gov't to withdraw 10% from everyone's bank accounts

[Fruitcake]

Pretty much every seat Moscow and St Petersburg to/from Cyprus is booked. Now a minimum 6 hours wait.

[Fruitcake]

A new report from Dow Jones suggests that Cypriot banks now won't be re-opened until next Tuesday.

[rishaed]

And no wonder....They'll be empty faster than a chocolate bar in a toddler's hand.

[2dimes]

They managed to start some riots and still have no revenue from stealing money. Now everyone there's paying attention and most are probably looking to move their money.

What's your guess on the remaining lifespan of most of the Cypress banks now? Of course the people there will be the biggest losers when the Russians pull out and leave them broke.

[Fruitcake]

Just in - Reuters

Wolfgang Schaeuble, the German finance minister

"We regret the decision," Schaeuble told ZDF television. "Cyprus requested an aid programme. For an aid programme we need a calculable way for Cyprus to be able to return to the financial markets. For that, Cyprus's debts are too high."

Schaeuble added that it was a "serious situation" now in Cyprus and said the country had no one to blame for its situation other than itself. He said he doesn't think its "business model" works anymore and warned Cyprus must act quickly.

Fc comment (sure thing Wolfgang. Perhaps you have a plan B?)

[Fruitcake]

They managed to start some riots and still have no revenue from stealing money. Now everyone there's paying attention and most are probably looking to move their money.

What's your guess on the remaining lifespan of most of the Cypress banks now? Of course the people there will be the biggest losers when the Russians pull out and leave them broke.

Sticky question. There are a few other items to consider in this. Not least of which is the small fact that The Bank Of Cyprus' Biggest Shareholder is a Russian Oligarch, Dmitry Rybolovlev with a not insignificant 9.9%.

News is that Russian interests have offered a €5 billion loan if Russian shareholders are allowed to increase their stakes in Bank of Cyprus.

We may just be seeing the greatest sell off of a country we could be witness to in our lifetimes.

[2dimes]

We may just be seeing the greatest sell off of a country we could be witness to in our lifetimes.

The greatest, or just the first? How many broke countries can Russia afford?

[Fruitcake]

We may just be seeing the greatest sell off of a country we could be witness to in our lifetimes.

The greatest, or just the first? How many broke countries can Russia afford?

of the size of Cyprus? Quite a few. But then the other countries would not be presently providing the dry cleaning services various Russians use

[Fruitcake]

British Govt is sending €1 million in cash to the Military personnel on the island.....well a €100 note in the hand is worth more than €100 in the bank right now isn't it.

[2dimes]

So far..

[Fruitcake]

Bloomberg reports that the ECB has said it will provide liquidity to Cyprus within the existing rules governing the central bank

Media reporters state that S&P500 and Euro rose sharply on the news.

Fc comment: what do they mean by existing rules? It's all a bit of a yawn anyway. Merkel will be tucked up in bed and nothing of substance will happen for a few hours now anyway.

As for the Euro rising, I don't know which market they are looking at but I see sell orders coming in with no let up, present spread is between 1.2859 and 1.2864, this is down from 1.2879 to 1.2883 a couple of hours ago.

[GreecePwns]

According to Mega TV, Anastasiades [Cyprus' president] is reported to have said to Rehn and Brok: “When I warned you that there would not be a parliamentary majority to pass the agreement, you didn’t want to listen. Give my regards to Mrs Merkel.”

[Fruitcake]

In times past we had Jean-Claude Juncker. The prime minister of Luxembourg. He was the head of the Eurogroup of finance ministers when the bail-outs of Greece, Ireland, Portugal and Spain’s banks were agreed on. The very mention of his name, at the time, could evoke an almost spitting rage, except that to actually spit on his name seemed to create a sizzling noise as if the very fires of hell were making it so.

Those deals, we all so despised, now we can almost hear him sing “I am the very model of a finance General” (with due apology to Gilbert and Sullivan). How times have changed. What then seemed the actions of a mad man, now seem the actions of a sage.

