Cyprus bail out deal

professore

Nobody has asked yet WHY Cyprus needed a bailout. Was it a Celtic Tiger style boom? No. Was it mad lending by it's banks to property developers? No (well maybe a little....). The reason was that it's banks were intertwined with Greek banks, whose private sector investors got badly burned as part of the Greek bailout saga. So in fact it was mismanagement of the Greek bailout by the Troika that caused this in the first place. The Cypriot people are blameless.

Two of the world's three main credit rating agencies handed Cyprus a downgrade last month, citing Cypriot banks' connections to Greek debt as the most significant reason.

http://www.dw.de/is-cyprus-the-next-euro-bailout-candidate/a-15997730

snaps

Seems "under the mattress" is the best place for your money now. Shocking that the average deposit owner will have this happen to them. After being taxed on wages etc, this is a kick in the teeth and makes euroland a joke.

Did they throw their pension fund at the problem like we did?

You can take money from people with no savings by taxing them to give the people who had savings their money back.
Or you can have the better off people with savings and bondholders/investors take a haircut.
Or you can mix both methods.

Moral hazard abounds either way. Personally I think it is grotesque to make someone with no savings pay money into someone elses deposit account via taxes or any other method. Had we taken this route back in 2008 it would have shaken things up and we would have had heads on plates and reforms. Our current path was the one of least resistance and worse it is a circular path.

snaps

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.

im wondering if UK banks would be safer, I've a dormant UK account I could transfer my money into, shame exchange rate is poor. Have to admit, im worried.

Rightwing

I think this sums up the situation:

The eurozone ignores at its peril the fact that these decisions do not happen in an economic or financial vacuum. They have political and social consequences that cannot be ignored if the single currency is to have a future. One need only look at the political changes that have taken place in Greece, Ireland, Portugal, Spain, Italy and elsewhere to realize that the euro area is running out of leaders who have the backing needed to implement the decisions being taken.

Cypriot President Nicos Anastasiades, elected just last month, has to clarify to his people why he is adopting a bank deposit tax when he told voters a few weeks ago that he was absolutely opposed to it. Even before Anastasiades had returned from Brussels, his political opponents were demanding a referendum on the deposit tax. Some were even calling for new elections or an exit from the euro.

Mr.Wemmick

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.

Agreed. What I also find worrying, is that there has to be more to this than meets the eye.. why are they being so blatant and going against the way banks have historically worked to build up the public's confidence in the hope of getting everything back on track - trust is everything when instability is in short supply. The inconsistency, and the lack of care regarding the panic it will cause next week, is very puzzling. They can not be that reckless surely, so are we heading towards the end game anyway? EZ no longer sustainable and they know it's only a matter of time..

I never thought I say this, and in the current climate of continued overpriced poor standard housing available in Ireland, but it seems your dosh is better off in bricks and mortar, after all..

In the long run, if the EZ limps on, I don't think keeping your money overseas will help either especially as there are now more effective tax disclosure agreements between countries for non-residents.

The Devil and the deep blue sea springs to mind..

CelticRambler

snaps wrote: »

im wondering if UK banks would be safer, I've a dormant UK account I could transfer my money into, shame exchange rate is poor. Have to admit, im worried.

Not if you believe Money Week's analysis
http://pro.moneyweek.com/myk-eob/LMYKP307/
Mind you, they are trying to sell their magazine. But still ...

Mr. teddywinkles

woodoo wrote: »

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.

What about people with no savings. So they are exempt from this so called tax:rolleyes:

Sponge Bob

Seems a number of politicians have become bolshy and the parliamentary vote on the deal ( an emergency recall) has been delayed until tomorrow. The banks open tuesday morning as Cyprus and Ireland are on a holiday tomorrow.

http://www.rte.ie/news/2013/0317/377083-cyprus-bailout/

carpejugulum

But how much would people whine if the banks and gvt went bankrupt and they lost much more than 7-10%?

Only an opportunist or a moron had savings in a Cypriot bank. The gvt was already bankrupt, the economy is stagnant and heavily dependant on banking and financial "services" (tax haven), the banks' ties to the Greek economy were well known and the offered interests (4.5-5%) were unreal.

