EU to take 7 - 10% from all personal Cyprus bank accounts

Well, Cyprus is a tiny country, barely over 1 million citizens. Yet, their financial system is such a mess that it needs a minimum of $13 billion just to avoid collapse. That's a hefty per capita price tag. The EU countries footing these bailout bills are just getting sick of it, I think.

I don't think this is a good idea--the account levy--either, but if the only alternative is no bailout, people in Cyprus stand to lose far more than 10% of what they have.

There has never been a guarantee that EU member states would support each other's failed banks. It's only expediency - the risk of a general banking collapse - that stops the EU telling Cyprus to get stuffed.

A while back, Argentina nationalized its citizens' retirement accounts.

Now Cypress is confiscating savings accounts.

These aren't isolated incidents occurring in a vacuum. They're warning shots.

Dave of Mars said:

A while back, Argentina nationalized its citizens' retirement accounts.

Now Cypress is confiscating savings accounts.

These aren't isolated incidents occurring in a vacuum. They're warning shots.

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I don't see where Argentina fits in, but there is a pattern. During the last boom, some small European countries - Ireland, Iceland, Cyprus - relaxed their banking regulations so that they could beat the returns offered by larger countries. A flood of money, some legal, some criminal, rushed in, and these banks took on a mound of debt that, if things turned sour, their countries would never be able to support.

Then banking flatlined and many of the banks in these countries became more or less insolvent. People's statements might say they have so much in the bank, but the funds are no longer there. In attempting to salvage their greedy, incompetent and grotesque banks, the countries themselves have become insolvent.

The small countries now want the big countries to subsidise them, ie to spread the debt thinly around more people, even though the larger countries banking sectors suffered at the hands of the predatory banks of the small countries. The debt is a big mound of shite that's going to end up on someone's doorstep. There's no justice in this, the small countries should be grateful they're being given help and people in all countries should be furious at the devastation caused by their banking sectors, which has led so far to half a decade of waste, unemployment and contraction.

And a shit load of bankers should be in prison, but aren't.

Priene said:

I don't see where Argentina fits in, but there is a pattern. During the last boom, some small European countries - Ireland, Iceland, Cyprus - relaxed their banking regulations so that they could beat the returns offered by larger countries. A flood of money, some legal, some criminal, rushed in, and these banks took on a mound of debt that, if things turned sour, their countries would never be able to support.

Then banking flatlined and many of the banks in these countries became more or less insolvent. People's statements might say they have so much in the bank, but the funds are no longer there. In attempting to salvage their greedy, incompetent and grotesque banks, the countries themselves have become insolvent.

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Yep. But to be fair, the governments of these countries also got fat with the easy access to so much capital. They're not blameless. And EU citizens--and Americans, as well--participated in these games, too. So no one is really blameless.

The Cypriot parliament has voted down the proposed tax package.
http://www.bbc.co.uk/news/world-europe-21842966

Alessandra Kelley said:

That's a pretty sweeping statement. Not everybody who has a savings account is a complicit schemer in banks' shenanigans.

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Didn't say everyone was complicit and didn't mean to imply it.

Still, the reality is that this "tax" idea is coming out of EU nations who are not--for the most part--teetering on the brink, who are not in need of bailouts. The point is, some people and banks in such places made money through the process as well, did business with people who made money through it, benefited from the process in one way or another. Not as much as the major Russian players, the Cypriot banks, or the Cypriot government no doubt.

But the point is that it's a little disingenuous to suppose this is all the fault of the banks in Cyprus alone, that it's Cyprus' problem alone. Imo.

Many of the news stories I've seen (this one, for example) point out that the reason Cyprus' banks got so imbalanced with dodgy accounts was a hands-off policy in the EU towards bank regulation, as well as light enforcement and lax oversight.

In other words, laissez-faire and too little regulation of banks and financial institutions led to this.

