Cyprus bail out deal

rodento

What are the chances of our bailout deal been revisited if Cyprus gets the go ahead to burn bondholders

http://www.irishtimes.com/news/world/europe/taoiseach-tight-lipped-on-cyprus-plan-to-burn-bondholders-1.1326486

Taoiseach Enda Kenny declined to cast judgment on talks to impose losses on senior bondholders in Cypriot banks as part of the country’s imminent bailout, a path barred to Ireland by the EU authorities

Scofflaw

It's possible we might get some kind of writedown on the senior debt we took on at the insistence of the ECB during our bailout negotiations, but not, I would think, on the senior debt we paid off under the Irish government guarantee. That might net us €6-8bn, according to Seamus Coffey: http://economic-incentives.blogspot.ie/2011/04/50-haircut-on-unguaranteed-bondholders.html

cordially,
Scofflaw

Scofflaw

BRUSSELS—Depositors in Cypriot banks will be hit with a one-off tax on their savings, as part of a €10 billion ($12.96 billion) bailout for the Mediterranean island from the euro zone and the International Monetary Fund.

The deal, announced early Saturday, marks the first time in the euro zone's five-year-old financial crisis that depositors in bloc's banks will lose money. Accounts with more than €100,000 will be taxed at 9.9%, those with less at 6.75%, raising an expected €5.8 billion for the near-bankrupt nation.

http://online.wsj.com/article/SB10001424127887324077704578362180039767150.html?mod=WSJEurope_hpp_LEFTTopStories

A tax on deposits as part of the bailout is not, perhaps, something we would have enjoyed, although it would have raised rather a lot of money (somewhere around €40bn).

cordially,
Scofflaw

carpejugulum

Scofflaw wrote: »

http://online.wsj.com/article/SB10001424127887324077704578362180039767150.html?mod=WSJEurope_hpp_LEFTTopStories

A tax on deposits as part of the bailout is not, perhaps, something we would have enjoyed, although it would have raised rather a lot of money (somewhere around €40bn).

cordially,
Scofflaw

40bn? That would have to include IFSC.

woodoo

People are queuing at the ATM's trying to take out as much money as then can before this comes in on Tuesday.

Scofflaw

carpejugulum wrote: »

40bn? That would have to include IFSC.

Not at all - there was approximately €400bn in deposits in the domestic banks in 2008. I should check 2010, which I think may have been €100bn less. Including the IFSC would double the amounts.

cordially,
Scofflaw

So, Cyprus is defaulting. Are you trying to imply that this is a good thing for Cyprus? And we should be looking to do the same?

CptMackey

The people are getting robbed. 6.75 % taken out of their accounts. If it happened here would we take it?

It seems morally wrong to impose this theft of the ordinary people of Cyprus. Europe really don't like to see pain inflicted in the better off now do they.

Most of the losses in the banks there seem to be a result of the Greek issue which I'm sure the ordinary Cypriot who works his/hers 40 hours week had anything to do with.

The next thing is out politicans will be looking for contributions from savings next. They already hit the pensions.

carpejugulum

CptMackey wrote: »

The people are getting robbed. 6.75 % taken out of their accounts. If it happened here would we take it?

The alternative is banks and the government going broke so much bigger losses. Fair it would be though.

CptMackey wrote: »

I'm sure the ordinary Cypriot who works his/hers 40 hours week

:pac:
very loose use of the word work

CptMackey

carpejugulum wrote: »

The alternative is banks and the government going broke so much bigger losses. Fair it would be though.

:pac:
very loose use of the word work

Heaven forbid that the banks should be resposible for their mistakes. But alas this is Europe and in Europe the people pay. Socialism for the rich and capitalism for the poor.

Scofflaw

CptMackey wrote: »

Heaven forbid that the banks should be resposible for their mistakes. But alas this is Europe and in Europe the people pay. Socialism for the rich and capitalism for the poor.

It's hardly surprising, surely? Europe is currently dominated by centre-right governments. That means the EU, and most of the Member States individually, are centre-right. The few left-wing governments that are being elected are in a minority, so of course you get protection of the markets at the expense of the public as a general framework, rather than vice-versa.

But the public are the people who voted those centre-right parties into power, and thereby set the tone of the response by their own governments and by the EU. If they're suffering, they need to elect left-wing or centre-left governments, as the French have done, but many have instead gone the other way.

That's largely a reflection of the results of the previous left-wing responses to crises like these, which historically have not been good results, because the response of the left to crises tends to involve killing the goose that lays the golden eggs, whereas the right-wing response doesn't.

cordially,
Scofflaw

noodler

Shocked there seems to be nothing about bondholders.