Thrill

Sponge Bob wrote: »

Seems a number of politicians have become bolshy and the parliamentary vote on the deal ( an emergency recall) has been delayed until tomorrow. The banks open tuesday morning as Cyprus and Ireland are on a holiday tomorrow.

http://www.rte.ie/news/2013/0317/377083-cyprus-bailout/

They've declared Tuesday a bank holiday.

MMAGirl

carpejugulum wrote: »

But how much would people whine if the banks and gvt went bankrupt and they lost much more than 7-10%?

Only an opportunist or a moron had savings in a Cypriot bank. The gvt was already bankrupt, the economy is stagnant and heavily dependant on banking and financial "services" (tax haven), the banks' ties to the Greek economy were well known and the offered interests (4.5-5%) were unreal.

So what were the ordinary citizens with bank accounts. Opportunists or morons?i

oscarBravo

4.legs.good wrote: »

Here we have the ECB threatening yet another state (they did this too us too) with pulling support and pushing them down a chosen track

Since when does the ECB have the right to meddle in politics of various countries? How is that democratic??

You seem to be missing the point of a bail-out. It's funding of last resort, provided to a country that's incapable of borrowing on the open market.

If I lend money to my deadbeat brother-in-law to help tide him over while he sorts out his personal problems, I don't think it's unreasonable that I set some stringent terms and conditions on that loan. He may not like having to sell his Harley and cancel his Sky Sports subscription, but those are the terms on which I'm prepared to make the loan available.

handlemaster

carpejugulum wrote: »

But how much would people whine if the banks and gvt went bankrupt and they lost much more than 7-10%?

Only an opportunist or a moron had savings in a Cypriot bank. The gvt was already bankrupt, the economy is stagnant and heavily dependant on banking and financial "services" (tax haven), the banks' ties to the Greek economy were well known and the offered interests (4.5-5%) were unreal.

the same could be said of irish deposit holders before the bail out

carpejugulum

handlemaster wrote: »

the same could be said of irish deposit holders before the bail out

no, not before the bail out

Rightwing

Think I'll short sell the euro on the back of this fiasco.

ArmaniJeanss

Thrill wrote: »

They've declared Tuesday a bank holiday.

Swings and roundabouts I guess.

KyussBishop

Good blog post on this, reframing it as 'collective punishment', and explaining why, if Cyprus was being used to launder money, they didn't just go after the laundered money, instead of imposing collective punishment on all:
http://www.golemxiv.co.uk/2013/03/eu-imposes-collective-punishment-on-cypriots/

Great points, that show the lack of desire to hold actual criminals accountable, because that would lead to searching out of criminals/fraudsters elsewhere in the EU.

Rightwing

Rightwing wrote: »

Think I'll short sell the euro on the back of this fiasco.

The € is trading down 161 v the $ as the FX markets open.

whiteandlight

Perhaps someone could explain this to me but I cannot see how they expect the Cyprus banks to survive this. Two possibilities either take the bailout including this hit or don't take the bailout.

1st scenario: government hits all savings in Cypriot banks. Immediate public reaction is to remove their savings an transfer to an international/foreign bank. Run on bank ensues and banks fail. The government immediately becomes liable for the 100k deposit guarantee and the state goes bankrupt

2nd scenario: government don't take the bailout. Banks immediately fail, run on the banks the first morning they open and banks fail. The government immediately becomes liable for the 100k deposit guarantee and the state goes bankrupt

I cannot see any situation where the banks survive this? I'm an ordinary citizen and my money would be out of there like a shot now regardless of bailout or not?

apeking

Why don't Cyprus get a similar bailout to ours? I.e. cash injection from ECB in return for increased taxs etc and leave the deposit holders alone.

Rightwing

There's a bit of panic creeping into the markets as we speak, and the politicians are scrambling to alter the terms, it now looks like they are changing it to 3% for under €100K, and possibly 15% for above.

ArmaniJeanss

Musicmental85 wrote: »

Perhaps someone could explain this to me but I cannot see how they expect the Cyprus banks to survive this. Two possibilities either take the bailout including this hit or don't take the bailout.

