Cyprus bailout deal #2

yore

Scofflaw wrote: »

Too simple. In fact, Cypriot banks have very similar levels of eurozone funding to the bailed out Irish banks - about 8-10%.

cordially,
Scofflaw

Would you care to elaborate on the dismissal of my post.
This is a politics forum. A lot of politics is about the optics.

http://www.bbc.co.uk/news/business-15748696
http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html?_r=0


The Germans did not give us money for a bail out because they like us better, they gave us the money as it was the lesser of two evils for them. Also, it was reported that Geithner sank IMF proposals to impose bondholder losses in Ireland. As stated bondholders are ranked parii passu under Irish law. I do not know about Cypriot law.
http://www.aedbf.eu/fileadmin/eu/pictures/news/2012/athens/presentations/LENIHAN.pdf

If there is another, more fundamental reason as to why the EU were happy to burn the bejaysus (borrowing from Mario Rosenstock's Constantin sketch) out of the cypriot (+ Russian) depositors while simultaneously insisting that no Irish depositor lose a red cent, then by all means, please elaborate. It may be coincidence that Germans were owed 83bn and French another 23bn. You can talk percentages all day and night, but I don't think that the cypriot headline figure would have been nearly that amount.
http://www.spiegel.de/international/business/in-a-survival-crisis-irish-debt-woes-make-german-banks-uneasy-a-729408.html

But finally, back to the optics, there is a german federal election in September. German's don't like being presented with the story that their hard earned and carefully saved cash was being "given" to the lazy spendthrift Irish/Greek/Spanish/etc. I reckon that German politicians wouldn't be looking forward too much to seeing articles about Russian mafia being 100% bailed out by the German taxpayer either.

Scofflaw

yore wrote:

If there is another, more fundamental reason as to why the EU were happy to burn the bejaysus (borrowing from Mario Rosenstock's Constantin sketch) out of the cypriot (+ Russian) depositors while simultaneously insisting that no Irish depositor lose a red cent, then by all means, please elaborate. It may be coincidence that Germans were owed 83bn and French another 23bn. You can talk percentages all day and night, but I don't think that the cypriot headline figure would have been nearly that amount.

To be very brief about it, and to address the main error you're making - the figures you're quoting aren't anything to do with the amounts of German/French money in the Irish domestic banks. Instead, they are BIS (Bank of International Settlement) figures that include all banks in Ireland. This is a vital point, because "all banks in Ireland" includes the major offshore banking centre at the IFSC, which is indeed full of eurozone money, because it's in the subsidiaries of eurozone banks there.

What does that money have to do with the banks we bailed out? Absolutely nothing at all. Although journalists have repeated it endlessly in flashy graphics, it's a complete red herring.

Instead of there being multiple tens of billions of domestic Irish bank bonds held by German and French owners, there was a maximum, for all eurozone holdings of Irish domestic bank bonds, of €14bn. By the time of our bailout in November 2010, this was down to €10bn, and eurozone deposits of €8.2bn.

There never was a wall of eurozone money washing through our banks - or if there was, it has done a remarkably good job of leaving no trace on the banks' balance sheets, which are recorded in aggregate by the CBI, and are available here: http://www.centralbank.ie/POLSTATS/STATS/CMAB/Pages/Money%20and%20Banking.aspx

The CBI offers three sets of aggregated balance sheets - for the "covered" (bailed-out) banks, for the domestic banks, and for all banks in Ireland. If you look in the last of these, under Liabilities, for July 2010 (around when the Spiegel article was written), you'll find massive eurozone liabilities - €26.5bn in bonds, and €226bn in deposits. Compare that against the amounts in the covered banks on the same date: €12.7bn in bonds, and €17.4bn in deposits. IFSC banks thus account for half the bond exposure, 92% of the deposit exposure, and 88% of all the eurozone exposure to Ireland.

So there was a massive eurozone exposure to "banks in Ireland", but it wasn't to the banks we bailed out, and has nothing to do with our bailout.

cordially,
Scofflaw

yore

Scofflaw wrote: »

The CBI offers three sets of aggregated balance sheets - for the "covered" (bailed-out) banks, for the domestic banks, and for all banks in Ireland. If you look in the last of these, under Liabilities, for July 2010 (around when the Spiegel article was written), you'll find massive eurozone liabilities - €26.5bn in bonds, and €226bn in deposits. Compare that against the amounts in the covered banks on the same date: €12.7bn in bonds, and €17.4bn in deposits. IFSC banks thus account for half the bond exposure, 92% of the deposit exposure, and 88% of all the eurozone exposure to Ireland.

I'm not being smart, and I haven't had time to go though the data in your link, but you seem to suggest that only banks issue bonds. This is not the case. There are plenty of corporate bonds. in a sense, you are being too simplistic now.

Company in Ireland issues bonds..... German company buys the debt..... Irish banks collapse..... Irish economy goes down the drain. Corporates default.... German company does not get repaid even though it was not on the balance sheet of any bank.

Ireland's bank default -> banks go to D rating. Do not pass go. do not collect $200. Irish sovereign rating probably goes straight to C or low grade junk. Irish Corporate cannot have a higher rating than it's sovereign. Investors under strict investment policy statement guidelines have to firesell these. Big losses.

Again though, my question was why do you think that they forced/allowed haircuts in Cyprus but were not willing to do so in Ireland if not for their own self interest; either direct or indirect? If the strict maximum that they were going to lose was 10bn, they could have cut their losses, let Ireland sink and made their own people whole after any liquidation proceeds were divvied out.

PeadarCo

yore wrote: »

I'm not being smart, and I haven't had time to go though the data in your link, but you seem to suggest that only banks issue bonds. This is not the case. There are plenty of corporate bonds. in a sense, you are being too simplistic now.

Company in Ireland issues bonds..... German company buys the debt..... Irish banks collapse..... Irish economy goes down the drain. Corporates default.... German company does not get repaid even though it was not on the balance sheet of any bank.

Ireland's bank default -> banks go to D rating. Do not pass go. do not collect $200. Irish sovereign rating probably goes straight to C or low grade junk. Irish Corporate cannot have a higher rating than it's sovereign. Investors under strict investment policy statement guidelines have to firesell these. Big losses.

Again though, my question was why do you think that they forced/allowed haircuts in Cyprus but were not willing to do so in Ireland if not for their own self interest; either direct or indirect? If the strict maximum that they were going to lose was 10bn, they could have cut their losses, let Ireland sink and made their own people whole after any liquidation proceeds were divvied out.

The reason Cyprus got the haircuts was that the amount of bondholders within the banks was only about 100m and the total amount in the banks was about 34Billion appro. It didn't matter. Also without bailing in depositors it was a case of give money with no strings attached(other countries might ask for the same) or loan it and have Cyprus's debt go to unsustainable levels(somewhere in the region of 190% of GDP) that means they would default at some point down the line.

The other point from this situation is that it shows burning bondholders has downsides. This bank collapse can be in part down to burning of Greek bondholders. In an Irish case this may mean Irish pension funds etc.

Scofflaw

yore wrote: »

I'm not being smart, and I haven't had time to go though the data in your link, but you seem to suggest that only banks issue bonds. This is not the case. There are plenty of corporate bonds. in a sense, you are being too simplistic now.

Company in Ireland issues bonds..... German company buys the debt..... Irish banks collapse..... Irish economy goes down the drain. Corporates default.... German company does not get repaid even though it was not on the balance sheet of any bank.

Ireland's bank default -> banks go to D rating. Do not pass go. do not collect $200. Irish sovereign rating probably goes straight to C or low grade junk. Irish Corporate cannot have a higher rating than it's sovereign. Investors under strict investment policy statement guidelines have to firesell these. Big losses.

That's something of a stretch - Ireland's corporate bond market is not large unless, again, we include the IFSC. Apart from the IFSC, the non-financial corporate securities market is not large:



And those are totals, not Irish corporate bonds owned by German companies.

yore wrote: »

Again though, my question was why do you think that they forced/allowed haircuts in Cyprus but were not willing to do so in Ireland if not for their own self interest; either direct or indirect? If the strict maximum that they were going to lose was 10bn, they could have cut their losses, let Ireland sink and made their own people whole after any liquidation proceeds were divvied out.