The story for years has been that bondholders ranked equally with depositholders and that you couldn't burn on without burning the other.

hoodwinked

CptMackey wrote: »

Heaven forbid that the banks should be resposible for their mistakes. But alas this is Europe and in Europe the people pay. Socialism for the rich and capitalism for the poor.

seriously can you not see the bigger picture here? its about more than the banks accepting responsibilities, its about keep the country and banking sector as a whole afloat.


and as for in Europe the people pay comment, no matter where you are in the world people will always pay, the grass isn't always greener...

CptMackey

Scofflaw wrote: »

It's hardly surprising, surely? Europe is currently dominated by centre-right governments. That means the EU, and most of the Member States individually, are centre-right. The few left-wing governments that are being elected are in a minority, so of course you get protection of the markets at the expense of the public as a general framework, rather than vice-versa.

But the public are the people who voted those centre-right parties into power, and thereby set the tone of the response by their own governments and by the EU. If they're suffering, they need to elect left-wing or centre-left governments, as the French have done, but many have instead gone the other way.

That's largely a reflection of the results of the previous left-wing responses to crises like these, which historically have not been good results, because the response of the left to crises tends to involve killing the goose that lays the golden eggs, whereas the right-wing response doesn't.

cordially,
Scofflaw

I understand that we get the governments that we vote for but what I can't square away is that the public always pay for the mistakes but never reap the benifits that the bond holders do. If they are just taking this money in some fait accompli surely the bond holders should be treated the same.

However it seems to me that those in charge would sooner take it from the general public than the large bond holders. Who have gambled in the past and won big but now when they have gone all in and lost want the people who never see the profits to bail them out.

They get socialism but if I can't pay the bank my morgage tomorrow I get kicked out of my house. Do as I say not as I do

hfallada

Cyprus did something which they said would never do in Europe which is when a bank defaults the depositors are hit. As far as I know in the US when the bank fails depositors above a certain amount people lose their savings.

Its the small depositor who is losing out here. I imagine the wealthy people who knew the banks were failing were smart to transfer their money to German or Swiss banks. It was well known here Anglo was failing and people starting to pull their money from it before it bailed out. But the media are questioning will this happen in Spain where the banks are having huge issues

MMAGirl

If they took 6.5% of my savings I wouldnt feel at all guilty about robbing the bank. I think bank robberies would become commonplace.

Nody

The whole point of the tax is because of the Russian mafia money laundering in the Cyprus banks basically; Merkel et al need to be able to show they are hard in negotiation due to the upcoming election this spring in Germany.

KyussBishop

One of the most significant things about this, is that it means depositors all over the EU (particularly periphery countries) are no longer safe; pretty stupid move, to undermine confidence like that.

It doesn't look like Ireland is going to need further bailouts, which may trigger dipping into deposits, but the future course of the crisis in Europe is not altogether certain.

wexie

CptMackey wrote: »

The people are getting robbed. 6.75 % taken out of their accounts. If it happened here would we take it?

I'd have been delighted if I could have swapped 6.75% of savings for what we have now, tax increases, USC, property tax, water tax etc. etc. etc.

6.75% of savings is really sweet FA compared to what we're likely to pay in the long run....

AlmightyCushion

wexie wrote: »

I'd have been delighted if I could have swapped 6.75% of savings for what we have now, tax increases, USC, property tax, water tax etc. etc. etc.

6.75% of savings is really sweet FA compared to what we're likely to pay in the long run....

We'd still have all the tax increases and expenditure cuts though as these are needed to balance the books.

wexie

AlmightyCushion wrote: »

We'd still have all the tax increases and expenditure cuts though as these are needed to balance the books.

yeah but surely the books would have looked at least slightly more rosy if Ireland had done this? Also this (in my most humble opinion) would likely have been more equitable then the solutions we see now.

KyussBishop

How on earth is the EU going to prevent bank-runs, preceding future bailouts in any other countries now?

The mere rumour of a country needing another bailout, is going to cause serious issues of confidence and bank stability (with people pulling their money out of banks, for fear of loss on their deposits), from here on out; this move is so monumentally stupid, that it could end up undermining confidence in and destabilizing the Euro, unless there is a serious effort at backtracking or damage control.

AlmightyCushion

wexie wrote: »

yeah but surely the books would have looked at least slightly more rosy if Ireland had done this? Also this (in my most humble opinion) would likely have been more equitable then the solutions we see now.

