The Cypriot parliament has now thrown the ball back to the EU with its rejection of the bailout. It has also opened up the door to the Russians to get involved in the EU’s internal problems by sending a delegation to Moscow. The Russians may still come out of this with a charge over Cypriot gas reserves in return for a taking equity in the bust Cypriot banks.
The EU now has to go back to the drawing board and come up with a better deal for Cyprus or else face political, diplomatic and economic defeat. If the Cypriots get a better deal from all this, many here will argue that their tactics of saying no will have served them better than our stragety of being the “best boy in the class”.
And all this carnage suffered in order to protect the euro, for which our political leaders are prepared to destroy trust within the EU both between countries and between the people and the State.
It is difficult to describe the proposed weekend bailout package to Cyprus as anything more than theft. The confiscation of 6.75% of small depositors’ money and 9.9% of depositors’ funds over €100,000 is without precedence. Now the EU is rowing back because the Cypriots won’t bear it, but a precedent has been set and the they look incompetent.
On Saturday the EU tried to confiscate people’s savings. This is a breach of fundamental property rights. Although the EU tried to present this as a one-off, it is not willing to rule out similar measures elsewhere. Why should we expect any kind of limitation to what measures the troika and EU might take when the crisis – in Spain, for example – really starts to bite?
If you can do this once, you can do it again and if you can confiscate 10pc of a bank customer’s money, why not 50pc?
This is just the latest in a series of measures designed to protect the euro. Remember, the euro was supposed to protect us, not the other way around.
But the weekend’s efforts to steal deposits in Cyprus and now the involvement of Moscow, reveals just how many moving parts have to be assessed in order to get a handle on the politics and thus, economics of the EU. The level of spin coming out of Brussels, swallowed, it must be said, by all sorts who should know better, reveals the fact that no one is in charge. It is this very lack of political leadership at a time when economic growth is falling and debts are rising, which makes so many of the EU’s decisions seem like second rate compromises.
On Saturday, the EU broke known corporate finance rules by trying to expropriate deposits in Cyprus to pay for its banking collapse. Based on the experience of the Great Depression and more recently, the Asian crisis, most policymakers realise that the most crucial initial reaction to a banking crisis is to prevent a run on bank deposits.
This is why trying to steal people’s deposits and dress this up as a ‘tax’ is precisely the worst thing to do as it engenders the very panic that the authorities are trying to avoid.
In addition, by going after depositors, the EU is breaking one of the understood rules of the game (to the extent that there are rules). That rule is that depositors are different.
Depositors are a different type of bank creditor to any other sort. In an insolvency situation, they ought to be regarded as “trust creditors” or “creditors in trust”. They deposit their money, in the main, because they trust the system. They are not investors in the traditional sense like shareholders or bondholders. They trust the system to look after their savings and as such, they need to be protected. If you actively break that trust, as the EU tried to do at the weekend, you do so at you peril.
And of course the peril or risk here is that depositors in other countries with still-unresolved banking crises, such as Spain, will see the Cypriot deposits being looted, think “we’re next” and take their money out of the banks.
This deposit flight is the bank run which is the very upshot that the authorities are most keen to avoid. Bank runs happen quickly, which is why they are called bank runs, not bank strolls or bank ambles.
The truly intriguing thing about this episode is that everyone knows all this. The people in power are not stupid.
They know that gouging people’s savings will cause panic, as we have seen in Cyprus, so why do it? Why not impose all losses on bondholders, orchestrate an organised sovereign default or change the terms of the deals?
Only politics explains what is happening. The first thing to put into the mix is the German election in September. It is clear Ms Merkel will do nothing to upset her voters before that. It is also becoming obvious that Germans and other creditor nations are becoming a bit fed up of bailouts. Equally, the southern periphery is fed up of austerity and is voting against Germanic policies in the Mediterranean. Finally, in Cyprus there is the Russian factor. Because so many of the large depositors in Cypriot banks are Russian, there is a movement within the EU to teach Cyprus a lesson about unregulated banks, money laundering and safe havens for dodgy money.