Because such haircuts were not required here - the Irish State was capable of taking on the debt without them. In Cyprus' case, as PeadarCo points out, without a bail-in of some kind, the amount of money Cyprus needed to rescue its banks (and cover its deficit) amounted to 100% of GDP, pushing their debt load to something like 190%.

The point with both Ireland and Cyprus is that there is no evident selfish driver of the kind you suggest for German involvement in a bailout. Nor is there any such evident selfish driver for the involvement of the rest of the lending countries constituting the ESM/EFSF etc. We don't owe Slovakia much, if anything, or Finland, and Germany is involved in the bailouts only in the same proportion relative to its economy as those countries. Stories that revolve around the idea that the bailouts are really just a way of the currently stable countries (and in particular Germany) helping themselves seem to me to be based on nothing more than a wish to save face as we're helped out of the quagmire we managed to run ourselves into.

cordially,
Scofflaw

KyussBishop

Scofflaw wrote: »

To be very brief about it, and to address the main error you're making - the figures you're quoting aren't anything to do with the amounts of German/French money in the Irish domestic banks. Instead, they are BIS (Bank of International Settlement) figures that include all banks in Ireland. This is a vital point, because "all banks in Ireland" includes the major offshore banking centre at the IFSC, which is indeed full of eurozone money, because it's in the subsidiaries of eurozone banks there.

What does that money have to do with the banks we bailed out? Absolutely nothing at all. Although journalists have repeated it endlessly in flashy graphics, it's a complete red herring.

Instead of there being multiple tens of billions of domestic Irish bank bonds held by German and French owners, there was a maximum, for all eurozone holdings of Irish domestic bank bonds, of €14bn. By the time of our bailout in November 2010, this was down to €10bn, and eurozone deposits of €8.2bn.

There never was a wall of eurozone money washing through our banks - or if there was, it has done a remarkably good job of leaving no trace on the banks' balance sheets, which are recorded in aggregate by the CBI, and are available here: http://www.centralbank.ie/POLSTATS/STATS/CMAB/Pages/Money%20and%20Banking.aspx

The CBI offers three sets of aggregated balance sheets - for the "covered" (bailed-out) banks, for the domestic banks, and for all banks in Ireland. If you look in the last of these, under Liabilities, for July 2010 (around when the Spiegel article was written), you'll find massive eurozone liabilities - €26.5bn in bonds, and €226bn in deposits. Compare that against the amounts in the covered banks on the same date: €12.7bn in bonds, and €17.4bn in deposits. IFSC banks thus account for half the bond exposure, 92% of the deposit exposure, and 88% of all the eurozone exposure to Ireland.

So there was a massive eurozone exposure to "banks in Ireland", but it wasn't to the banks we bailed out, and has nothing to do with our bailout.

cordially,
Scofflaw

This is an interesting topic, that always pops into my head when I read (now and then in various places) of claims of foreign money in our bailed out banks, as I keep remembering you studying this in detail yourself and not finding a link; the claim about foreign money comes up infrequently, but still frequently enough to be notable as an error in fact checking from those making it.

I've not looked at any of this in detail myself yet, but is there any room for lack of transparency or undisclosed data, or even accounting trickery, which may provide even some substance to this link, or is it pretty definitively false?
Are there any economists/journalists who have written on debunking this particular myth? (I veer towards viewing it as a myth myself, just interested in more sources that debunk it)


On this topic, was thinking of this earlier reading this blog entry from an Irish whistleblower, and the very good article he links, debunking some myths surrounding the German bank Depfa with setups in Ireland, which was bailed out by Germany (only tangentially related, seeing as this was in the IFSC, not with anything to do with our bailed out domestic banks):
http://www.golemxiv.co.uk/2011/01/ireland-was-germanys-off-shore-tart/
http://www.golemxiv.co.uk/2011/01/ireland-was-germanys-off-shore-tart-part-2-the-us-connection/

Wibbs

Maybe this has been asked before, but why was Cyprus allowed/brought into the Euro? It was a near given it would lead to a credit bubble. Now I could understand if this had happened in say 2000, but this was in 2008 when the signs of impending credit shenanigans were pretty clear.

Scofflaw

KyussBishop wrote: »

This is an interesting topic, that always pops into my head when I read (now and then in various places) of claims of foreign money in our bailed out banks, as I keep remembering you studying this in detail yourself and not finding a link; the claim about foreign money comes up infrequently, but still frequently enough to be notable as an error in fact checking from those making it.

I've not looked at any of this in detail myself yet, but is there any room for lack of transparency or undisclosed data, or even accounting trickery, which may provide even some substance to this link, or is it pretty definitively false?

Neither, alas. It's impossible to prove - at least from publicly available data - that there is definitively no link, because one can claim (and some have) that what is recorded by the CBI as non-eurozone money could actually be eurozone money routed via the US/UK or other non-eurozone centres. Equally, of course, what's recorded as eurozone money could be US/UK, or even Russian money routed via eurozone centres.

On the other hand, such claims, while they have been made, have never actually been demonstrated, so they cannot be used in themselves to "provide substance" for claims of eurozone involvement either. For someone to use them to support the claims of German involvement in the bailed out Irish banks, for example, they would need to show that German money was extensively (that is, in quantities sufficiently large to be the "wall of money") routed via non-eurozone centres into Irish bank bonds. As far as I'm aware, nobody has shown it to be the case for any, even small, amount, let alone substantial amounts.

As such, what we can say is that anyone who claims the link, and doesn't provide the necessary new evidence, is making the claim without evidence, based on either repeating someone else's claim or misunderstanding available statistics. There always remains a possibility that they're correct, but it would be an accident.

KyussBishop wrote: »

Are there any economists/journalists who have written on debunking this particular myth? (I veer towards viewing it as a myth myself, just interested in more sources that debunk it)

Seamus Coffey, of course. Philip Lane, over at the Irish Economy blog, has a short piece on another misuse of BIS data, with a fair bit of discussion: http://www.irisheconomy.ie/index.php/2010/12/02/exposure-fears-for-irish-banks/

Karl Whelan is on the other side of the fence, but having challenged him online, his best response is the "money routing" one, which he made no attempt to prove.

KyussBishop wrote: »

On this topic, was thinking of this earlier reading this blog entry from an Irish whistleblower, and the very good article he links, debunking some myths surrounding the German bank Depfa with setups in Ireland, which was bailed out by Germany (only tangentially related, seeing as this was in the IFSC, not with anything to do with our bailed out domestic banks):
http://www.golemxiv.co.uk/2011/01/ireland-was-germanys-off-shore-tart/
http://www.golemxiv.co.uk/2011/01/ireland-was-germanys-off-shore-tart-part-2-the-us-connection/

That was written up, I think, in the Sunday Business Post, under the heading "Ireland dodged a bullet in Depfa". Not sure "bullet" actually covers it, given the bailout bill for Depfa was €102bn, and had Hypo not bought it in 2007, we might have been on the hook for that. See, for example: http://dublinopinion.com/2012/10/23/some-thoughts-on-relationship-between-bank-debt-issue-and-the-existence-of-shadow-banking-in-ireland/

cordially,
Scofflaw

Scofflaw

Wibbs wrote: »

Maybe this has been asked before, but why was Cyprus allowed/brought into the Euro? It was a near given it would lead to a credit bubble. Now I could understand if this had happened in say 2000, but this was in 2008 when the signs of impending credit shenanigans were pretty clear.

Worse than that, really, because entering the euro didn't lead to a credit bubble in Cyprus - the banks were already 8 times the size of their GDP, having built up over the same period as ours, but mysteriously without being i the euro.