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Oh, I don't think that's exactly it. The Cypriot banks gambled too heavily on European sovereign debt--particularly that of Greece. The IMF actually found the Cyprus financial sector to be okay, by and large, as recently as 2005.

robeiae said:

But the point is that it's a little disingenuous to suppose this is all the fault of the banks in Cyprus alone, that it's Cyprus' problem alone. Imo..

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I certainly wouldn't say that. But Cyprus and the small nations did engage in these practices, despite being particularly vulnerable by virtue of their size (Scotland, too, would have been in meltdown if it had become independent a decade ago, as the RBS and HBOS fiascos would have been far more than its economy could have borne). So, yes, there's plenty of blame to go around. But to imply that this is the nasty old EU being horrible to poor little Cyprus is also far from the truth.

robeiae said:

Oh, I don't think that's exactly it. The Cypriot banks gambled too heavily on European sovereign debt--particularly that of Greece. The IMF actually found the Cyprus financial sector to be okay, by and large, as recently as 2005.

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The financial world thought everything was lovely and peachy in 2005. That's a big part of the reason why we're all still in this mess.

Priene said:

But to imply that this is the nasty old EU being horrible to poor little Cyprus is also far from the truth.

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I agree with that, too. And at this point in time, there's not much else to do but for Cyrpus to take its medicine, one way or the other.

The financial world thought everything was lovely and peachy in 2005. That's a big part of the reason why we're all still in this mess.

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True.

http://www.europac.net/commentaries/cyprus_lifts_curtain

The decision to inflict pain on both large and small depositors was almost universally described as a historic blunder. But the mistake was to do so in a manner that was not camouflaged by financial smoke and mirrors. In truth, rank and file depositors have been paying, and will continue to pay, for all manner of bailouts and stimulus. (Read about the Stimulus Trap in my just released newsletter). Whether it's through lower interest payments on deposits, inflation, higher taxes, higher borrowing costs, or the accumulation of unsustainable sovereign debt, Cypriots will bear the burden of past profligacy. But the new plan for Cyprus was far too transparent, simple, and direct to survive in a world dependent on deceit and obfuscation. It was dead on arrival.

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True dat.

The German position is entirely sensible. The Cyprus government wants to protect its status as a haven for tax dodgers from Russia and elsewhere, and wants the German tax payers to foot 100 per cent of the bill for the bailout.

It was a decision of the cypriot government to focus the hair-cut on small savers while leaving the tax dodgers alone to protect the tax haven status.

Cyprus saved:
http://money.cnn.com/2013/03/24/news/economy/cyprus-bailout-eu/index.html?iid=EL

Incidentally, the title of this thread is misleading. The EU isn't taking anything from Cyprus bank accounts. It's actually offering to give Cyprus a huge pile of money with a fair chance that it will never be paid back.

But it is about the big nasty EU. And those bloody Germans that just won't pay up when asked. Merkel is readying the tanks as we speak, and growing a little moustache.

Poor poor foreign tax dodgers. The right-wing Cypriot government did its best to protect them by demanding that ordinary citizens shouldn't have the guarantee, and that they should bear the brunt.

There are many things at work here that is not apparent if one only listens to people like Krugman and Bernanke that admonish the Germans to just get on with it and print more money and give it to these countries. I'm not saying you do, Alexandra, so please don't interpret it so.

The 'print more money' and allow for increased inflation is not going to work because, well, we are dealing with Germans. The last time the Germans did that they suffered extreme hyperinflation, which led to having all the armies of the entire world converging on their capital.

This has lead to a national institutional trauma that will make it extremely unlikely that Germany will ever support an inflationary money-printing policy. Right or wrong, the German experience of the end of the Weimar republic and the rise of fascism and Naziism prevent their support for the kinds of policies that I see trumpeted out in magazines like The Guardian or The Atlantic.

This is the main reason for the focus on austerity. The Germans are mortally afraid that their currency will suffer the kind of inflation that they saw in the Weimar republic, and since the Germans are bank-rolling the Euro, I find that they have every right to set up conditions for how the money is spent. Including making demands on the recipient countries. I'm not sure how particularly detailed the conditions for the bailout are, but I suspect that the national governments have a lot of latitude to prioritize.

