wider economic policy. The irony is that if the Medditeranean countries had actually followed EU economic policy on deficits and debt they wouldn't be in this mess, so I can't see how the policy itself encouraged such irresponsible behaviour.

The reality is simple, the Med countries have always acted and behaver in a cavalier fashion and now that that under a common currency they cannot devalue their way out of it they have to face the consequences of their actions.

Cypriot banks overextending themselves due to what is known as 'greed'. The close relationship of Greece & Cyprus was another cause that allowed this incestuous relationships between two overstretched states.

The reason why Cypriots are having to pay directly for their banks (and why it has not happened in any other EU country so far) is because bondholders do not hold enough debt to cut. All bondholders in Cyprus will lose everything, but it's still not enough for the gov to recapitalise the banks - hence the need to ask for money from EU. But the EU is willing to support, not pay the lot, that's why savers will have to take a hit - just as it happens whenever a bank goes under anywhere in the world. This is not, and will not, be limited to Cyprus. People are talking about it as if it's something novel, but the truth of the matter is that their banks are going under and the gov doesn't have enough money to recapitalise them, hence the savers lose out.

If this was Germany or France, do you think this would be a requirement of a bailout?

If a bad bank goes under in Germany or France this might as well happen, unless the Germans want to finance the shortfall themselves. But they will only do that for savers of 100k or less, not the higher ones.

The Euro was supposed to be a shared single currency, a shared single currency implies a shared responsibility, it seems that the responsibility only goes one way however.

Yes it was and is. But if one country doesn't act responsibly then where is the sharing? The Cypriot gov was irresponsible, and Germany and France are not mom and dad to make it all well. Irresponsibility is punished, not forgiven. German savers are not idiots to see their taxes used to bail out other irresponsible ones. Help, yes, but to some extent where you are not taken for a ride.

 

[GAC]

ahh the poor ole eu going boobs up yet again. end of the day countrys like greece and cyprus shouldnt have been in the eu.

and more fun, the ecb did a check on cyprus in 2011 and said nothing was wrong, showing that the pro eu/euro people in power will say anything to save the dream of a federal state. even if it means lying about things, much like how greece was shown to have stable finances when they joined the eu in the first place.

 

[Iraklis F.C.]

In 2008 Cyprus was welcomed in teh Eurozone with honors as a very healthy economy, 5 years later they have lost 25% of their GDP in a week, they are a money laundering economy, tax dodgers and dictated by the EU on how they will manage their future, if there is any left.

Well no folks, this isnt a union its something else. Who is the German finance minister who will dictate what kind of economy Cyprus will run? Cant wait for the next elections...

 

[TehBluebear]

So glad that the UK didn't become part of the Eurozone. Not saying we would have quite the same issues as Cyprus, but it's still very easy to think that we would have had problems that'd make the recession look like nothing.

 

[Azza]

All Cyprus banks to stay closed until at least Wednesday, central bank decides.

Errmmm... so that's all of them closed until Wednesday with Bank of Cyprus and Laiki closed until Thursday!



edit----->

Or not this is from Sky News now.

Cyprus Finance Minister orders all banks to stay closed until Thursday

Madness!

 

[Judgeneo]

Oh its worse.

Only the Cyrpiot branches are closed, the UK ones remain open. Of course, this means anyone with half a brain as moved their money elsewhere

No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 per cent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors.

http://www.businessday.com.au/busin...president-fumbled-bailout-20130326-2gqtb.html


An asset manager on sky news earlier today said he expects people to loose anywhere between 50% to 100% of their remaining holdings.

 

[Ilikeitblackplease]

read this, pretty shocking.
http://www.nytimes.com/2013/03/22/opinion/after-the-london-whale.html?_r=0

 

[Fourstar]

Oh its worse.

Only the Cyrpiot branches are closed, the UK ones remain open.

I was just reading about this on Reuters. I am truly gobsmacked as something like this has to be intentional but the troika really seemed set on nailing those foreign depositors so I don't see how they missed it.

Adding to your quote:

By Sunday, one participant in the negotiations said, there was almost no capital left in Laiki.

www.reuters.com/article/2013/03/25/eurozone-cyprus-muddle-idUSL5N0CG13920130325

With the bailout fixed at 10 billion and the other 7 billion(not sure what the final figure ended up as) needing to come from deposits it presumably means the smaller depositors over 100k will get all but wiped out now.

 

[Azza]

I'm assuming people don't have access to online banking?

 

[Spit]

I'm assuming people don't have access to online banking?

They shut it down.

 

[Strife212]

They don't. Capital controls have been in effect since the bailout was announced.

The fact that you can withdraw from UK branches is insane though. Surely anyone with big savings was on the plane to the UK instantly.

 

[Azza]

haha, incredible. I'm amazed that guy hasn't smashed into the bank with his JCB yet!

 

[dowie]

Thing is - as crazy as the original proposal was it was, in a way, fairer. These depositors have been earning a few percentage points more on their interest - circa 3% or so compared with say depositors in Germany who've been earning say 1%. Part of this reflects the additional risk of a EUR deposit in a periphery state - I actually now don't see how a tax of 7% or so applied evenly across all deposits is necessarily all that unfair, its partly just taking away the additional interest these depositors have enjoyed for the past few years as a result of their riskier deposits.

 

[dowie]

They don't. Capital controls have been in effect since the bailout was announced.

The fact that you can withdraw from UK branches is insane though. Surely anyone with big savings was on the plane to the UK instantly.

Well for Bank of Cyprus it operates a separate UK entity AFAIK under the UK's deposit protection scheme - the deposits/accounts over here are not directly linked.

For the other one - I'm not sure, its not under the UK's scheme but I'd be surprised if they could withdraw from Cyprus domiciled accounts over here (would be too obvious a hole) - these guys might be unfortunate tbh... that bank is going to collapse and while some in Cyprus might get their 100k back + some small % of anything above that Laiki might well 'do an Iceland' as far as people who've deposited at the UK branches are concerned.

 

[Judgeneo]

Just watched newsnights section on this. Cypriot government admits not knowing how much money has left through London, Former Russian Kremlin adviser "There are German companies in Russia, and we have ways of putting pressure on them"



What a **** up this entire deal has been

 

[Judgeneo]

Well for Bank of Cyprus it operates a separate UK entity AFAIK under the UK's deposit protection scheme - the deposits/accounts over here are not directly linked.

For the other one - I'm not sure, its not under the UK's scheme but I'd be surprised if they could withdraw from Cyprus domiciled accounts over here (would be too obvious a hole) - these guys might be unfortunate tbh... that bank is going to collapse and while some in Cyprus might get their 100k back + some small % of anything above that Laiki might well 'do an Iceland' as far as people who've deposited at the UK branches are concerned.

As I understand, this is possible.

Thing is - as crazy as the original proposal was it was, in a way, fairer. These depositors have been earning a few percentage points more on their interest - circa 3% or so compared with say depositors in Germany who've been earning say 1%. Part of this reflects the additional risk of a EUR deposit in a periphery state - I actually now don't see how a tax of 7% or so applied evenly across all deposits is necessarily all that unfair, its partly just taking away the additional interest these depositors have enjoyed for the past few years as a result of their riskier deposits.

I agree, the original scheme would have been better. It would have also been resolved quicker than it looks like its going to take currently.

 

[Iraklis F.C.]

I guess from now on Banks will see their customers accounts as investments? There will be a risk involved?

 

[Strife212]

I guess from now on Banks will see their customers accounts as investments?

They always have been. Depositing money in the bank is actually giving the bank a loan, people just don't realize/care because usually it's safe.