As to why they got in, I couldn't say. Given that Greece threatened to block all accessions to the EU unless Cyprus were allowed into the EU originally, it's quite possible they did the same over Cypriot entry to the euro.

cordially,
Scofflaw

Wibbs

Scofflaw wrote: »

Worse than that, really, because entering the euro didn't lead to a credit bubble in Cyprus - the banks were already 8 times the size of their GDP, having built up over the same period as ours, but mysteriously without being i the euro.

Not quite Scofflaw. The banks weren't already 8 times the size of their GDP before the euro. That happened after joining. Indeed can we see a link that backs up your claim?

The euro most certainly added more inflation to any potential bubble that may have existed. Before the euro Cyprus' central bank restricted local banks to 30 percent of their foreign deposits to support lending, in order to reduce the risk of big influxes of cash from Greece and elsewhere fueling a credit bubble. Roll on the Euro and this meant foreign became local so that regulatory measure no longer worked.

Actually if you are correct why didn't the ECB etc say no to them joining if they were as you say already in such an obvious bubble? Surely 8 times their GDP if true would have been an obvious no no(though Luxemburg and even Malta have higher)? When Cyprus was up for joining the eurozone the ECB found no issues with it's banks or banking system. Indeed when Cyprus came into the Euro itself in 08 when things were starting to look shaky in the world economy the head of the ECB Trichet said "For a small, open economy like Cyprus, euro adoption provides protection from international financial turmoil which often has a disproportionate impact on smaller economies". Or not as the case turned out to be.

jmayo

Wibbs wrote: »

Maybe this has been asked before, but why was Cyprus allowed/brought into the Euro? It was a near given it would lead to a credit bubble. Now I could understand if this had happened in say 2000, but this was in 2008 when the signs of impending credit shenanigans were pretty clear.

And as a adjunct to this query, were the Cypriots banks not stress tested in 2011 by the EBA ?

MARFIN POPULAR BANK PUBLIC CO LTD now known as Cyprus Popular Bank or Laiki was one of the two that appeared to have been stress tested.
The other was BANK OF CYPRUS PUBLIC CO LTD, the largest bank.

Now did these stress tests highlight anything.
Or did no one not notice their exposure to Greece ?

Perhaps the EBA have some former IFRSA employees who have been exposing their European colleagues to montioring and auditing Irish style ? :rolleyes:

Scofflaw

Wibbs wrote: »

Not quite Scofflaw. The banks weren't already 8 times the size of their GDP before the euro. That happened after joining. Indeed can we see a link that backs up your claim?

Of course:



Source: http://www.ucy.ac.cy/data/ecorece/STEPHANOU_123-130.pdf

Wibbs wrote: »

The euro most certainly added more inflation to any potential bubble that may have existed. Before the euro Cyprus' central bank restricted local banks to 30 percent of their foreign deposits to support lending, in order to reduce the risk of big influxes of cash from Greece and elsewhere fueling a credit bubble. Roll on the Euro and this meant foreign became local so that regulatory measure no longer worked.

No sign of it. You can also check the Cyprus Central Bank website - it has the aggregate bank balance sheets for their banks as ours does for our banks: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=11570

Wibbs wrote: »

Actually if you are correct why didn't the ECB etc say no to them joining if they were as you say already in such an obvious bubble? Surely 8 times their GDP if true would have been an obvious no no(though Luxemburg and even Malta have higher)? When Cyprus was up for joining the eurozone the ECB found no issues with it's banks or banking system. Indeed when Cyprus came into the Euro itself in 08 when things were starting to look shaky in the world economy the head of the ECB Trichet said "For a small, open economy like Cyprus, euro adoption provides protection from international financial turmoil which often has a disproportionate impact on smaller economies". Or not as the case turned out to be.

I did already point out that Greece threatened to block all further accessions unless Cyprus was admitted. And the euro does provide the Cypriots with currency stability they otherwise wouldn't have, but it can't protect them from the consequences of deciding to become an offshore banking centre and letting their banks get to be too big to fail and too big to bail.

But no doubt that's the euro's fault too, or the EU's, or possibly Germany's. Not Cyprus', anyway!

cordially,
Scofflaw

Scofflaw

jmayo wrote: »

And as a adjunct to this query, were the Cypriots banks not stress tested in 2011 by the EBA ?

MARFIN POPULAR BANK PUBLIC CO LTD now known as Cyprus Popular Bank or Laiki was one of the two that appeared to have been stress tested.
The other was BANK OF CYPRUS PUBLIC CO LTD, the largest bank.

Now did these stress tests highlight anything.
Or did no one not notice their exposure to Greece ?

Perhaps the EBA have some former IFRSA employees who have been exposing their European colleagues to montioring and auditing Irish style ? :rolleyes:

They barely passed their stress tests, and were instructed to diversify their portfolios to reduce their reliance on Greece - instead they got back into Greek debt:

Bulging deposit books not only fuelled lending expansion at home, it also drove Cypriot banks overseas. Greece, where many Cypriots claim heritage, was the destination of choice for the island's two biggest lenders, Cyprus Popular Bank -- formerly called Laiki -- and Bank of Cyprus.

The extent of this exposure was laid bare in the European Banking Authority's 2011 "stress tests", which were published that July, as the European Union and International Monetary Fund (IMF) were battling to come up with a fresh rescue deal to save Greece.

The EBA figures showed 30 percent (11 billion euros) of Bank of Cyprus' total loan book was wrapped up in Greece by December 2010, as was 43 percent (or 19 billion euros) of Laiki's, which was then known as Marfin Popular.

More striking was the bank's exposure to Greek debt.

At the time, Bank of Cyprus's 2.4 billion euros of Greek debt was enough to wipe out 75 percent of the bank's total capital, while Laiki's 3.4 billion euros exposure outstripped its 3.2 billion euros of total capital.

The close ties between Greece and Cyprus meant the Cypriot banks did not listen to warnings about this exposure.

The banks sold down some of their Greek holdings, but then got back into the market as yields rose. "When the Germans were selling, they were buying," said Apostolides, referring to the German banks' 2011 dumping of Greek debt.

Simona Mihai, assistant professor at Cyprus European University's banking and finance department, said the banks' exposure stemmed from a desire to help their nearest neighbors, and a belief that Greece could recover.

"People are thinking in hope," she said. "They do not see it from an analytical perspective."

A former executive of one of the banks, who did not sit on the management team and asked not to be named, said the exposure and the banks' overall expansion stemmed from greed. "To help deliver profits, they lent and lent and lent and invested in Greek bonds," the person said.

Staff, who mostly got small bonuses and annual pay rises of around three or four percent, were unhappy about the mounting exposure to Greece but powerless to stop it, the source added.

Whatever the motive, the Greek exposure defied country risk standards typically applied by central banks; a clause in Cyprus' EU/IMF December memorandum of understanding explicitly requires the banks to have more diversified portfolios of higher credit quality.

http://www.reuters.com/article/2013/03/22/us-cyprus-banks-idUSBRE92L0CQ20130322

Let me say that again - they got back into Greek bonds, in 2011, having been instructed to diversify.

cordially,
Scofflaw

yore

Scofflaw wrote: »

The point with both Ireland and Cyprus is that there is no evident selfish driver of the kind you suggest for German involvement in a bailout. Nor is there any such evident selfish driver for the involvement of the rest of the lending countries constituting the ESM/EFSF etc. We don't owe Slovakia much, if anything, or Finland, and Germany is involved in the bailouts only in the same proportion relative to its economy as those countries. Stories that revolve around the idea that the bailouts are really just a way of the currently stable countries (and in particular Germany) helping themselves seem to me to be based on nothing more than a wish to save face as we're helped out of the quagmire we managed to run ourselves into.

cordially,
Scofflaw

Do you have an explanation then to the reports that the IMF wanted to impose haircuts in Ireland (bonds = deposits here as I stated above) but that the rest of the Troika (plus the US) blackballed it? Are such reports just propaganda????

PeadarCo wrote: »

The reason Cyprus got the haircuts was that the amount of bondholders within the banks was only about 100m and the total amount in the banks was about 34Billion appro. It didn't matter.

I'm not sure what your point here is......I'm talking "haircut" as including any money lent to a bank.