National governments can make the priorities about how to cut their spending. That they seemingly always go for the low-hanging fruit of punishing the poor is the fault of the said national governments. Spain has a choice. They can cut unemployment benefits, or it can cut things like mortgage relief for upper middle class home buyers. Spain will cut unemployment benefits. George Osborn has a choice; he can cut housing benefits, or he can increase the tax on wealthy pensioners and lower the threshold for when you start to pay the higher tax bands. He will cut housing benefits.

I don't think that the Germans, and the Euro leadership, really care where you cut spending – only that you do. I'm not saying that this is a wise policy. My bachelor's in Business Administration is very old and dusty. I just don't know.

There is a sport here in Europe that the national governments are keen to engage in. It is called “Blame the EU”. It goes like, all the good things that the EU brings like increased trade and revenue and employment are due to the brilliance of the national government's policy and the genius of the ministers. All the bad things that the national governments are responsible for are blamed on the technocrats in the EU. Or they're blamed on Eastern Europeans.

Given all of that Max, the problem with Cyprus is its banks are not full of Cypriot money, by and large, as Alessandra notes. And the problems with the Cypriot banks are not due to the presence of this money. If that money decided to go somewhere else, the banks would collapse in a puff of smoke.

The banks and the Cypriot government made poor decisions. And as a part of their "salvation," account holders in these banks are gonna have monies forcibly taken away.

True enough, they put those monies there to dodge taxes in many cases (and the monies are less than legal in some cases). And true enough, there's a cap on deposit insurance. It still looks ugly, though. And most certainly sets a worrisome precedent.

robeiae said:

True enough, they put those monies there to dodge taxes in many cases (and the monies are less than legal in some cases). And true enough, there's a cap on deposit insurance. It still looks ugly, though. And most certainly sets a worrisome precedent.

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I think it's only worrisome if that hasn't been the mechanism for defaulting banks since forever. If all money was protected in a defaulting bank, there would be no need for a guarantee.

Putting money in a bank is technically the same as loaning your money to the bank. If the bank goes under, the account holder becomes a creditor, and have to go through the same process as every other creditor. The bank's assets are sold, stripped or destroyed. What remains of the assets are divided among the creditors, and what is divided is often a lot less than what was put in.

It's only after the "too big to fail" thing started that banks have been treated as some kind of special business where that did not apply.

This is going back to how it used to be, in my opinion. When a bank loses its trust-capital, it goes under. If it goes under, assets (including loans) are used to pay its debts and liabilities. In this case, the account holder gets back a lot more than he would have got had the banks actually died, without the intervention and the bail-out.

Then the banks should just be allowed to fail; the linked of the "baliout" monies to these actions is the problem.

Well, no, I don't think so, because that would harm the Euro, and the Euro is more important.

While the left has abandoned international solidarity for grubby nationalist greed for their own little proletariats (or bankers), I think that the Euro could be the instrument that will make it the world's reserve currency eventually by the sheer mass of consumers and producers. With the Euro as the world's premier reserve currency, the poor regions of Europe (and its populations) will have their lots improved.

I understand if Americans don't want that, but I do. Call it my concession to my nationalist tendencies, if you will. The funny thing, and this is an aside, before all this, in 2005 or so, there was great alarm that the Colombian drug cartels started to use €500 notes instead of $100 bills when they smuggled their cash. It was taken as an indication of the decline of the dollar, and alarmed some people.

ETA
Article about the drug euros

Maxinquaye said:

Well, no, I don't think so, because that would harm the Euro, and the Euro is more important.

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Then it's really not "going back to how it used it be," is it? There are still special caveats.

And if the financial problems of the tiny nation of Cyprus pose such risks to the Euro, what does that say about it?

Don said:

So that they can trade those pieces of government-issued paper for actual goods before the paper assumes the value of the Weimar Mark?

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Deleting money from the economy causes deflation, not inflation.