But now that move, designed to satisfy all these varying concerns, has backfired, satisfying none, where does that leave the EU? The Cypriots will not accept the deal. This puts the EU on a collision course with Russia and, maybe more crucially, blows out of the water the notion that we are working towards a banking union where all EU savers will be treated equally.
This latest crisis reveals that the crisis hasn’t gone away. In fact, it has morphed into a different beast. With Germany in election mode, nothing serious will be done until October at the earliest and thus Europe will be rudderless for more or less the rest of this year.
We will stumble from one mini-crisis to another, making enemies unnecessarily and scaring the wits out of the people in the process because they know once you let this deposit-robbing genie out of the bottle, it’s very hard to put it back in.
On Top, ECB issued ultimatum until Monday…
The truth about the Banking Industry’s Influence on EU-Commission’s policies New Laws are drafted and proposed by one instance only in the EU, the Commision. Little to none media coverage is granted to the so called expert groups, advisory bodies mainly comprised of industry interests, better known as Lobby groups. The infamous IIF, Institute of International Finance, spearheaded from 2003-2012 by Josef Ackermann (ex Chairman Deutsche Bank), and now by Douglas J. Flint (Chairman HSBC Group) had 23 representatives sitting in a 42 strong expert group, 25 from Banking, here 23 from the IIF, 9 investment firms and 8 others… Read more »
Another excellent article.
http://www.spiegel.de/wirtschaft/unternehmen/ezb-setzt-zypern-frist-bis-montag-a-890120.html This morning ECB says in 5 days time Mon 130326 the ELA tap will be turned of unless Cyprus reaches a ‘Bailout’ deal.
http://www.sueddeutsche.de/wirtschaft/ausweg-aus-der-bankenkrise-ezb-stellt-zypern-ultimatum-1.1629766 Liveticker Süddeutsche: No credit cards accepted in supermarkets and petrol stations, ATMs dispensing money, but some people without any money at all as the online banking system is suspended, as are wage and other payments’ transfer
I think this may be the start, I just hope and pray it’s not.
NO PASARAN !! ( I’ve said it before , anyone remember The Fiscal Compact , eh ? unlimited power , they all voted for it )
http://www.youtube.com/watch?v=FvW_2IvDtzI
Why do we still record all the money in the economy as liabilities of the banking sector? The argument for recording bank balances as liabilities of the banks seems to arise from the outdated ‘money multiplier’ model of banking which is still taught in universities by our out-of-touch economists who insist on using cash analogies for digital money. The idea is that a customer deposits cash with a bank and the bank records the amount as a liability. All seems well. However the convenience of the chequebook allowed the liabilities of the banking sector to be used as money, money… Read more »
Wow, this is a car crash happening in slow motion. The mis-information or mis-labelling is only incredible. The similarity that should be made is with Argentina where the depositors lost all their money. Not nice, no one wants it to happen, but it did and the idea the EU, and that’s us or those who live in the EU, would bail out Russian depositors is absurd. When we look at the Irish situation, there is €90bn on deposit in Ireland. That’s wealth, which to date hasn’t been taxed. Yet this is a source of money. Money that in many instances… Read more »
I really can’t wait to see Nigel Farrage’s take on this..
Theft is correct, but they have been robbing us blind for years, they are just getting brazen about it now. It’s the bank of mattress for me now.
Hang on a moment. 1. Cyprus banks were paying interest rates which meant that depositors had received about 15% interest over the last couple of years – which would still have left the sub 100k depositors with a good profit 2. There is a perception that many of the depositors were offshore account holders – this remains to be proven 3. The lower rate on smaller depositors ensured that the burden was pushed to bigger depositors To be honest, I think it was a better idea than the wide spread done in Portugal, Greece and Ireland, as cash deposits are… Read more »
It seems the ECB today threatened to turn off the ELA in Cyprus on monday. A fine game of brinkmanship. My bet is on the cypriot politicians calling there bluff to avoid the blood thirsty mob outside their door. The ECB then withdrawing ELA to prove its not bluffing and Tuesday being the worst day in Cypruses history since the Turks invaded. The stock markets around the world will collapse when people realise the world has run out of money and that they might be next. What will happen on Wednesday is anyones guess.