PeadarCo wrote: »

Also without bailing in depositors it was a case of give money with no strings attached(other countries might ask for the same)

Well this can also be used to support the point on politics/optics. Still, Ireland didn't get money without strings and haircuts seemingly weren't countenanced for Ireland. Not even a 1% one!

PeadarCo wrote: »

or loan it and have Cyprus's debt go to unsustainable levels(somewhere in the region of 190% of GDP) that means they would default at some point down the line.

This is understandable too, but commentators said the same about Ireland at the time of their bailout. Some are still saying it.

PeadarCo wrote: »

The other point from this situation is that it shows burning bondholders has downsides. This bank collapse can be in part down to burning of Greek bondholders. In an Irish case this may mean Irish pension funds etc.

Zero sum game. Again supports the political point I made as to why the Germans insisted on zero haircuts. They weren't forcing Ireland to do it for solely the good of the Irish. While I agree it would have caused terrible destruction at home, I don't think that their motivation was "we can't let the silly paddies do this and commit fiscal suicide.....lets force them to take some of our money".

Scofflaw

yore wrote: »

Do you have an explanation then to the reports that the IMF wanted to impose haircuts in Ireland (bonds = deposits here as I stated above) but that the rest of the Troika (plus the US) blackballed it? Are such reports just propaganda????

No, they seem to be factual reportage. The IMF prefers every country it lends to to have as low a debt ratio as possible, that's all. It just wasn't necessary in our case - and, to be honest, I'm not very convinced the Irish government ever wanted any such thing. The IMF referred to the Irish as having Stockholm Syndrome because they agreed with the ECB position.

yore wrote: »

I'm not sure what your point here is......I'm talking "haircut" as including any money lent to a bank.

Well this can also be used to support the point on politics/optics. Still, Ireland didn't get money without strings and haircuts seemingly weren't countenanced for Ireland. Not even a 1% one!

This is understandable too, but commentators said the same about Ireland at the time of their bailout. Some are still saying it.

Zero sum game. Again supports the political point I made as to why the Germans insisted on zero haircuts. They weren't forcing Ireland to do it for solely the good of the Irish. While I agree it would have caused terrible destruction at home, I don't think that their motivation was "we can't let the silly paddies do this and commit fiscal suicide.....lets force them to take some of our money".

When you say "the Germans", I assume you mean the ECB. As I said above, the evidence appears to suggest rather strongly that Ireland never wanted to burn the bondholders (or depositors). We entered bailout negotiations after two years in which our guarantee had guaranteed 100% repayment not only for depositors, not only for senior bondholders, but even for junior bondholders - Lenihan constantly told us that we couldn't burn anybody, and that was under a guarantee that was very much an all-Irish idea. Together with the reported siding of the Irish negotiators with the ECB in the bailout negotiations, that suggests that our government, just like the Cypriot government, didn't want to burn anybody at all. After all, we, like them, are an offshore banking centre and corporate tax shelter - same business model, same problems, same response.

cordially,
Scofflaw

Wibbs

Scofflaw wrote: »

Of course:

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So no then? Their banks weren't at 8 times their GDP before the euro as you claimed. Always good to make sure claims like that don't go unquestioned.
They join the Eurozone in 04 and at exactly that point the graph begins it's upswing. They then join the euro and oh look yet another upswing. From linked article below "Banks' loan books expanded almost 32 percent in 2008 as its newly gained euro zone status made Cyprus a more attractive destination for banking and business generally". 32 percent is a bit of a jump there Ted, nearly a third extra credit shenaigans further fueling a bubble and it happened on the back of joining the Euro.

No sign of it. You can also check the Cyprus Central Bank website - it has the aggregate bank balance sheets for their banks as ours does for our banks: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=11570

So you're saying that the Cypriot central bank didn't have a 30% limit for local spending support? Yep they did.

"Before joining the euro, the Central Bank of Cyprus only allowed banks to use up to 30 percent of their foreign deposits to support local lending, a measure designed to prevent sizeable deposits from Greeks and Russians fuelling a bubble.

When Cyprus joined the single European currency, Greek and other euro area deposits were reclassified as domestic, leading to billions more local lending, Pambos Papageorgiou, a member of Cyprus's parliament and a former central bank board member said.

"In terms of regulation we were not prepared for such a credit bubble," he told Reuters".

That's inflating a bubble and inflation that likely wouldn't have happened because of their banking laws if they hadn't joined the euro. Their deposits wouldn't have jumped near a third in the year after they joined for a start.

I did already point out that Greece threatened to block all further accessions unless Cyprus was admitted.

Link please, specifically regarding their admission into the euro, or was it more likely just another example of the "lets get all to join the single currency" dream and "sure we'll ignore irregularities or even obvious nose on your face problems in pursuit of this dream" like they did with Greece*?

And the euro does provide the Cypriots with currency stability they otherwise wouldn't have,

Really? Yet here we are. They were certainly stable enough beforehand that they suffered very little loss with the fall of Lehman Brothers etc compared to most of the rest of the west. Cue cheap credit, cue already heated housing market heating up further cue meltdown when the inevitable happened. Sounds awful familiar too.

On that note and as I asked before and didn't get much of an answer from the usual europhiles, show me an example of an EU country with a heating up economy at the introduction of the euro that didn't suffer.

But no doubt that's the euro's fault too, or the EU's, or possibly Germany's. Not Cyprus', anyway!

It's not just the euro(dunno why Germany got added to the list ), but a bloody good argument can be made that joining the currency put the foot on the pump to a bubble. But let's face it Scofflaw, someone could show you undeniable proof that the Euro was murdering puppies and you'd defend it in some way.




*and Portugal. Watch that space. IMH the media have been ignoring Portugal and I reckon that's where it's really gonna kick off, then Spain already in trouble is really fooked considering their huge exposure to Portugal.

clairefontaine

@ Wibbs,

I'm curious as to why you say Portugal. Would be very interested to hear why. It looked to me like the Cyprus thing came out of the blue, so it makes me wonder who's next to hit critical point out of the blue.

K-9

Cyprus joined the EU in 04, the Euro in 08.

Wibbs

Where their banks running at 8 times their GDP before the euro as scofflaw claimed? Yes or no. Did their banks books expand by almost a third immediately after joining the euro? Yes or no. Did this further fuel any underlying weaknesses? Yes or no.

Wibbs

clairefontaine wrote: »

I'm curious as to why you say Portugal.

Their economy has suffered in the last few years more than most. It's contracting by over 3% in the last year. They have high private debt and the Spanish banks are very exposed to that. Their unemployment rate has gone from 14 to 17% in the last year and in those under 30 it's just under 40%. These are baaaaad figures and that's before the austerity measures that came as part of the bailout/help for their economy really start to bite.

K-9

I was just pointing out a basic error in fact you'd made, to try and help the thread along.

If you want to be pedantic:

Wibbs wrote: »

Where their banks running at 8 times their GDP before the euro as scofflaw claimed? Yes or no.

No, 7 times from my reading of the graph.

Did their banks books expand by almost a third immediately after joining the euro? Yes or no.

Yes, and I don't think anybody is disputing that.

Did this further fuel any underlying weaknesses? Yes or no.

Well obviously.

Wibbs

K-9 wrote: »

No, 7 times from my reading of the graph.

More like six times, but certainly not eight times that Scofflaw was claiming. The usual Europhile "oh X country was always like that, the euro had no effect"

Yes, and I don't think anybody is disputing that.

Scofflaw was.
When I suggested it previously his answer(while avoiding the question) was;

Scofflaw wrote:

No sign of it.

Then again like I said no surprise there.

Well obviously.

Apparently not to Scoffy. He reckons it increased their financial stability. Again no surprise there.

Scofflaw

Wibbs wrote: »

So no then? Their banks weren't at 8 times their GDP before the euro as you claimed. Always good to make sure claims like that don't go unquestioned.

Eh, if you insist, 7 times before, 8 times after.