It would reduce the national debt but it would not reduce the deficit. If this was brought in we'd still have to borrow massive sums of money every year to cover government expenditure. At best this means that by bringing in this it we could delay the cuts and tax increases for a few years but we'd just be delaying the inevitable.

noodler

wexie wrote: »

I'd have been delighted if I could have swapped 6.75% of savings for what we have now, tax increases, USC, property tax, water tax etc. etc. etc.

6.75% of savings is really sweet FA compared to what we're likely to pay in the long run....

wexie wrote: »

yeah but surely the books would have looked at least slightly more rosy if Ireland had done this? Also this (in my most humble opinion) would likely have been more equitable then the solutions we see now.

Just reiterating Almighty's point but even if we hadn't put a penny into the banks, our deficit would still have been massive from 2008-2015 and we would have needed to sort it out.

Thrill

wexie wrote: »

I'd have been delighted if I could have swapped 6.75% of savings for what we have now, tax increases, USC, property tax, water tax etc. etc. etc.

6.75% of savings is really sweet FA compared to what we're likely to pay in the long run....

All the focus is on the part of the deal concerning the tax on bank deposits and the other details appear to have been forgotten.

Cyprus also have to raise taxes, sell state assets, cut spending etc. They had to raise their corporation tax to 12.5%, up from 10%.

If they don't have a property tax or pay for water already, I'm guessing they will in the near future.

EDIT: There is also a "withholding tax". This is a tax on interest earned in Cypriot banks.



.

Dodd

It is 9.9% on accounts over 100k.

Also Monday is a bank holiday there.

Nicosia will impose a 9.9 per cent one-off levy on deposits above €100,000 in Cypriot banks and a tax of 6.75 percent on smaller deposits from March 19. The levy will generate €5.8 billion.

http://www.cyprus-mail.com/bailout/savers-forced-bear-costs-cyprus-bailout/20130316

Sponge Bob

Nody wrote: »

The whole point of the tax is because of the Russian mafia money laundering in the Cyprus banks basically;

It ain't all mafia money but there is a huge amount of hot Russian money in the Cypriot banking system....as there is a huge amount in Swiss and Luxembourg banks too.

Cypriot GDP is around €18bn but the banks have €70bn in deposits alone, half of that Russian money.

woodoo

wexie wrote: »

I'd have been delighted if I could have swapped 6.75% of savings for what we have now, tax increases, USC, property tax, water tax etc. etc. etc.

6.75% of savings is really sweet FA compared to what we're likely to pay in the long run....

That's it. Its really just another way of getting the same money of people. It just feels a lot more like robbery. In Ireland we get a property tax with nothing in return. It all amounts to the same thing.

Rightwing

Sponge Bob wrote: »

It ain't all mafia money but there is a huge amount of hot Russian money in the Cypriot banking system....as there is a huge amount in Swiss and Luxembourg banks too.

Cypriot GDP is around €18bn but the banks have €70bn in deposits alone, half of that Russian money.

The russian oligarchs account for roughly 50% of deposits in Cyprus. This was flagged a while back that they would take a hit, what came as a shock was that those under €100K would also get hit.

This is a very poor judgement call imo and well could well get the euro crisis back on. Also unfair on your average Cypriot.

paul71

I really think this is a monsterous mistake, why would anyone now deposit money in any Eurozone bank. If your account irrespective of the size of the deposit is subject to a 7% wealth tax without any consideration given to your other assets and liabilities you would be more financially secure stuffing your mattress with cash and sleeping on top of you next mortgage payment. Banking systems function off peoples confidence and the EUs approval of this deal will have ordinary people all over Europe worrying about their bank accounts, I have serious concerns that this could lead to a Europe wide bank run.

Good loser

Rightwing wrote: »

The russian oligarchs account for roughly 50% of deposits in Cyprus. This was flagged a while back that they would take a hit, what came as a shock was that those under €100K would also get hit.

This is a very poor judgement call imo and well could well get the euro crisis back on. Also unfair on your average Cypriot.

I think it's a good idea. Surely those with money (a surplus) are better able to pay than those without. After this depositors will be more careful where they put their cash. Also 10% is not a killer penalty.

Rightwing

Good loser wrote: »

I think it's a good idea. Surely those with money (a surplus) are better able to pay than those without. After this depositors will be more careful where they put their cash. Also 10% is not a killer penalty.

Well I agree to a point, but why should the Cypriots take a hit and not the Greeks or the Irish for instance.

Maudi

CptMackey wrote: »

The people are getting robbed. 6.75 % taken out of their accounts. If it happened here would we take it?