Their close relationship with Russia is obviously upsetting some core EU member states and you can sense that there is an element of revenge in their approach to the problem.
The Cypriots, like us, small and on the edge of the Union have very little other than their wits to survive on.
Currently there is a man in Nice visiting the Social Welfare ~Offices confirming to them that the letter he received from them last September that he was dead is incorrect . The authorities do not believe him.
Is Cyprus a walking corpse ?
This is going to go down like a lead balloon:
http://www.independent.ie/business/personal-finance/latest-news/lose-health-cover-and-second-car-to-get-bank-debt-deal-29144616.html
Sure, isn’t Sky Sports a vital part of the Irish cultural landscape these days?
There is a certain irony in politicians from the world’s third largest arms exporter having a go publicly at a country that handles Russian money. Ordnung muss sein!
So who’s up for camping out in front of the Bundestag this summer? There are so many Greeks, Spanish, Portuguese, Irish and of course Italians in Berlin, it would be quite a party.
>they look incompetent. >The people in power are not stupid. By a simple process of elimination, there are only three possibilities : 1. They are in fact stupid and incompetent and know absolutely nothing about banking or money or history or human psycology, or even common sense, and they should not be in charge of running a sweet shop. 2. They are intelligent and competent and are implementing a secret plan which seems to involve devaluing the Euro and converting the EU to a cash economy. 3. They are politicians whose only interest is winning the next election. All of… Read more »
We need a noun to describe what happen when the concept of centralized EU thinking results in a gigantic mess, with misery being thrown on the ordinary people, at the end of a particularly long period of affirmation that everything is going fantastic. Because this is what we have been seeing since 1992, in one episode after the next. The long term affect of the policy monopoly program that is the EU, is failure. The previous stage, the free trade phase was a raging success. The current phase is a cathastrophic failure, though it takes years for the eventual trends… Read more »
Now that we have reached country number 3 to get a bailout, and with Portugal next, and the possibly Spain, and with even Belgium on very dodgy ground….
Has there been any consideration given to sacking somebody in the ECB for incomptetence ?
And there are housing bubbles in NL, and FIN to play themselves out.
If I was Spanish, I would be concerned.
PRIVATE & PUBLIC DEBT IS 60% OF GDP IN RUSSIA. IN GERMANY , IT IS 250% . COMBINED WITH A FLAT INCOME TAX OF 13 %, OUR FRIENDS IN MOSCOW WILL CALL THE SHOTS FOR THE FORSEEABLE FUTURE. THE SOONER IRELAND LEAVES THE EU DISASTER, THE BETTER. WE HAD LITTLE NATIONAL DEBT IN 1973.
I do really like the expression ‘ a bank amble’ in the above article . We need more insightful thoughts . I am hoping to experience a bank amble when the sun shines again
Cyprus could be part of a strategy. Everyone acknowledges that once Spain and or Italy get to this point then it is game over. So if you wanted to put manners on everyone and show that you are serious and willing to let banks collapse, then Cyprus would be the best one to choose because of its size.
In response to those who are defending people who were prudent and saved, well it’s a zero sum game, pay in this transparent way or pay some other way with higher taxes somewhere.
1% of the people have 80% of the wealth, that’s where the money is time to go get it and sort the problem and then 99% of the people will think the politicians who did that are hero’s. Sound like a pretty easy vote getting strategy to me.
It wouldn’t be hard to do the numbers for the ECB, who should have the information on the Cypriot banks deposit accounts, how many and how much, which you have to assume they do have. If they have worked out that this strategy will cost less after paying deposit guarantees up to €100,000 or the same as a bailout then it all makes sense, because on the face of it and initially it looked like they were shooting themselves in the foot with the damage to sentiment and possible flight of capital from other countries banks. But where would be… Read more »
Good article with some straight talking The incompetence is staggering and it is clear that they are a bunch of dangerous clows aka Chuckie. They will do anything to protect shareholders and bondholders before ordinary people. This is fascism and make no mistake about it This in the same week that the Irish boss is taking plaudits from the worst US President in history. We can never trust these guys and the Cypriot people have shown us how to deal with them The demonstration in Cyprus remind us that there is only one true power – the will of the… Read more »
I’ve said it before and I’ll keep on saying it. We’ve got clowns running this country and we’ve got even bigger clowns running Europe. If the citizens of this country and the rest of Europe stopped voting for these clowns then things might turn out for the better in the long run!!