Wibbs wrote: »

They join the Eurozone in 04 and at exactly that point the graph begins it's upswing. They then join the euro and oh look yet another upswing. From linked article below "Banks' loan books expanded almost 32 percent in 2008 as its newly gained euro zone status made Cyprus a more attractive destination for banking and business generally". 32 percent is a bit of a jump there Ted, nearly a third extra credit shenaigans further fueling a bubble and it happened on the back of joining the Euro.

So you're saying that the Cypriot central bank didn't have a 30% limit for local spending support? Yep they did.

"Before joining the euro, the Central Bank of Cyprus only allowed banks to use up to 30 percent of their foreign deposits to support local lending, a measure designed to prevent sizeable deposits from Greeks and Russians fuelling a bubble.

When Cyprus joined the single European currency, Greek and other euro area deposits were reclassified as domestic, leading to billions more local lending, Pambos Papageorgiou, a member of Cyprus's parliament and a former central bank board member said.

"In terms of regulation we were not prepared for such a credit bubble," he told Reuters".

That's inflating a bubble and inflation that likely wouldn't have happened because of their banking laws if they hadn't joined the euro. Their deposits wouldn't have jumped near a third in the year after they joined for a start.

Well, yes, they probably would have done, because they had the year before that, something the article regrettably fails to mention.

Let's have some data:

Loans|Domestic|Eurozone|ROW|Total|YoY Growth
2005|25,005.1|446.9|2,610.4|28,062.4|
2006|27,511.2|665.8|3,240.4|31,417.4|11.96%
2007|33,995.3|953.1|6,071.6|41,020.0|30.56%
2008|43,451.8|1,954.4|9,036.4|54,442.6|32.72%
2009|45,681.0|3,520.8|8,672.2|57,874.0|6.30%
2010|49,402.8|2,786.6|9,285.8|61,475.1|6.22%
2011|52,869.6|3,232.4|12,418.4|68,520.4|11.46%
2012|53,936.4|4,857.7|13,672.4|72,466.5|5.76%

Loans - there's the 32% in 2008 that the article and you attribute to the reclassification of eurozone deposits as 'domestic' for the purposes of lending. And there's the 31% growth the previous year that doesn't get a mention.

Let's turn to deposits:

Deposits|Domestic|Eurozone|ROW|Total|YoY Growth
2006|27,400.7|1,147.8|14,550.6|43,099.0|
2007|32,294.2|1,390.4|18,829.4|52,514.0|21.85%
2008|39,461.8|1,090.6|15,456.8|56,009.3|6.66%
2009|41,011.6|1,290.7|15,852.7|58,154.9|3.83%
2010|45,379.3|4,035.3|20,525.2|69,939.7|20.26%
2011|43,747.9|5,355.4|20,194.2|69,297.6|-0.92%
2012|43,316.8|5,322.6|21,518.0|70,157.4|1.24%

Hmm. Eurozone deposits - the ones that provided "billions more local lending" when they were reclassified as 'domestic' in 2008. But what's this? There's only a billion euros of eurozone loans in there in 2008, down from €1.4bn the year before.

Quick calculation:

Eurozone deposits allowed for lending purposes 2007 (30% of €1.4bn): €0.42bn

Eurozone deposits allowed for lending purposes 2008 (100% of €1.1bn): €1.1bn

Growth in deposits allowed for lending purposes between 2007 (pre-euro) and 2008 (post-euro): €0.68bn

So this extra €680m is supposed to have fueled an almighty loan bubble, eh? Does not stack up at all, sorry. Sure, they picked up about €3bn more in eurozone deposits in 2009, but that didn't lead to any greater lending.

Link please, specifically regarding their admission into the euro, or was it more likely just another example of the "lets get all to join the single currency" dream and "sure we'll ignore irregularities or even obvious nose on your face problems in pursuit of this dream" like they did with Greece*?

Strictly speaking, Greece simply lied about reaching the convergence criteria, but there was no mechanism to eject them once they had entered. Cyprus, on the other hand, didn't lie about the convergence criteria, so there would have been no reason to reject its membership.

Really? Yet here we are. They were certainly stable enough beforehand that they suffered very little loss with the fall of Lehman Brothers etc compared to most of the rest of the west. Cue cheap credit, cue already heated housing market heating up further cue meltdown when the inevitable happened. Sounds awful familiar too.

It does, but that's because you're simply reprising the Irish story and saying it applies to Cyprus. It's grossly inaccurate, as I've shown above, although I doubt you'll accept the plain evidence.

What caused problems for Cypriot banks seems to be that they bought into Greece after 2010, either through greed or solidarity, depending on whose story you prefer. This is from the same article:

Bulging deposit books not only fuelled lending expansion at home, it also drove Cypriot banks overseas. Greece, where many Cypriots claim heritage, was the destination of choice for the island's two biggest lenders, Cyprus Popular Bank -- formerly called Laiki -- and Bank of Cyprus.

The extent of this exposure was laid bare in the European Banking Authority's 2011 "stress tests", which were published that July, as the European Union and International Monetary Fund (IMF) were battling to come up with a fresh rescue deal to save Greece.

The EBA figures showed 30 percent (11 billion euros) of Bank of Cyprus' total loan book was wrapped up in Greece by December 2010, as was 43 percent (or 19 billion euros) of Laiki's, which was then known as Marfin Popular.

More striking was the bank's exposure to Greek debt.

At the time, Bank of Cyprus's 2.4 billion euros of Greek debt was enough to wipe out 75 percent of the bank's total capital, while Laiki's 3.4 billion euros exposure outstripped its 3.2 billion euros of total capital.

The close ties between Greece and Cyprus meant the Cypriot banks did not listen to warnings about this exposure.

The banks sold down some of their Greek holdings, but then got back into the market as yields rose. "When the Germans were selling, they were buying," said Apostolides, referring to the German banks' 2011 dumping of Greek debt.

Simona Mihai, assistant professor at Cyprus European University's banking and finance department, said the banks' exposure stemmed from a desire to help their nearest neighbors, and a belief that Greece could recover.

"People are thinking in hope," she said. "They do not see it from an analytical perspective."

A former executive of one of the banks, who did not sit on the management team and asked not to be named, said the exposure and the banks' overall expansion stemmed from greed. "To help deliver profits, they lent and lent and lent and invested in Greek bonds," the person said.

Staff, who mostly got small bonuses and annual pay rises of around three or four percent, were unhappy about the mounting exposure to Greece but powerless to stop it, the source added.

Whatever the motive, the Greek exposure defied country risk standards typically applied by central banks; a clause in Cyprus' EU/IMF December memorandum of understanding explicitly requires the banks to have more diversified portfolios of higher credit quality.

"That (the way the exposures were allowed to build) was a problem of supervision," said Papageorgiou, who was a member of the six-man board of directors of the central bank at the time.

So, sure, the Cypriot banks were setting pretty in 2008, and then they went and blew it all in Greece.

On that note and as I asked before and didn't get much of an answer from the usual europhiles, show me an example of an EU country with a heating up economy at the introduction of the euro that didn't suffer.

That's a bit of a "have you stopped beating your wife yet?" question. It looks like this:

"show me an example of an EU country with a heating up economy ... that didn't suffer"

So, I'll tell you what - show me an example of an EU country with a heating up economy in the early part of the decade that didn't join the euro and didn't suffer. That way we can eliminate the question of whether a heating up economy = suffering with or without euro entry.

It's not just the euro(dunno why Germany got added to the list ), but a bloody good argument can be made that joining the currency put the foot on the pump to a bubble. But let's face it Scofflaw, someone could show you undeniable proof that the Euro was murdering puppies and you'd defend it in some way.

I don't know whether I would, but the question hasn't yet arisen. The claim that euro entry led to a huge lending bubble in the Cypriot banks on the back of reclassified deposits turns out to be a complete crock, and that's pretty much par for the course so far. But, as someone said, I have no real attachment to the euros except the ones in my pocket - it's just a currency, and if it disappeared overnight (without an accompanying financial armageddon) I wouldn't miss it.

