Eurozone Cypriot bailout shock

[RandBlade]

Very shocking bailout announced today for Cyprus:

Those with bank accounts with less than €100k of savings will be taxed 6.75% of it.
Those with over €100k of savings will be charged 9.9% of it.

Its my understanding that this money will be taken direct from bank accounts. Angry scenes in the small country with people looking to withdraw their cash.

Not surprised this is happening with a small country and not eg Spain. Wonder how many in Spain may now think its safer to keep their cash under the mattress.

http://www.bbc.co.uk/news/world-europe-21814325

[Lewkowski]

Ouch that sucks. I wonder if there will be a mini-run on banks in other small countries because of this. (Not a true bank run but seeing a good chunk withdrawn or reduced to the protected limit).

[Loki]

Is the EU composed entirely of GGTs?

Lewk, there's no protected limit, just a lower tax.

[Hazir]

At first I was a bit surprised, untill I realised what they are doing. Basically what they are doing is give the smaller Cypriot savers a short but nasty shock. The Cypriot economy on the other hand won't have to go to anything too draconic to get back on track. So any protest will die down quite fast. Then, the people who will be really bailing in are foreign savers with more than €100.000. They are predominantly Russians who parked (black) money on Cyprus. The deal with black money is that it costs an awful lot to launder it. You can easily loose up to 30-40% in the process. The loss of 9.9% comes out relatively good compared to that. Which explains why all those Russian savers left their billions where they were, despite the fact that they weren't save in Cyprus regardless of the form of the bail out.

Because, those of us who read German knew that the German Bundestag was not going to accept a deal putting the German tax-payer on the line to secure the black nest eggs of rich Russians.

Another strong indicator of the calculus made is that the Russian government stays silent on the matter; they even appear willing to contribute to the money Cyprus needs.

[Hazir]

Ouch that sucks. I wonder if there will be a mini-run on banks in other small countries because of this. (Not a true bank run but seeing a good chunk withdrawn or reduced to the protected limit).

The protected limit is €100.000. Most people simply don't have that kind of money. And otherwise, withdrawing your money from a bank doesn't necessarily mean you can escape the tax on owning it at all. I don't expect any bankruns anywhere.

[RandBlade]

It would be a protected limit in the form normally accepted to be meant if those with under the limit were exempt from the bailout costs and those over the limit were stung. Those with under €100k are getting stung 6.75% so not protected.

That is something I'd have supported all along. Governments pre-crisis guaranteed only a small amount in banks officially. It should have stayed that way. I have no problem with money launders and their ilk losing something, and for those legitimately rich enough to lose some is a cost of not losing everything ... The flaw is charging everyone.

[Loki]

At first I was a bit surprised, untill I realised what they are doing. Basically what they are doing is give the smaller Cypriot savers a short but nasty shock. The Cypriot economy on the other hand won't have to go to anything too draconic to get back on track. So any protest will die down quite fast. Then, the people who will be really bailing in are foreign savers with more than €100.000. They are predominantly Russians who parked (black) money on Cyprus. The deal with black money is that it costs an awful lot to launder it. You can easily loose up to 30-40% in the process. The loss of 9.9% comes out relatively good compared to that. Which explains why all those Russian savers left their billions where they were, despite the fact that they weren't save in Cyprus regardless of the form of the bail out.

Because, those of us who read German knew that the German Bundestag was not going to accept a deal putting the German tax-payer on the line to secure the black nest eggs of rich Russians.

Another strong indicator of the calculus made is that the Russian government stays silent on the matter; they even appear willing to contribute to the money Cyprus needs.

A decent idea until you realize that this will cause a massive run on the bank in Cyprus, and will cause future bank runs in countries in similar situations...

[Hazir]

A decent idea until you realize that this will cause a massive run on the bank in Cyprus, and will cause future bank runs in countries in similar situations...

It will not; the money in Cyprus can't be moved without incurring huge losses ON TOP of the 9.9% levy. As such our Russian friends are sitting ducks, who consider themselves probably luck they still have upward of 90% of their black money.