The intended design of last week’s bail out to rescue Cyprus has backfired so badly this week, that there is now every chance the island may pop from the single currency like a squeezed orange pip from between the fingers. Whilst Bank shares have tumbled across Southern Europe, the Bond markets have been an ocean of calm. Even if this ignominious exit can now be avoided, this complete balls up has done a serious wrecking job on the Island, its banking system, its economy and fractured interests beyond its shores.

In case we need reminding. The deal criteria given on the 16th was for those under €100,000 balance to pay as well as those uninsured deposits over €100,000 at a rate of 9.9%.

This threshold of €100,000 alienated one of the most influential bodies in Cyprus today, that of Russia. By also attempting a raid on the sub €100,000 band the EU managed to also alienate the very people of Cyprus. Even when these terms were watered down to exempt those with balances under €20,000 not one single MP voted in favour. Are you surprised? Apparently those powers that be in the EU actually were. This is how far they have become removed from reality.

The Finance Minister then jumped on the next available flight to Moscow to see if Russia could stump up some cash, but to date this has yielded no result.

Cypriot cash machines are working overtime and were being refilled as the banks are not going to reopen until after March 26th. I say after, rather than on March 26th as there is every likelihood that some may never reopen.

However this pans out, it is now odds on that a bank run will occur. The local community is most probably going to withdraw every cent they can, stuff it in anywhere the banks, or any other institution cannot get their sticky fingers on it.

So how did this all happen? The core of the problem lays in the size compared to GDP. The amount is actually quite small, some €17 billion. However, this is pretty much the size of the Cypriot economy. A bail out of this size would take the public debt to around 150% of GDP. Quite unsustainable. Furthermore, over €10 billion of this is needed to recapitalise the banks, especially the two top banks who together have assets some 4 times the size of the Cyprus GDP.

I mentioned some time back about the island’s banks being pretty much awash with Russian moolah and also mentioned that the Germans were spitting venom over any bail out required because of this.
The prime Minister of Cyprus has been in the job less than a month. His acceptance speech, full of bravado, stated clearly that under no circumstances would bank depositors suffer any kind of haircut in their accounts. Notwithstanding his empty words that this ‘tax’ was different, in fact it is exactly what he promised would not happen.

Who was behind this levy? The finger has to point to Germany, The Central European bank (lapdog of Germany) and the IMF. They refused point blank to cough up more than €10 billion. The difference was a simple €7 billion. Privatisation will provide around€1.5 billion and the rest had to come from somewhere. Deposits in Cypriot banks as at the end of January were reported at €68 billion. You do the maths. Add to this mix the small fact that of the reported €68 billion, Russian deposits are estimated at €21 billion. As I mentioned some weeks ago, the largest investor in Russia has been Cyprus (with Russian money). Nearly one third of all Cypriot bank deposits last year and around one quarter of total lending to Russia shows the size of the situation. No wonder Russia was the first place Cyprus went in 2011 when the markets pulled stumps on them.

However, the alacrity with which the creditor countries seemed to agree to all this doesn’t bear close scrutiny. So far there has been no bank run in an EU country, including those taking very large bail outs. So one wonders why the smaller balance holders were to be hit, which of course has had something of a huge domino effect on the banking insurance scheme. The prime Minister, in a fit of I do not know what, imagined that the intellectual impact of 9.9% would be far better than 10%. He forgot this message would be delivered to people who live and die by money, and figures. They know, as well as anyone, that the actual difference is 1/100th. The total estimated deposits over €100,000 are €38 billion, so this would raise €3.8 odd billion. Deposits sub €100,000 would have to bear the balance of the burden, some €2 billion.

It all started to go pear shaped when it became apparent that this was never going to happen. Germany has dug in and is refusing to budge. So the Cypriots have turned, once more, to Russia.