The tail is wagging the dog Does the attempted heist on Cypriot savings accounts signal desperation on the part of the global banking system; or is it a sign of the degree of criminalisation that has taken hold at the very highest levels; or is it just incompetence? Whatever the truth is and whichever way you spin it, it does not look good. As David writes: “…the euro was supposed to protect us, not the other way around.” This gets to the crux of the matter globally. The tail is wagging the dog. Markets are supposed to function as a… Read more »
Good article from David.
Once the bell is rung it cannot be un-rung.
The genie is out of the bottle….we are entering a new phase of the unfolding Tales of Absurdistan that is the global financial disaster.
David, first of all Cyprus is not its banks, any more than Ireland was the Anglo-Irish Bank in 2008. Cyprus is not broke, therefore it does not need to be bailed out or bailed in, any more than Ireland needed a bailout in 2008. Its banks did. Also David, please stop blaming everything on the Euro. This is not about the Euro; this is about international money-laundering dressed up as banking. I hope the ECB upholds EU Treaty law and stops ELA on Monday. Then what? A bunch of international crooks and money-launderers will have a huge problem. That’s all.… Read more »
Articles are definitely getting better. Very annoying or worrying…meaning DMW may be making some solid predictions which I’d take seriously. I remember back in 2007/8 when the everything hit the fan hear, all we now take as normal today was pure histrionic nonsense then even in this blog! I am seriously spooked. EU are effectively rudderless, run by a faceless unelected elite who are bean counters. Also, I think Cyprus has no alternative plan that includes the EU. I was also appalled at that FG rep on Vincent Browne last night saying that 1.5bn taken out of pensions for Ireland… Read more »
Certainly some are stumbling, DMcW, others are firmly putting the solution on the table, something most economists and commentators are having major difficulties to even comprehend.
If any economists thought they could string along with this mad Euro caper and somehow stumble along and survive, they got a very rude awakening. Ye cannot trust them either!
If you climb on board with this pack of pirates, remember the first rule on board, no loot means they cut each other’s throats.
So NO DEAL, OXI! Break up their banks now as FDR did!
Eyewitness account :
Maltese Finance Minister: Cyprus “Agreed” with a Pistol To Their Head
Maltese Finance Minister Prof. Edward Scicluna wrote an op-ed for The Times of Malta about being locked in the infamous EU Finance Ministers Meeting that “agreed” to the Cypriot Bank Robbery.
A very interesting article and some very interesting comments. The banksters are now running the whole show and are now overtly coming out and making it clear that bank deposits are in play as well as pensions and anything else they take a fancy to. These guys are parasites in our economies and they control the political system completely. The only real way to stop their control over us is to take away their franchise over what we use as money. Anything else is just pissing in the wind and skirting around the real problem. We need real competition in… Read more »
Government “complicit” in EU plan to hit depositors and corporation tax in Cyprus: Doherty
Is the euro grinding to a stop,it seams there’s a certain group of people who want the euro to keep on going. They want to keep the euro going because they see it a the best way forward,clearly its is not ,I don’t think the euro started out to be a bad idear but it has evolved into a monster ,all these ultimatums one after another. People’s lives have been destroyed,uprooted and at the very least there standard of living has been destroyed . What caused the recession a flood of money from the EU. What caused the destruction of… Read more »
Bankers, Banksters, Wankers, Gangsters, Pranksters!
Surely there must me one word to cover all the above.