It seems morally wrong to impose this theft of the ordinary people of Cyprus. Europe really don't like to see pain inflicted in the better off now do they.

Most of the losses in the banks there seem to be a result of the Greek issue which I'm sure the ordinary Cypriot who works his/hers 40 hours week had anything to do with.

The next thing is out politicans will be looking for contributions from savings next. They already hit the pensions.

its on the way here..dont have any doubt.

Sierra Oscar

wexie wrote: »

I'd have been delighted if I could have swapped 6.75% of savings for what we have now, tax increases, USC, property tax, water tax etc. etc. etc.

Wont they still be facing significant budgetary hardships in the immediate future though, no?

touts

The bond holders didnt get burned because many German pension funds are the bond holders. No decision will be taken in the EZ that may hurt the German people. The spin being put on it is that this is designed to hurt Russian mafia investors. And it will hurt a few. But the main pain will be felt by millions of the ordinary people of Cyprus.

Could it happen here. Well it already has when the government raided pension funds to "create jobs". The money is gone and there are no jobs. The leap to raiding ordinary accounts became smaller with the raid on Irish pension funds and it became a lot lot lot smaller with todays bankraid in Cyprus. Bankraids are now a firmly established tool in the Eurozone arsenal while printing money and further drops in interest rates remain firmly off the table. Because of the irrational german phobia about inflation EU governments are now stealing from their own people rather than use economic tools widely used in every other economy. If the economy was to take a further downward turn I have no doubt the government would seize our money.

I suspect there will be an outflow of money from EZ banks on Monday. I know I will be looking at the best options to protect my family.

RoverZT

paul71 wrote: »

I really think this is a monsterous mistake, why would anyone now deposit money in any Eurozone bank. If your account irrespective of the size of the deposit is subject to a 7% wealth tax without any consideration given to your other assets and liabilities you would be more financially secure stuffing your mattress with cash and sleeping on top of you next mortgage payment. Banking systems function off peoples confidence and the EUs approval of this deal will have ordinary people all over Europe worrying about their bank accounts, I have serious concerns that this could lead to a Europe wide bank run.

Yeah.

Cyprus is just the guinea pig for the ECB.

Ourselves, Spain, Greece, Italy should be very worried.

All that **** for just 6 billion.

They have destroyed the confidence in EU banking.Idiots

I don't even have money and I am scared.

150 companies have already applied to withdraw accounts from Cyprus.

The country has been destroyed by a single German/IMF decision.Madness.

RoverZT

touts wrote: »

I suspect there will be an outflow of money from EZ banks on Monday. I know I will be looking at the best options to protect my family.

What can you do though?

I have family in Canada, can I get one of them to open a bank account and transfer my cash there?

Cavehill Red

RoverZT wrote: »

What can you do though?

I have family in Canada, can I get one of them to open a bank account and transfer my cash there?

Watch the price of safe haven currencies and precious metals over the next couple of weeks. I suspect they'll all rise on the back of this.
And yes, I'm unaware of any reason preventing you transferring money from Ireland to a relative in Canada. It'd be a different story if you were looking to do it from Cyprus currently.

paul71

Good loser wrote: »

I think it's a good idea. Surely those with money (a surplus) are better able to pay than those without. After this depositors will be more careful where they put their cash. Also 10% is not a killer penalty.

It is not a good idea in fact it is completely idiotic. It has the potienial to cause bankruns anytime another country has a credit rating downgraded or receives bad Economic/unemployment figures are published thus reducing banks liquidity further and exasberating the situation it is seeking to resolve.

Also deposit taxes are grossly unfair and could rightly be viewed as theft. What happens to someone who sold their house last week and put the receipts on deposit for 30 days while waiting to close the deal on buying a new house. What happens to someone who received a insurance claim for €1,000,000 future medical costs and can longer pay for that medical care. What happens if you have €2,400 saved for first month rent and deposit for the house you are moving into next Tuesday.

What is to prevent a government stealing another 10% from life savings next year once a precedent has been set. The notion of safety of deposits in any European bank is now gone.

paul71

Cavehill Red wrote: »

Watch the price of safe haven currencies and precious metals over the next couple of weeks. I suspect they'll all rise on the back of this.
And yes, I'm unaware of any reason preventing you transferring money from Ireland to a relative in Canada. It'd be a different story if you were looking to do it from Cyprus currently.

You are correct.
If I had any money I would be buying gold on Tuesday.

Cavehill Red

paul71 wrote: »

You are correct.
If I had any money I would be buying gold on Tuesday.