There is serious poker being played here. The recent discovery of a gas field has given Cyprus a lifeline. Putin, having bared his teeth over the situation now has to show he can protect Russian interests abroad. It is likely he would bargain very hard for (1) an extension on the present €2.5 billion loan and (2) any further moolah.

On the other hand, Germany really does not want to see an increased Russian influence in the Mediterranean. So in turn, Germany will be trying to find a way to stop Russia from making this play, as it would also kick the can down the road and increase the dependency on Russia.

So what may happen? Well the two most obvious results will be (a) Germany remains firm and there is no breaking the impasse. Cyprus is ejected from the Euro and the ramifications of that momentous decision are played out. The peril in which this places the euro Zone cannot be underestimated. Yes, some might say Cyprus is tiny and the shock waves wont amount to much, but they may well. The fears of last year when the Euro slid so badly would rear once more and this would bring all the related problems of imported inflation etc with it.

(b) The more likely is that some kind of fudge will be resolved. The Russians getting a piece and the ECB picking up more. The balance still being thrust upon the Cypriot people.

However, the damage is already done, and what damage it is. The forecasts for Cyprus were a 3.5% contraction this year. I imagine this looks very rosy right now. I would suggest nearer 5% or even 6% contraction. This will then be followed by a further slide a la Greece (the economy of which has contracted by some 20%+ over the past 5 years). Furthermore, it is highly unlikely that the original projection of a 100% debt to GDP ration by 2020 would be achieved. This then casts the people of the island into pretty much a generation of depression with all the social problems inherent in this.

Beyond the island, weak banks in other economies around the med and elsewhere will have seen all this unravelling before their eyes, so will their deposit holders. Whilst a bank run is unlikely, it may restart the slide in deposits that occurred 2009 and 2012 when those deposits slumped by some 30% with Greece at nearly 40%. This, in turn will slow any recovery.

Lastly, and maybe most importantly, it is now obvious to any watchers that the politics of the euro zone outweigh any other needs. And, dear reader, in this last sentence is the core of the weakness of this whole crazy unified currency.

[crispybits]

Nice post fruitcake. Are you seriously interested and eductated about this stuff or was that a copy/paste job from somewhere else? (No insult intended, either way it's very informative)

[BigBallinStalin]

Fc, how much of the pro-European Project mindset gears this dilemma? For decades, further unification of Europe was sought, and with the prospect of it all crumbling (or partially crumbling), it seems that many in power are extremely reluctant in any regression of unification.

For example, with Greece, the EU/European Commission simply should've let Greece go out of the Euro zone. Instead, they imagined terrifying slippery slopes, so they--along with the ECB and IMF--gobbled up the Greek securities from the non-Greek banks who previously owned the Greek securities. Now, this merely prolonged the problems, and given that Greek government is essentially being rewarded for neglecting its implicit side of agreement (i.e. austerity), then the Greek government will holds hands with the ECB, IMF, and European Commission as they merrily continue kicking the can down the road and causing all these other problems.

How much of this is due to that "European unification" sentiment?

[Fruitcake]

Nice post fruitcake. Are you seriously interested and eductated about this stuff or was that a copy/paste job from somewhere else? (No insult intended, either way it's very informative)

I do actually trade in the forex markets and am deeply interested in all things financial on a Global scale. I spend around 3 hours a day researching, reading and following what is happening. You can find my obvious interest if you search back in this forum some years. I think if you search for the word 'mammon' you will find my early posts

Fc

[Fruitcake]

Fc, how much of the pro-European Project mindset gears this dilemma? For decades, further unification of Europe was sought, and with the prospect of it all crumbling (or partially crumbling), it seems that many in power are extremely reluctant in any regression of unification.

For example, with Greece, the EU/European Commission simply should've let Greece go out of the Euro zone. Instead, they imagined terrifying slippery slopes, so they--along with the ECB and IMF--gobbled up the Greek securities from the non-Greek banks who previously owned the Greek securities. Now, this merely prolonged the problems, and given that Greek government is essentially being rewarded for neglecting its implicit side of agreement (i.e. austerity), then the Greek government will holds hands with the ECB, IMF, and European Commission as they merrily continue kicking the can down the road and causing all these other problems.