Hey David, keep up the good work I’m a big fan!, Is it not the case that Germany is the problem in all this mess. The fact of the matter is their hyper competitive economy is preventing the value of the Euro from falling to levels that would suit the periphery nations. If Germany left the currency bloc would there not be an automatic devaluation of the Euro, thereby allowing the remaining countries to regain competitiveness without austerity policies. Exports would boom, confidence would be restored, and some Inflation would take hold reducing the debt burden. Of course the remaining… Read more »
This was my first reaction to the crisis, a comment I posted elsewhere yesterday, after reading a suggestion on a business blog that the Russians may retaliate the theft of their deposits by withholding gas supplies to Europe. “Cyprus could yet be momentous. The European banking system is far from dysfunctional. It is a highly effective asset stripping tool in the control of vested interests. It functions by setting up divisions and differentials or imbalances, which are exploited through commodification, monetisation, privatisation, loan-sharking and bankruptcy. Operating at a national level, the exploiting narrative is always tailored to the sensibilities and… Read more »
Cyprus
Haven’t time to read other comments now, so will just fire off, maybe repeating what’s been written. I don’t for a moment believe that this ‘negative interest rate taxation’ measure is impromptu. It is planned and serves a specific purpose, to see what the reaction of EU citizens is to such an outrageous innovation in financial crisis fire-fighting. Governments and corporations do this all the time, they ‘fly a kite’ and see if it gets wings or gets shot down by angry ‘consumers/citizens/debt peons [select according to taste and political persuasion]. It’s a policy proposal and it’s been shot down,… Read more »
Russians are not only active in Cyprus. I know they have a strong presence in Vietnam, Danang and Nhatrang in particular. If anyone knows of any other places in the world, please let us know.
Bail-in of large depositors is the only solution and the fairest. In this case there are insufficient bond-holders to burn. The Cypriot banks also hold a large amount of sovereign debt, so once again the dance of death between broken banks and a weak sovereign continues. By the way, bank deposits are nothing more than a loan to a bank. Sometimes loans dont get repaid. Deposits in excess of the insurance limit are in an even weaker position. And, keep in mind, a 100,000 deposit in Cyprus has earned over 15,0000 euro in interest since Cyprus entry into the Euro… Read more »
You might want to look at the Russian 5y CDS
http://www.cbonds.info/cis/eng/index/index_detail/group_id/38
+1
“””””Deposit Guarantee Schemes reimburse a limited amount of deposits to depositors whose bank has failed. From the depositors’ point of view, this protects a part of their wealth from bank failures. From a financial stability perspective, this promise prevents depositors from making panic withdrawals from their bank, thereby preventing severe economic consequences.””” http://ec.europa.eu/internal_market/bank/guarantee/index_en.htm “WHOSE BANK HAS FAILED” THIS DEPOSIT GUARANTEE ONLY APPLIES IN THIS ONE CIRCUMSTANCE. David, Are you writing for SKY news now? If you believe tax is theft then what was proposed in Cyprus was theft however if don’t believe taxes are theft then your articles basic stance… Read more »
Your articles of late are quite good this one however is not logical at a glance it satisfies the SKY viewer…
Hi David,
Like the articles and the new site. But, can you get your webdesigner to but some padding between the paragraphs. Having them bunched up together makes the job of reading your pages tortuous.
Regards
The bank gurantee is not worth the paper it’s printed on if Ireland went bang tomorrow do you realy think you would get your savings back.
Look at the credit unions and Anglo Irish ,the government pulled the plug on Anglo and the credit unions don’t get the money back,rush in ,in haste and repent at your leisure .
A must-see video for all activists !
Glass-Steagall for Europe! On the Ground in Copenhagen
Belsen was a gas and this is a holiday in the sun. FFs lighten up.
You’d think it was the end of the world.
Firstly, lookit, the EURO is not the problem. Secondly, Cypriot people own 400 billion euros of oil n gas recently discovered off its coastline. Scratch surface and could it be that the power elite criminals running the banking system are in-fighting over who is getting their slice of the action when the oil n gas is opened up?! I think it is so funny to see this Cyprus *ladykillers* spoof underway. It reveals so much more in how the banking system is nothing more than a criminally run racket with the power to steal anyones savings, public monies, steal from… Read more »