1st scenario: government hits all savings in Cypriot banks. Immediate public reaction is to remove their savings an transfer to an international/foreign bank. Run on bank ensues and banks fail. The government immediately becomes liable for the 100k deposit guarantee and the state goes bankrupt

You could introduce a max cash withdrawl limit of €300 per day, €500 per week, €1000 per month, and put a charge of 50% on all transfers from Cypriot banks to non Cypriot banks.
This slows the bank run.

Or alternatively the terms will be changed over the next few days such that the charge for Cypriot addressees in their primary account is reduced to 0% on the first €25K. But only if no withdrawals are made in a certain timeframe.

I suspect one or the other (stick or carrot) will have to be brought in over the next 36 hours because otherwise what you predict will come to pass.

noodler

apeking wrote: »

Why don't Cyprus get a similar bailout to ours? I.e. cash injection from ECB in return for increased taxs etc and leave the deposit holders alone.

You are confusing things slightly.

All the money the ECB has lent our banks has nothing to do with the EU/IMF bailout. That money was agreed to any EZ bank that needed it way before we entered the bailout.


The siutation is basically this:

We needed a 65bn bailout (about 41% GDP) (only about 17bn of this was needed for our banks in the end - the rest was to fund out annual budget deficits). This means, along with other factors, our debt-GDP ration will peak at just over 120% GDP.



Cyprus need a 17bn bailout (about 113% GDP) and the majority is for the banks (10bn+).

If they allow Cyrpus to borrow this much money than their debt-GDP ratio could peak at a level somewhere north fo 170% GDP. So, on this logic, it has been decided that Cyprus wouldn't realistically be able to pay that much back if lent so they've decided to reduce the bailout amount needed by burning depositors.



NB: Plenty would obviously argue 120% GDP in Ireland's case is barely, if at all, sustainable but obviously for a country like Cyprus in the EZ 170%+ certainly isn't.

Sierra Oscar

Rightwing wrote: »

There's a bit of panic creeping into the markets as we speak, and the politicians are scrambling to alter the terms, it now looks like they are changing it to 3% for under €100K, and possibly 15% for above.

Not sure if it hugely matters if they change the terms now. The very fact that they were willing to implement such measures, which hit depositors, could potentially send the banking system into a freefall.

whiteandlight

ArmaniJeanss wrote: »

You could introduce a max cash withdrawl limit of €300 per day, €500 per week, €1000 per month, and put a charge of 50% on all transfers from Cypriot banks to non Cypriot banks.
This slows the bank run.

Or alternatively the terms will be changed over the next few days such that the charge for Cypriot addressees in their primary account is reduced to 0% on the first €25K. But only if no withdrawals are made in a certain timeframe.

I suspect one or the other (stick or carrot) will have to be brought in over the next 36 hours because otherwise what you predict will come to pass.

Thanks for the response. It just seems like madness-I can't see how they can spin this in a good way. All of the news/economist sources seem worried!

carpejugulum

apeking wrote: »

Why don't Cyprus get a similar bailout to ours? I.e. cash injection from ECB in return for increased taxs etc and leave the deposit holders alone.

Loads of € in the banks comes from foreigners.

Cavehill Red

Gold and silver up sharply as soon as the Asian markets opened. Euro down, needless to say. Reports of big demand for bullion in Switzerland, Britain, etc from inside the EZ.

Scofflaw

carpejugulum wrote: »

Loads of € in the banks comes from foreigners.

There seems to be a strong element of that, and capital controls on third countries are much easier. The Cypriots initially rejected any idea of levying in double figures for the larger accounts (hence the slightly silly 9.9% and the relatively high levy on smaller depositors), but seem to have changed their minds now.

cordially,
Scofflaw

Sponge Bob

As has the speaker of the EU Parliament. The Cypriot banks will stay closed UNTIL there is a final settlement. That could take days. I think Schulz is correct but if he is heeded then larger €100k+ depositors will take a larger hit. Needless to say the residual money won't hang around for a second sweep so Luxembourg heEEere we go for a lot of it.

http://www.bbc.co.uk/news/world-europe-21824495

The speaker of the European Parliament, Martin Schulz, argued in a newspaper interview that there should be an exemption from the levy for savers, for example, who had less than 25,000 euros in their accounts.

and

The vote in parliament has been postponed to Monday afternoon. If the deal is defeated, state media say banks could be closed on Tuesday so as to avoid mass withdrawals.

makeorbrake

How does the ordinary joe protect his hard earned coinage then?