In other countries the banking sector isn't aflush with black money to the extent that the Cypriot banking system is. It is very well advertised though not officially that they are targetting black money. Only real fools should confuse their own situation with the situation of somebody who has millions of black money on a foreign account.

And again; taking your money from the bank doesn't mean the government doesn't know you withdrew it.

[RandBlade]

Its not only Russians. Not that you'd care but British military personnel serving in military bases on Cyprus who have local bank accounts will be caught by the sub-€100k 6.75% that you keep ignoring.

What Loki said which you ignored is that it will cause future bank runs in other countries. If I was in Spain I'd seriously consider pulling out my cash just in case and putting it in another nations bank. Any other nations that get into trouble that are as small as Cyprus too could get very concerned. And the worst thing to happen for a banking system is a loss of confidence.

[Hazir]

Well I actually have money in a bank in the eurozone and this deal doesn't have any impact on me.

The total of domestic holdings is in the region of €3bn. Which means that the 6.6% levy is peanuts in the whole of this deal. I also don't see why Cypriots themselves shouldn't pay towards saving their own country from an outright bankrupcy. That €3bn provides for somewhere in the region of €200-250 million. Which is barely 2% of the bail out package. And honestly; accounts of brits serving there should be of any concern why exactly ?

[Loki]

No, what you mean is why shouldn't the Cypriots who save money bail out the ones who do not.

[Hazir]

Yeah, like they are part of Cypriot society that is on the brink of a financial collapse. BTW, that 3 bn figure was for Greeks who stowed away money in Cypriot bankaccounts. This is really funny indeed.

[Lewkowski]

No, what you mean is why shouldn't the Cypriots who save money bail out the ones who do not.

You haven't figured out people with money are fair game? After all its just a matter of pure luck and circumstance that they have savings and other people don't.

[RandBlade]

And honestly; accounts of brits serving there should be of any concern why exactly ?

I said you wouldn't as you are not exactly neutral where that's concerned. But for the normal people on this forum, you keep trying to pretend that this is ethical targeting of Russian criminals.

Military soldiers who're doing their job overseas lose their wages.
Widows lose their life savings.

Cash in hand drug dealers lose nothing.
Bond-holders who've lent to Cyprus lose nothing.
Hedge funds with Cypriot bonds lose nothing.

[Hazir]

Actually, if you're serving overseas (and really serving in Cyprus is hardly suffering hardships of any kind) there still is no reason whatsoever to put your money in a Cypriot bank. Otherwise, nobody loses their savings through this deal; they are keeping at least 90% of it. The alternative would have been losing it. The Cypriot state could not have honored any promise at all without money from the EMS. They were short more than 100% of their GDP already.

Relative to the size of their economy Cyprus was in a worse state than any of the bailed out states so far. Wouldn't surprise me if they actually were in a worse state than even Iceland.

[RandBlade]

So how much of their deposits did savers in Ireland, Spain, Italy, Portugal or even Greece lose? Oh that's right: none in any of them.

Do you really think its right than workers, retirees etc lose their cash while hedge funds and other financial institutions get away scot free? And if you do think so, how come you thought the opposite with Greece?

[Hazir]

None of the countries you mentioned needed (relative to their size) the kind of money Cyprus needed and none of those countries were stuffed to the rafters with dirty money from Russia.

Or to put it in simple terms; you can stuff your principles where they sun doesn't shine. The alternatives were 'my money' or 'their money', I am quite inclined for it being as much of 'their money' since that means less of 'my money' is needed.

[RandBlade]

None of the countries you mentioned needed (relative to their size) the kind of money Cyprus needed

No you're factually wrong. Hardly a surprise since Cyprus is only needing a bailout now while Greece has been needing it for years.

Greece has received more bailout money even size-relative than Cyprus.

Glad you've stopped pretending principles were on the line here though. To target protected savers (under the limit) is never principled.

[Hazir]

No you're factually wrong. Hardly a surprise since Cyprus is only needing a bailout now while Greece has been needing it for years.