There are issues with the euro, which I've covered at some length before, but they are not the simple scare stories the financial press and politicians have a tendency to float to the public, and of which this Reuters one serves as a fair example.

cordially,
Scofflaw

K-9

Wibbs wrote: »

More like six times, but certainly not eight times that Scofflaw was claiming. The usual Europhile "oh X country was always like that, the euro had no effect"

Ah, we're all nit-picking then. I just made the point as you seemed to be reading the graph as 2004 as the starting point, rather than 08. I think we'd all agree they'd built up a huge banking sector by the time they joined the Euro. That this wasn't seen as a problem in 08, well, I think we all know that was the attitude at the time.

Scofflaw was.
When I suggested it previously his answer(while avoiding the question) was;

Then again like I said no surprise there.

I think he was referring to the capital controls, not the banking size.

Apparently not to Scoffy. He reckons it increased their financial stability. Again no surprise there.

Well, maybe if the banks had listened to the warning about Greek debt, but I'd blame that just as much on non enforcement, just as much as the Cypriots.

I'd wonder how they would have faired outside the Euro with 6 or 7 times the size. Remember Cyprus was in bother 2 years ago, refused Troika help, went to the Russians and well, we've seem how that worked out. Their other natural ally Greece wouldn't be in a position to help obviously either.

View

Wibbs wrote: »

More like six times, but certainly not eight times that Scofflaw was claiming. The usual Europhile "oh X country was always like that, the euro had no effect"

Well, your own graph pretty much shows it wasn't primarily related to the adoption of the Euro. There was a clear upward trend already in place prior to the adoption of the Euro which continued subsequent to the adoption of the Euro, that is all it shows.

The graph also shows a smaller increase in that of the much more massive UK banking system. Was that because of the UK's enthusiastic adoption of the Euro also???

And no doubt Iceland - not included in the graph - would show a similar trend, wouldn't it?

The graph doesn't prove "cause and effect" - indeed, were the graph our only evidence, we'd presumably conclude that Greece must be in fairly good shape....

Scofflaw

K-9 wrote: »

Ah, we're all nit-picking then. I just made the point as you seemed to be reading the graph as 2004 as the starting point, rather than 08. I think we'd all agree they'd built up a huge banking sector by the time they joined the Euro. That this wasn't seen as a problem in 08, well, I think we all know that was the attitude at the time.

Their banking sector was pretty solid at the time. Unfortunately, in 2011, they picked up Greek sovereign debt and made more loans in Greece for the high interest rates, instead of diversifying.

K-9 wrote: »

I think he was referring to the capital controls, not the banking size.

Currency stability. If the Cypriots were still on the £CYP, it would currently be heading through the floor, and depositors in Cypriot banks would be getting even shorter haircuts - or, more probably, fleeing even quicker and/or increasing the bailout bill if their accounts were in other currencies.

cordially,
Scofflaw

clairefontaine

Does it really matter?

What we know now of the EU and the Eurozone is that they can take money out of depositors accounts when they feel like it, and as much as they feel like.

That is the bottom line.

Who's next? Anyone want to take a guess? And when?

jmayo

Scofflaw wrote: »

They barely passed their stress tests, and were instructed to diversify their portfolios to reduce their reliance on Greece - instead they got back into Greek debt:



http://www.reuters.com/article/2013/03/22/us-cyprus-banks-idUSBRE92L0CQ20130322

Let me say that again - they got back into Greek bonds, in 2011, having been instructed to diversify.

cordially,
Scofflaw

So what the fook use was doing these stress tests if banks were allowed ignore the outcomes ?
Does the EBA have any power or could the ECB as the de facto controller of the Euro have prevented the Cypriot banks from charging like lemmings towards Greek cliffs ?

I note form the EBA website the following blurb...

The European Banking Authority was established by Regulation (EC) No. 1093/2010 of the European Parliament and of the Council of 24 November 2010.

The EBA has officially come into being as of 1 January 2011 and has taken over all existing and ongoing tasks and responsibilities from the Committee of European Banking Supervisors (CEBS).

The EBA acts as a hub and spoke network of EU and national bodies safeguarding public values such as the stability of the financial system, the transparency of markets and financial products and the protection of depositors and investors.

The last paragraph is pretty apt in light of what has happened in Cyprus. :rolleyes:

Wibbs wrote: »

Their economy has suffered in the last few years more than most. It's contracting by over 3% in the last year. They have high private debt and the Spanish banks are very exposed to that. Their unemployment rate has gone from 14 to 17% in the last year and in those under 30 it's just under 40%. These are baaaaad figures and that's before the austerity measures that came as part of the bailout/help for their economy really start to bite.

The unemployment rates are a bit better than Spain if that is any comfort.

clairefontaine wrote: »

What we know now of the EU and the Eurozone is that they can take money out of depositors accounts when they feel like it, and as much as they feel like.

That is the bottom line.

Who's next? Anyone want to take a guess? And when?

What is the position at the moment of the Spanish cajas/caixas.
Have they not recently started proceedings against insolvent bankrupt developers and have these losses been factored into the recapitalisation already undertaken ?
Or are they another black hole like our own mortgage arrears ?

The other interesting thing about the Cyprus situation is that in in the next few weeks it will highlight that the EU (EEC/Common Market) as constituted as an entity for the free movement of goods, capital and people no longer exists for some members of the union.

The imposition of strick capital controls within a member state flies in the face of the very things the union or community was formed to allow.

Now does anyone think that the salvation of the Euro is actually weaking the fabric of the EU ?

oppenheimer1

Scofflaw wrote: »

Their banking sector was pretty solid at the time. Unfortunately, in 2011, they picked up Greek sovereign debt and made more loans in Greece for the high interest rates, instead of diversifying.


cordially,
Scofflaw

This is true, Cyprus made a lot of loans to Greece, probably as much for political reasons as well as the interest rate offered. Where the Cypriots were let downwas that the Troika made no allowance for providing them help when they choose to impose a haircut on Greek debt. In addition there has been no support for Cyprus since that huge accident which blew up their largest power station.

Cyprus was in an already weak position, and rather than showing solidarity, the Troika have decided that the remnants of their economy should be sacrificed for nothing. The sacrifice won't do anything to halt the euro crisis, since the precedent it sets can only make it worse. The Cyprus bailout was a typical EU decision, a solution that no one really wanted and that works for no one, a fudge.

There seems to be no co-ordination at the top, and to make it worse, we also have a clown as the chair of the Eurogroup.

clairefontaine

jmayo wrote: »

What is the position at the moment of the Spanish cajas/caixas.
Have they not recently started proceedings against insolvent bankrupt developers and have these losses been factored into the recapitalisation already undertaken ?
Or are they another black hole like our own mortgage arrears ?

The other interesting thing about the Cyprus situation is that in in the next few weeks it will highlight that the EU (EEC/Common Market) as constituted as an entity for the free movement of goods, capital and people no longer exists for some members of the union.

The imposition of strick capital controls within a member state flies in the face of the very things the union or community was formed to allow.

Now does anyone think that the salvation of the Euro is actually weaking the fabric of the EU ?

Look at all those questions!! Isn't it revealing how none of us have a clue because there is lack of transparency. It's all a guessing game of what they will do, when they will do it, and how much they will do it.

The banks are insolvent and there are games going, lies and fraud, misleading numbers, and no one in the public is told anything at all.

It also begs the question of the rule of law within the community. When that weakens, then you are lost. No one knows where they stand now, which will breed greater instability. What we know now, is that the government can pick pocket straight out of your savings, hold secret meetings to discuss how much, and close the banks for indeterminant amount of times.

Scofflaw

jmayo wrote: »

So what the fook use was doing these stress tests if banks were allowed ignore the outcomes ?
Does the EBA have any power or could the ECB as the de facto controller of the Euro have prevented the Cypriot banks from charging like lemmings towards Greek cliffs ?

Nope. The bank stress tests were supposed to reveal to the banks what their weaknesses were, and they were supposed to fix them, presumably under the eye of their national regulator, but nobody can make anyone do anything really.