Gold is impractical as it's already an expensive purchase as others have piled in (that's even before this more recent development). The same applies for other precious metals and high value commodities.
Sterling is a basket case - and even if it wasn't there's an automatic loss in the fx transfer(s) alone.
Is the dollar in any better shape? (and of course, the same fx issue involved there also in any event).
- That leaves holding eur beyond the reach of thieving government hands. Luxembourg and Switzerland have been mentioned in this thread. However, can someone provide practical info on this i.e. what bank, what are the charges, etc.

I remember reading on another board (2 years ago) about moving savings to Germany. However, in most cases, this involved little or no % appreciation on the funds deposited. I went as far as getting application pack sent on at the time - but never followed through. Also opened a sterling a/c in Newry around that time but (thankfully!) procrastinated on that (heeding others warnings of the fx & transaction cost downsides to that option) also.

ArmaniJeanss

makeorbrake wrote: »

I remember reading on another board (2 years ago) about moving savings to Germany. However, in most cases, this involved little or no % appreciation on the funds deposited.

~0% doesn't seem the worst deal at the moment.

makeorbrake

ArmaniJeanss wrote: »

~0% doesn't seem the worst deal at the moment.

Bank of Mattress then?

Thespoofer

4.legs.good wrote: »

A return trip to Switzerland is under 250 eur, can open an account in 1-2 days (bring passport + any bank statements + proof of address and/or company accounts if commercial).

You actually get to deal with banking professionals with good online banking, multi currency account, savings, trading and investment options and more importantly a debit card to withdraw your cash anywhere in the world.

Irish banks are amateurs compared to whats been available to our German friends for centuries. I wonder how many billions the Germans have squirrelled away across the border, if we are going to be talking about laundering money in Cyprus by Russians

Been thinking along these lines myself but don't know which bank. Could you post a link/pointer to a suitable type bank as you describe please , thanks.

snaps

so the banks could be closed until they decide what to do. Very democratic of them I must say. So the poor deposit holders have no choice than to take this hit. If it were me and id been saving in drips and drabs for along time, just to have it robbed from me, I would be mad as hell. I'm still thinking about doing something with my savings here now, because its been done before it could happen again. And quite frankly, there's not much more to tax here now.

carpejugulum

makeorbrake wrote: »

Bank of Mattress then?

non zero chance of robbery or worse

Maura74

UK said that they will look after residents that have investments in Cyprus, it remains to be seen if they keep that promised.

As Cyprus would have a small impact on the EU if they left it I expect that is why the government is taking money from peoples accounts.

I do not mind them raiding accounts with over 500k in them and it should be on a sliding scale.

amacca

Maura74 wrote: »

I do not mind them raiding accounts with over 500k in them and it should be on a sliding scale.

This thing of people not minding if other people with more money than them gets it taken off them bothers me

I dont have 500k in a bank account but I would very much mind if people with 500k had their accounts raided

maybe some of these people saved all their lives, maybe they worked hard and sacrificed while joe irresponsible borrower down the street furnished his new house on a credit card etc etc ad nauseum (but the point is still valid) I'm sure some poor sods have sold a property/business and the funds are sitting in a bank waiting to buy another property that is just a way for these people to earn a living etc etc

I'd like to think if I had hard earned savings which I've paid tax on and then DIRT it would be safe from an overnight deduction of 10%+ regardless of the amount.......its a crazy move to go after savings of any amount in this way and sets a dangerous precedent that could well have negative consequences for many people (with or without savings) imho

maninasia

They may not allow deposits to be withdrawn in large quantities for a period of time.

Lantus

It seems to me that the social and economic structures we hold dear only serve to work against people and are detrimental to their wellbeing and happiness.