Pendulum swings always overshoot a little. I wouldn't be surprised to see metals spike from Sunday night, and fall back a little later in the week.
I've been putting what little money I have outside the reach of the euro for quite some time now, into gold and silver, and into other currencies and into things I could sell or barter if the whole system went tits up overnight.

touts

RoverZT wrote: »

What can you do though?

I have family in Canada, can I get one of them to open a bank account and transfer my cash there?

Well IF you trust them then I would be getting them to set up an account in your name as a lifeboat. Our plan up to now was to transfer money electronically to my Wife's sister's bank account. We have her set up as an option on our online account. Following yesterday's developments I will look in to getting an actual account set up in our name using her address. But remember currency exchange rates and fees will probably rob you of a few % so you would only use it when there is a run on the banks and the government guarantee looks under threat. Also remember a quick look at the cases in court any given week will show that relatives are still far more likely to rob you than our government. Although the government are working hard to close that gap.

Chips Lovell

Not that surprising they did it, once the decision was made to burn senior bondholders since:

1. Depositors and senior bondholders rank the same.
2. Cypriot banks, unlike a lot of others, are mostly funded by depositors with relatively little coming from bondholders.

wexie

ConnorG! wrote: »

This what happenes when you have weak dog scum like FG in power

FG are in Cyprus as well?

:eek:

maninasia

For all the hysteria 9% and 6% are not very large one off taxes. Plus Cyprus is just not very big. However I don't agree with doing this just because there werent significant foreign bondholders involved.
If you had put your money in sterling a few years ago you would have lost 30% at least due to depreciation.

Also look at the alternatives, you could have inflation which is also a tax on savers, but that tax would apply to every Euro holder worldwide.

IMO the more worrying thing is that core countries like Germany are showing they don't care about the periphery, and that is extremely damaging to the EU project.

carpejugulum

paul71 wrote: »

I really think this is a monsterous mistake, why would anyone now deposit money in any Eurozone bank.

But they don't want you to save.

carpejugulum

touts wrote: »

The bond holders didnt get burned because many German pension funds are the bond holders. No decision will be taken in the EZ that may hurt the German people.

source for both claims?

touts wrote: »

But the main pain will be felt by millions of the ordinary people of Cyprus.

population of 850k

professore

Nody wrote: »

The whole point of the tax is because of the Russian mafia money laundering in the Cyprus banks basically; Merkel et al need to be able to show they are hard in negotiation due to the upcoming election this spring in Germany.

So they do this by stealing ordinary people's life savings? Why not take it off deposits over 100K then? What they did is take it off people who were saving for medical treatments, to put their kids through college, to pay for a nursing home etc !!!! This is robbery, plain and simple.

professore

maninasia wrote: »

For all the hysteria 9% and 6% are not very large one off taxes. Plus Cyprus is just not very big. However I don't agree with doing this just because there werent significant foreign bondholders involved.
If you had put your money in sterling a few years ago you would have lost 30% at least due to depreciation.

Also look at the alternatives, you could have inflation which is also a tax on savers, but that tax would apply to every Euro holder worldwide.

IMO the more worrying thing is that core countries like Germany are showing they don't care about the periphery, and that is extremely damaging to the EU project.

The other worrying thing is that they are showing they don't have a clue how banking works. This could bring down the euro. Where are the other countries where banks are in trouble? Off the top of my head, Spain, Ireland (yes they are - wait until all those mortgages in default have to be dealt with !) - there will probably be a run on the Spanish banks on Monday. Then Spain will tell the EU to eff off - they are too big to be pushed around. Italy will get in on the game. Then the French and German banks that leant the Spanish and Italian banks billions (trillions?) will find that they are insolvent too. Game over.

professore

touts wrote: »

The bond holders didnt get burned because many German pension funds are the bond holders. No decision will be taken in the EZ that may hurt the German people. The spin being put on it is that this is designed to hurt Russian mafia investors. And it will hurt a few. But the main pain will be felt by millions of the ordinary people of Cyprus.

€100K off €1m of laundered money will hurt far less than €3K of a €50K medical treatment fund.

Maudi

professore wrote: »

The other worrying thing is that they are showing they don't have a clue how banking works. This could bring down the euro. Where are the other countries where banks are in trouble? Off the top of my head, Spain, Ireland (yes they are - wait until all those mortgages in default have to be dealt with !) - there will probably be a run on the Spanish banks on Monday. Then Spain will tell the EU to eff off - they are too big to be pushed around. Italy will get in on the game. Then the French and German banks that leant the Spanish and Italian banks billions (trillions?) will find that they are insolvent too. Game over.

hopefully...please God.