That's why the ECB has to blackmail countries and banks by threatening to cut off their liquidity support - it's the only stick it has, pretty much.

jmayo wrote: »

I note form the EBA website the following blurb...



The last paragraph is pretty apt in light of what has happened in Cyprus. :rolleyes:

You can give a guy a stick and a tin helmet, and write him a mission brief that says he's keeping the peace in Afghanistan.

jmayo wrote: »

The unemployment rates are a bit better than Spain if that is any comfort.

What is the position at the moment of the Spanish cajas/caixas.
Have they not recently started proceedings against insolvent bankrupt developers and have these losses been factored into the recapitalisation already undertaken ?
Or are they another black hole like our own mortgage arrears ?

The other interesting thing about the Cyprus situation is that in in the next few weeks it will highlight that the EU (EEC/Common Market) as constituted as an entity for the free movement of goods, capital and people no longer exists for some members of the union.

The imposition of strick capital controls within a member state flies in the face of the very things the union or community was formed to allow.

So did the waiting period for free movement on Romania and Bulgaria, but I don't recall hearing a lot of complaints. It's supposed to be temporary, and the reason is reasonably clear and pressing, which is allowed for.

jmayo wrote: »

Now does anyone think that the salvation of the Euro is actually weaking the fabric of the EU ?

I don't see what saving national banks has to do with the salvation of the euro, personally. It looks rather more like saving national banks to save national banks because national governments want to save national banks.

cordially,
Scofflaw

clairefontaine

Scofflaw wrote: »

I don't see what saving national banks has to do with the salvation of the euro, personally. It looks rather more like saving national banks to save national banks because national governments want to save national banks.

cordially,
Scofflaw

I imagine because if the national banks are insolvent they cant be in the eurozone. Isnt solvency one the requirements? And if one goes... they are scared of the domino effect. And presumably if they revert, for example if Ireland reverts to the punt it would have the same value as the mexican peso right? Backed by an insolvent bank.

Honestly I think they should just let them go. All of them. EU should have stuck to being Germany, France and Belgium.

Scofflaw

clairefontaine wrote: »

I imagine because if the national banks are insolvent they cant be in the eurozone. Isnt solvency one the requirements? And if one goes... they are scared of the domino effect. And presumably if they revert, for example if Ireland reverts to the punt it would have the same value as the mexican peso right? Backed by an insolvent bank.

No, it's not a requirement. Not even for the Member State itself, luckily for several member states.

You might also be confusing national banks with national central banks (or possibly my terms were unclear). Every bank in Ireland could fail, and the State would not be insolvent, neither would the Central Bank of Ireland, whether under the euro or under the punt.

clairefontaine wrote: »

Honestly I think they should just let them go. All of them. EU should have stuck to being Germany, France and Belgium.

But they queue up to get in - there's still a queue at the door, for both the EU and the euro. The UK tried to go it outside with EFTA, but lost nearly all the members to the EU, and then joined itself.

I'm afraid that if the EU ceased to exist tomorrow, it would be found necessary to reinvent it the day after. There's simply too much that single countries can't deal with effectively on their own.

cordially,
Scofflaw

oppenheimer1

Scofflaw wrote: »

I don't see what saving national banks has to do with the salvation of the euro, personally. It looks rather more like saving national banks to save national banks because national governments want to save national banks.

cordially,
Scofflaw

If national banks are insolvent, then by the nature of the european banking system, the whole system will collapse. As much wealth is tied up in banks, this would lead to a huge loss in output and economies would be sent into freefall.

National governments would then have to pay out on the insured deposits leading to huge borrowings. They would also still have to pay off their legacy debts under a worse debt to GDP ratio, and would have to finance enormous public deficits, for several years. There would also be of course no european banks to lend to them.

Public finance and international banking live in a symbiotic obligate relationships. The perils of breaking this relationship are obvious.

Scofflaw

oppenheimer1 wrote: »

If national banks are insolvent, then by the nature of the european banking system, the whole system will collapse. As much wealth is tied up in banks, this would lead to a huge loss in output and economies would be sent into freefall.

National governments would then have to pay out on the insured deposits leading to huge borrowings. They would also still have to pay off their legacy debts under a worse debt to GDP ratio, and would have to finance enormous public deficits, for several years. There would also be of course no european banks to lend to them.

Public finance and international banking live in a symbiotic obligate relationships. The perils of breaking this relationship are obvious.

I wouldn't disagree that banks are vital, but I'm not sure of the view that if one nation's banks are insolvent, the whole European system will collapse. It's entwined, certainly, but not quite to that degree.

And in the event that any one nation's banks were insolvent, a rescue deal would consist partly of hiving off the ordinary functions of banking, and the deposits of most people, into 'good banks' - exactly what was done in Iceland when their entire banking system collapsed.

cordially,
Scofflaw

jmayo

Scofflaw wrote: »

Nope. The bank stress tests were supposed to reveal to the banks what their weaknesses were, and they were supposed to fix them, presumably under the eye of their national regulator, but nobody can make anyone do anything really.

Except when the Troika come rolling into town.

Scofflaw wrote: »

That's why the ECB has to blackmail countries and banks by threatening to cut off their liquidity support - it's the only stick it has, pretty much.

Surely someone should have spotted this coming and shall we say leant on Cyprus, or as Oppenheimer pointed out, given help to Cyprus when they were going to be affected by the haircut on Greek debt ?

Instead this is another prime example of the EU/ECB just being reactive and not proactive in trying to soolve the whole mess, do you not agree ?

Scofflaw wrote: »

You can give a guy a stick and a tin helmet, and write him a mission brief that says he's keeping the peace in Afghanistan.

So basically you are saying the EBA is a waste of space ?

But this is your beloved EU we are talking about ?

Scofflaw wrote: »

So did the waiting period for free movement on Romania and Bulgaria, but I don't recall hearing a lot of complaints. It's supposed to be temporary, and the reason is reasonably clear and pressing, which is allowed for.

Wasn't that part of their entry conditions, not something foisted upon an existing member ?

Scofflaw wrote: »

I don't see what saving national banks has to do with the salvation of the euro, personally. It looks rather more like saving national banks to save national banks because national governments want to save national banks.

cordially,
Scofflaw

Hang on are you saying that letting our banks go bust would have no effect on the Euro ?
I can't recall you ever saying this before, correct me if I am wrong ?

I always thought that the ECB had intimated that no banks should be lost after the Lehmans fallout in the states ?

I would have thought you would be of the opinion that letting one of a nation's major banks go bust would surely bring economic instability to the nation and by extension the Eurozone ?

Scofflaw

jmayo wrote: »

Except when the Troika come rolling into town.

Sure, because then you need money.

jmayo wrote: »

Surely someone should have spotted this coming and shall we say leant on Cyprus, or as Oppenheimer pointed out, given help to Cyprus when they were going to be affected by the haircut on Greek debt ?

Instead this is another prime example of the EU/ECB just being reactive and not proactive in trying to soolve the whole mess, do you not agree ?

You actually can't just give help to a sovereign country, you have to be asked to do it. The previous Cypriot government wouldn't do it.

jmayo wrote: »

So basically you are saying the EBA is a waste of space ?

But this is your beloved EU we are talking about ?

You've obviously missed my posts on the flaws in the euro, which consist of a lack of crisis planning and effective supervision.

Sometimes people defend things without thinking they're perfect.

jmayo wrote: »

Wasn't that part of their entry conditions, not something foisted upon an existing member ?

Doesn't change the point.

jmayo wrote: »

Hang on are you saying that letting our banks go bust would have no effect on the Euro ?
I can't recall you ever saying this before, correct me if I am wrong ?

I didn't say it would have no effect, I said I didn't think it would collapse the European banking system.

jmayo wrote: »

I always thought that the ECB had intimated that no banks should be lost after the Lehmans fallout in the states ?