Societys that are divided through race, religion, ideology and social class are ultimatley easy to control and manipulate by any 'leader' who needs to impose conditions that preserve the status quo and ensure preferential benefit to those upper groups.

In most democarcy's people tend to vote for one person every 5 years who then go on to form corporate political groups and make decision after decision with little or no regard for the people and no ultimate consequence to their actions except that they may have to wait their turn until they get re-elected to make more stupid decisions.

That isn't democracy, its just another favourable condition of slavery that bestows preferencial advantage on a small elite group.

Scofflaw

Maura74 wrote: »

UK said that they will look after residents that have investments in Cyprus, it remains to be seen if they keep that promised.

As Cyprus would have a small impact on the EU if they left it I expect that is why the government is taking money from peoples accounts.

I do not mind them raiding accounts with over 500k in them and it should be on a sliding scale.

It is on a sliding scale - 5% under €100k, 10% €100-500k, €13% over €500k last offer I heard.

The reason depositors are being hit seems to be that there are no bondholders to speak of. So the depositors are not being burned to save bondholders, they're being burned to save themselves.

cordially,
Scofflaw

makeorbrake

amacca wrote: »

This thing of people not minding if other people with more money than them gets it taken off them bothers me. I dont have 500k in a bank account but I would very much mind if people with 500k had their accounts raided

None of this is ideal (to say the least)! However, if it has to happen, there is logic in not hitting the most vulnerable. As others have pointed out, taking X% off somone in the 100K+ or 500K+ category is not going to have the same impact as taking X% off someone with savings under the 100K threshold. There are particularly inequitable (aside from the fact that its hard to find 'equity' in any of this) scenarios that others have pointed out eg. where someone has just completed sale of their home - with a view to now going forward and purchasing their next home.
None of us are communists these days - and it's hard to apply 'fairness' in this scenario. However, there is a logic in treating the sub 100K deposit holder much more compassionately than those in the higher deposit-holding categories.

Millerz

Banks taking money on small depositors.....could it happen here?

RoverZT

Of course it could.

If we need another bailout it probably will happen.

View

Millerz wrote: »

Banks taking money on small depositors.....could it happen here?

Yes, in fact variations of it are already here. We have:
1) Seizure of monies in dormant accounts,
2) Deposit Interest Retention Tax
3) "One-off" levies on individuals' pension funds.

People seem to have assumed a guarantee that applies in the event of a bank failure applies all the time - that isn't the case and, hence, it is a matter for the Cypriot (or Irish) government(s) when and what they tax.

Of course it could. A better question might be: How likely is this to happen in Ireland?

Not likely in the slightest. In the foreseeable future (5-15 years, or however long the next disaster takes), at least. Cyprus banking seems by all accounts to be unique in it's size and questionable money sources.

hmmm

What an enormously stupid decision this has been. If they wanted to tax deposits, they should have not touched anything below the deposit insurance level of 100k.

It will now be rational for investors to ignore the deposit protection scheme limits, and to remove their money from any state where there is a chance of a bank bailout being required. I would particularly worry for Spanish or Italian banks.

Thankfully Ireland has recapitalised our banks & we have regained acess to the debt markets, so the chances of this happening here are slim at present.

darkhorse

Millerz wrote: »

Banks taking money on small depositors.....could it happen here?

You better believe it could happen here. In fact, I would go as far as to say that in my experience on other threads, you very may well see some individuals here on Boards.ie actually lobby for it.

hmmm

One of the worst aspects of this is the arbitrariness of the "tax". This tax was not raised before, and the Cypriots are having to decide who and how much. It's not hyperbolic to say that this is a breakdown of the trust system that underlies the banking system - if they can impose a "tax" out of nowhere on a arbitrary scale, what other aspect of the underlying rules can be changed at a whim?

For example, what is to stop the German government imposing a different "tax" on foreigners with deposits in Germany than locals should a bank there ever get into trouble?

I hate to say it, but one of the earliest decisions in the current crisis to seize private assets was yet another incompetent Irish government decision - and that was the levy on private pension funds. Once one government crosses the rubicon of the theft of private assets, others feel empowered to do similar.

Hootanany

I think if this goes thru there will be a massive run on all the Banks in the EU.