Greece has received more bailout money even size-relative than Cyprus.

Glad you've stopped pretending principles were on the line here though. To target protected savers (under the limit) is never principled.

A guaranty is one thing a tax is another thing. And this was never about principles but about money.

[agamemnus]

That's completely stupid. I wasn't aware of this. Thanks, RandBlade.

[Hazir]

That's completely stupid. I wasn't aware of this. Thanks, RandBlade.

Ah, they pray tell what the non-stupid action was. Preferably one where the Cypriots don't make Dutch and German tax-payers pay for their bankrupt banking sector and state.

[Loki]

Ah, they pray tell what the non-stupid action was. Preferably one where the Cypriots don't make Dutch and German tax-payers pay for their bankrupt banking sector and state.

The option that doesn't involve bank runs all across southern Europe.

[Dreadnaught]

Yeah, my first thought when I heard this was, "way to totally destroy a banking system overnight." While I appreciate the quick-bandaid-rip approach, this sets a very ugly precedent.

[wiggin]

The bank run issue (especially in Spain, and possibly Italy) is by far the most worrisome outcome. I don't in principle have an issue with imposing some losses on uninsured deposits - but only after every more junior creditor takes a 100% hit. But to extend it to insured deposits - even with this 'it's a tax' trickery to make it legal - is a recipe for disastrous contagion. The total size of the Cypriot bank bailout is miniscule, and the EU shouldn't jeopardize the stability of much larger institutions and countries just to make some weird and misguided point.

[Hazir]

The option that doesn't involve bank runs all across southern Europe.

You mean the option that would end waferthin support for any bailout in the north ? Logic tells me that a 30% levy gets Cyprus back on track and me off the hook.

[Hazir]

The bank run issue (especially in Spain, and possibly Italy) is by far the most worrisome outcome. I don't in principle have an issue with imposing some losses on uninsured deposits - but only after every more junior creditor takes a 100% hit. But to extend it to insured deposits - even with this 'it's a tax' trickery to make it legal - is a recipe for disastrous contagion. The total size of the Cypriot bank bailout is miniscule, and the EU shouldn't jeopardize the stability of much larger institutions and countries just to make some weird and misguided point.

You realise there is nor was anything to back up that €100.000 but the bankrupt Cypriot state? Basically what this does is kicking Cyprus in sustainability at once. Everybody who lost money with this deal could have seen it coming months ago. The fact that Cyprus was bankrupt is not exactly news. The fact they will never have they money to insure 3 to 4 times their GDP was also not news.

[Hazir]

What you guys don't get is that 4 years of non-reforms in the south have really hardened the debate in the north. People know very well a melt down could be costly. But they are starting to prefer that over signing a stack of blank cheques.

[wiggin]

You do realize that the Cypriot government is not exactly bankrupt, right? It's just their banks which are; public debt is not unreasonably high. Frankly, I find it absurd that monetary policy - which underpins all sorts of things, including bank finances - can be euro-wide, but deposit insurance and the like are national.

Regardless, you're spending your time gleefully lecturing to Cyprus on their evil ways when this stupid policy is liable to cause bank runs in Spain or Italy, which are much, much bigger deals. Seriously, I feel like people here love to have their pet cause pursued at all costs, irrespective of the broader ramifications.

[Hazir]

I see I have to say it again; the political climate in the north is such that people don't care too much any longer about what happens to Cyprus, Greece or any other country that either overspent or lost control of it's banking sector. Even the present deal may fail in the Bundestag. After which Cyprus is over and out.

The reason why there is no eurozone insurance is that we in the north are not quite crazy enough to want to fill a piggybag of a couple of trillions to be disposed of by generous southern banks on a buying spree for votes for their political masters.

Meaning; if you want us to do more show us that you mean business by paying for it. Otherwise we will also consider accepting the crashing down of a system we are not willing to support at any cost.

[Hazir]

And if you wonder what hardened the discourse; every protest in every Greek or Spanish square.