And yet here they are helping knock out Laiki. It's not actually up to the ECB whether banks get rescued, though - it's up to national governments, who can't be forced to do anything until they're in a position where they have banks they want to save but can't.

jmayo wrote: »

I would have thought you would be of the opinion that letting one of a nation's major banks go bust would surely bring economic instability to the nation and by extension the Eurozone ?

Sure - economic instability, yes, collapse of the rest of the European banking system, no.

cordially,
Scofflaw

marienbad

clairefontaine wrote: »

Look at all those questions!! Isn't it revealing how none of us have a clue because there is lack of transparency. It's all a guessing game of what they will do, when they will do it, and how much they will do it.

The banks are insolvent and there are games going, lies and fraud, misleading numbers, and no one in the public is told anything at all.

It also begs the question of the rule of law within the community. When that weakens, then you are lost. No one knows where they stand now, which will breed greater instability. What we know now, is that the government can pick pocket straight out of your savings, hold secret meetings to discuss how much, and close the banks for indeterminant amount of times.

Can you suggest an alternative ?

clairefontaine

marienbad wrote: »

Can you suggest an alternative ?

Alternatives. This raises another eyebrow. When your choices are the bank collapes or stick your fingers into deposits and plan it all behind closed doors, there is something very fishy about it.

Why didn't the banks offer stocks and bonds to the depositors? Wouldn't more investment raise the value of the bank? And give the depositors something in exchange for their money so it doesn't amount to nothing but theft?

Why weren't there open meetings?

There is zero accountability, zero transparency, and zero rule of law.

Makes for disaster up the road. Banana republic.

marienbad

clairefontaine wrote: »

Alternatives. This raises another eyebrow. When your choices are the bank collapes or stick your fingers into deposits and plan it all behind closed doors, there is something very fishy about it.

Why didn't the banks offer stocks and bonds to the depositors? Wouldn't more investment raise the value of the bank? And give the depositors something in exchange for their money so it doesn't amount to nothing but theft?

Why weren't there open meetings?

There is zero accountability, zero transparency, and zero rule of law.

Makes for disaster up the road. Banana republic.

There is indeed something 'very fishy' about it but you only seem to find blame with the EU. Was it not the reckless policies pursued by the national government of both Cyprus and Ireland that landed both countries where they are ?

And it is only theft if there is something worth stealing .As for open meetings ? How can that work in a financial world where information is gold .

To be honest I know sfa about these things but it seems to me that both here and in Cyprus if there is a hero (as opposed to a villain ) in all of this it appears to be the EU. They might have moved quicker faster stronger ( I just don't have the competance to know) but at least they have and are doing something and lo ! we are still standing .

What could have been done differently in hindsight is all mostly in the purview of the national governments.

Nate--IRL--

clairefontaine wrote: »

Why didn't the banks offer stocks and bonds to the depositors? Wouldn't more investment raise the value of the bank? And give the depositors something in exchange for their money so it doesn't amount to nothing but theft?

I thought they were? The result is the same however.

Nate

Scofflaw

clairefontaine wrote: »

Alternatives. This raises another eyebrow. When your choices are the bank collapes or stick your fingers into deposits and plan it all behind closed doors, there is something very fishy about it.

Why didn't the banks offer stocks and bonds to the depositors? Wouldn't more investment raise the value of the bank? And give the depositors something in exchange for their money so it doesn't amount to nothing but theft?

Why weren't there open meetings?

There is zero accountability, zero transparency, and zero rule of law.

Makes for disaster up the road. Banana republic.

In fact, the original bail-in proposals were exactly that - bank shares in exchange for the deposit levy, which would be replaced a bit further down the road by bonds in Cyprus' petroleum resources once they're developed. None of those suggestions were ever straightforward confiscations.

cordially,
Scofflaw

clairefontaine

Nate--IRL-- wrote: »

I thought they were? The result is the same however.

Nate

No I don't believe so. They just took a percentage, am unsure of how much, heard both 20 and 40 percents so I don't know. It's pure theft. No way around that.

They could have sold bonds and cheap or reasonable rates, much like the US government did to move out of the depression. And then they could have cashed them in up the road at a slow moving if guaranteed rate. That is only one option off the top of my head, and Im sure more creative financiers could think of other things too, so the question is why not? Why was this theft their ONLY choice?

There is no difference between this and the Great Train Robberies or people in balaclavas running into the post offices. But they go to jail. Here in the EU, the government backs you up.

WHY???

marienbad

clairefontaine wrote: »

No I don't believe so. They just took a percentage, am unsure of how much, heard both 20 and 40 percents so I don't know. It's pure theft. No way around that.

They could have sold bonds and cheap or reasonable rates, much like the US government did to move out of the depression. And then they could have cashed them in up the road at a slow moving if guaranteed rate. That is only one option off the top of my head, and Im sure more creative financiers could think of other things too, so the question is why not? Why was this theft their ONLY choice?

There is no difference between this and the Great Train Robberies or people in balaclavas running into the post offices. But they go to jail. Here in the EU, the government backs you up.

WHY???

No this is factually incorrect , certainly in the case of the first proposal rejected by the Cypriot Parliment.

clairefontaine

marienbad wrote: »

No this is factually incorrect , certainly in the case of the first proposal rejected by the Cypriot Parliment.

So it was rejected.

Why was straighforward theft preferable then?

Doesnt that make it even stranger?

marienbad

clairefontaine wrote: »

So it was rejected.

Why was straighforward theft preferable then?

Doesnt that make it even stranger?

At this stage I am having trouble following you , the cypriots rejected a deal along the lines you proposed and you blame the EU ?

What is the Cypriot responsibility in all this ?

clairefontaine

marienbad wrote: »

At this stage I am having trouble following you , the cypriots rejected a deal along the lines you proposed and you blame the EU ?

What is the Cypriot responsibility in all this ?

The Cypriots originally rejected the theft idea too, but eventually gave into pressure after a disappointing trip to Russia.

I don't really know who to blame. Who is to blame? Yet ANOTHER question. I'm not saying they are blameless, but there is an EU regulation for nearly everything, but not stealing from bank deposit accounts? How can that make any kind of sense?

marienbad

clairefontaine wrote: »

The Cypriots originally rejected the theft idea too, but eventually gave into pressure after a disappointing trip to Russia.

I don't really know who to blame. Who is to blame? Yet ANOTHER question. I'm not saying they are blameless, but there is an EU regulation for nearly everything, but not stealing from bank deposit accounts? How can that make any kind of sense?

So what is your alternative ? We steal from the EU taxpayers ( us by the way) to help bail out Russian Mafiosi ?

clairefontaine

marienbad wrote: »

So what is your alternative ? We steal from the EU taxpayers ( us by the way) to help bail out Russian Mafiosi ?

Part of the problem is that this was done so clandestinely that we don't know why they rejected the idea of selling stocks and bonds. In fact we have no idea what went on in there.

They tried selling some of their assets [the ports] to the Russians, but the Russians werent interested. Perhaps if they hadnt left it to the last possible moment they might have found another buyer.

5% of those accounts were Russian. Big wow.

And yet..... there has been no consideration for what has led them to this place or how to avoid it again, and no doubt the lack of transparency in banking is part of that.

Why did this happen so fast? In the matter of a week this crisis hit.

Nate--IRL--

clairefontaine wrote: »

The Cypriots originally rejected the theft idea too, but eventually gave into pressure after a disappointing trip to Russia.

I don't really know who to blame. Who is to blame? Yet ANOTHER question. I'm not saying they are blameless, but there is an EU regulation for nearly everything, but not stealing from bank deposit accounts? How can that make any kind of sense?

You keep saying "Theft". Just so it is clear, without a loan from somebody, the depositors lose 100% of their savings.

The EU is prepared to lend approx €10bn of the €17bn needed. The Cypriots must come up with the other 7 somehow. Borrowing another €7bn will be next to impossible as the Debt to GDP ratio will be too high and the country will default. It simply cant pay back €17bn.

Cyprus can't borrow what is needed to cover the banks liabilities (Primarily Deposits)without busting the country. The situation as it stands is the depositors lose 100%. So what are the alternatives?

Nate