How much of this is due to that "European unification" sentiment?

I have been accused of being something of a crazy gang member for some of my hypotheses. But truly, I believe the objective of a centralised Europe whereby a select Political class rules has been the core objective for many years, but to be honest, this is a subject for a dinner and for a few hours articulation (along with some fine wine of course!)

In short, I believe that once the common currency was born a huge step had been taken. To undo this would unravel so much of the progress made in the onward march for a unified Europe rules by one body. The problem was always that unification of currency took place via a series of fudges. These included literally cooking the books of the Med countries to show they fitted the one size fits all strategy. This was madness to any one watching.

The grand plan is now so woven into the fabric of European society generally that a failure is unthinkable. However, I still believe that at some point the Euro will unravel. whether this happens in my lifetime is debatable. The question is always, what are the Germans going to do. After all, they have been the effective paymasters for some time now.

I can only applaud the cursed son of manse (Gordon brown) for the one decision he took which was correct, that of not joining the Euro when the opportunity presented itself.

[Fruitcake]

Further to my post above. Just crunched the numbers. I estimate that should the Med countries et al fail, the losses could amount to $1 trillion. That's a pretty good reason to keep putting off the fateful day.

[Juan_Bottom]

So what's the deal with the Russians now? Their government is going to remove all of it's money invested into Western banks and is encouraging all Russian citizens to do the same?
How accurate is this? I'm reading some weird stuff, you guys. But then, this whole situation is weird...

[Fruitcake]

So what's the deal with the Russians now? Their government is going to remove all of it's money invested into Western banks and is encouraging all Russian citizens to do the same?
How accurate is this? I'm reading some weird stuff, you guys. But then, this whole situation is weird...

First up, the Russians wont deal with the Cypriots, so no progress there. Looks like the Cypriot Govt is going to have to plunder state assets, including pensions, and split the Cyprus Popular Bank by shifting the 'good' stuff into one vehicle and shifting the 'bad' stuff into another. It all sounds pretty desperate, but then it is desperate times in which they find themselves.

Regarding the Russians. The Govt isn't going to remove all of it's money invested, that would be certifiable. What has happened is a shift in policy from outward investment to inward.

[Gillipig]

If I were from Cyprus I'd be so pissed. But then I'd be from Cyprus and probably be a completely different person so I can't know if I would be pissed.

[Fruitcake]

Further news regarding the Russian cold shoulder.

It transpires that Cyprus removed a gas license from Novatek, one of Russia's largest Natgas producers based in Moscow, last year. Having entered into advanced negotiations them late October to begin exploratory drilling, the Cypriot Govt. then broke off licensing negotiations at the beginning of December. Word is, there were some pretty pissed off Russians at this decision. Some pundits have got it all wrong, saying the license was transferred to Total Oil (France) however, this is incorrect. In fact Total own 15% of Novatek. the license negotiations were, in fact, transferred to a company composed of Italy's ENI S.p.a and South Korea's Kogas for the same area that the Russian-French consortium had sought to drill in. Total then entered into negotiations on its own for exploration on another block.

To add insult to injury, Cyprus then showed a marked increase in its desire for closer ties with NATO.

It would not surprise me to see this as a game of brinkmanship. Germany (and Europe) want to lessen dependence on Russian gas so the fields around Cyprus (if the numbers are to be believed) would assist this policy greatly. I need say no more.

[Juan_Bottom]

This whole situation is insanely interesting.

[Fruitcake]

This whole situation is insanely interesting.

Insane is a pretty apt word to be using.

[Fruitcake]

The central bank in Cyprus has imposed a €100 per day withdrawal limit at cash machines for all local banks today to avert a run. Withdrawals had been limited to €260 up to today.