The looting of Cyprus by the EU will follow the Greek model

By LUIS MIRANDA | THE REAL AGENDA | MARCH 24, 2013

The Government has reached an agreement with the troika to seize 20% of the deposits that hold more than 100,000 euros that are in the Bank of Cyprus, the country’s largest bank and also the one that is preferred by Russian oligarchs. “How do you think it will be? Tomorrow I will lose 25,000 euros,” replied the waiter in a bar where a customer shouted how are you?

This measure, which still must be approved by Parliament, joins the two taken on Friday: The Laiki settlement, the second largest and the one with the biggest problem when it comes to capital controls. His liquidation was negotiated as necessary to prevent panic next Tuesday, when Cypriot banks reopen. The restructuring of a bank that has been both the growth engine of the island and the head of its economic sinking is completed at a discount of 4% for all other banks.

Cyprus has had to swallow his pride showed on Tuesday when MPs overwhelmingly rejected the bailout custom designed by Germany, which required the smallest euro economy to steal 5,800 million euros from its savers.

The Plan B hastily designed by political forces will not be so different from Plan A: depositors will have to pay to avoid the bankruptcy of the country, and perhaps in addition leave the euro. But now, those who will take the deepest haircut are those who have 100,000 euros, an  amount theoretically untouchable according to European standards, an idea that has faltered this week. Of the nearly 68,000 million euros euros in Cypriot bank accounts, 38,000 banks exceed this amount.

If leaders want to avoid bankruptcy, they do not have much time, according to European leaders. For the plan of salvation to succeed, Parliament in Cyprus will need to vote in favor of it after Cypriot leaders and finance ministers of the euro zone met on Sunday.

The European Central Bank has warned that if no agreement is reached by Tuesday, the Union will close the tap of liquidity to institutions of the island, which would mean the collapse of the banking system within hours. The domino effect in the government accounts would be very fast. This scenario was seen in Iceland, where the government refused to pay the debt created by the same banks who are now feeding on Cyprus. In Iceland, the government and the people stood up against banker bullying and kicked the bankers out.

A parliamentary source quoted by the Greek daily Kathimerini noted that the Cypriot deputies could wait for the Eurogroup meeting to conclude to vote the final agreement. It would be only after this vote that Cyprus would step away from the abyss that has approached this week. That does not mean the country is safe or that things will improve rapidly.

One only needs to take a look at Greece, where the bankers took over the country and its people are still suffering the pain of closing deals with the bankers. Cyprus will also pay a very high cost for the financial rescue: the collapse of confidence in its banking system and a black economic outlook, with a sharp drop in GDP and a rise in unemployment, according to several analysts, will make things even worse than in Greece.

If savers at Bank of Cyprus have suffered a severe punishment, Laiki’s have suffered even more. At midnight on Friday and Saturday, Parliament gave its approval to split the bank, converting it into an entity that takes control of more modest and healthy deposits and loans, while also bearing responsibility for the bad and large toxic assets.

Those who have money in Laiki will not recover it in the next few years, and when they do, it will be an amount much lower than they had.

This is what is feared by hundreds of employees at Laiki, who have been demonstrating against the plans of the Eurogroup. European governments have made it clear that one of the conditions of the bailout of Cyprus is that country reduces the size of its financial sector, especially the part that attracts large amounts of money at high interest rates.

Besides restructuring Laiki, lawmakers approved the creation of a ‘solidarity fund’ which will feature contributions from private citizens and businesses, as well as state assets and the Orthodox Church. The money contained in this fund will be directly managed, not to say stolen, by the European government, which has also said that pension funds will not be touched right now, but that refused to say what will happen with people’s retirement funds in the near future.

Advertisement

Cyprus bank theft by the EU shocks European Markets

AP | MARCH 18, 2013

Stocks around the world and the euro fell sharply Monday as investors fretted over a plan to tax depositors in Cypriot banks as a way to partly fund a bailout of the Mediterranean island nation.

Although Cyprus accounts for only around 0.2 percent of the economic output of the 17 European Union countries that use the common euro, the tax on depositors was a significant policy shift that has stoked fears of bank runs in other troubled European economies. Cyprus residents already emptied virtually all ATMs on the island in a weekend bank run.

“If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job,” said Michael Hewson, senior market analyst at CMC Markets.

Since the European debt crisis began in late 2009, savers have been spared. But the bailout of Cyprus, agreed to early Saturday, foresees a 6.75 percent levy on deposits below (EURO)100,000 ($130,860), rising to 9.9 percent on those above.

The Cypriot Parliament has to back the proposal for it to pass, and lawmakers have called it an unfair blow to small savers, since deposits around the eurozone have been guaranteed up to the (EURO)100,000 level. The vote was postponed for a second time as lawmakers discuss possible changes to the tax rates, with the parliament speaker saying it will now take place Tuesday.

One new proposal would make the tax more graduated: placing a one-time 3 percent levy on deposits below (EURO)100,000, rising to 15 percent for those above (EURO)500,000.

“The bottom line is that it’s very finely balanced and the success of the vote will depend on what tax breakdown goes before Parliament,” said Adam Cole, an analyst at RBC Capital Markets.

The prospect of further uncertainty weighed on markets.

In Europe, the FTSE 100 index of leading British shares was down 1 percent at 6,428 while Germany’s DAX fell 1.5 percent to 7,958. The CAC-40 in France was 1.5 percent lower at 7,955. Cyprus’ stock exchange was closed for a bank holiday.

The euro was taking a pounding too, down 0.8 percent at $1.2950.

If it backs the levy, then Cyprus would be eligible for a (EURO)10 billion ($13 billion) financial rescue from its partners in the eurozone and the International Monetary Fund. It’s the first time that deposits have been tapped to fund an EU nation’s bank bailout.

German finance minister Wolfgang Schaeuble said a “no” vote by Cypriot lawmakers would have huge repercussions in the country.

“Then the Cypriot banks will no longer be solvent, and Cyprus will be in a very difficult situation,” said Schaeuble, who insisted that every country involved in Europe’s debt crisis is different. In the case of Cyprus, he said bank owners and investors had to participate in the rescue.

“It can’t be done any other way if we want to avoid insolvency,” he said.

Cyprus’ banking sector is about eight times the size of the economy and has been accused of being a hub for money-laundering, particularly from Russia. That’s why many European officials wanted to have the banks’ depositors involved in the cost of the bailout.

In Asia, Japan’s Nikkei 225 index slid 2.7 percent to 12,220.63, while Hong Kong’s Hang Seng dropped 2 percent to 22,082.83.

Wall Street was headed for a retreat at the open too, with Dow futures down 0.6 percent and the broader S&P 500 futures 1 percent lower.

Oil prices were also under pressure, with the benchmark New York rate $1.20 lower at $92.25 a barrel.