Cyprus: So what happens next?

The Guardian’s still live-blogging, for now, in the aftermath of Cyprus’ parliament’s rejection of an, albeit amended, EU/IMF cunning plan bail-out which included the public seizure levying of €5.8billion from private depositors in Cypriot banks – 36 votes against, 19 abstentions, none in favour.  The paper’s economics editor, Larry Elliot, answers the title question

…there are really only two plausible scenarios: somebody – be it Europe or the IMF – gives Cyprus more money, in which case there is a chance that the crisis can be contained. Or Germany and the other hardline eurozone countries can insist that the deal is non-negotiable. In which case, the banks in Cyprus will go bust, risking widespread turmoil.

Given the precarious eurozone economy and the enfeebled state of European banks, cutting Cyprus a better deal looks like the safer option. The package could be restructured so that only deposits in excess of €100,000 (£85,000) are taxed, the preferred option of Christine Lagarde at the IMF. Sparing those with savings of less than €100,000 from any pain would require the bigger depositors to pay a 15.5% tax to find the €5.8bn demanded of Cyprus. Alternatively, Europe could easily find the extra €5.8bn itself.

The problem is that both options will cause political problems. Putin will bridle at suggestions that Russian citizens – who make up a large proportion of the €100,000 depositors – should be singled out. And Merkel could expect an almighty domestic backlash if she backtracked from the tough stance she adopted at the weekend.

But the alternative is to let the banks in Cyprus go bust as soon as they are reopened after the extended bank holiday and hope that it really is a “special case”. That looks like an awfully big gamble.

Probably not the best time for Cyprus to be attempting to re-negotiate the terms of a previous €2.5billion loan from Russia…

Of the estimated 68bn euros in total held in Cypriot bank accounts about 40% belongs to foreigners – most of them thought to be Russians.

The government fears a higher levy on these larger deposits would prompt many large investors to withdraw from the island and would effectively destroy its financial sector.

Russia has also said it may reconsider the terms of a 2.5bn-euro loan it made to Cyprus in 2011, which was separate from the proposed eurozone bailout.

Cypriot Finance Minister Michalis Sarris arrived in Moscow on Tuesday to see if the repayment on that loan could be delayed until 2020, and whether the interest rate could be reduced.

Officials said he would also be looking for “further investment” in his country, correspondents report, with some speculating this might mean Russian access to Cyprus’ large undeveloped gas deposits.

Good luck untangling that political trilemma…

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  • Since the Russian “investors” are trying to avoid taxes by “hiding” their money in Cyprus, why is Russia complaining? It couldn’t possibly because of close links between the Russian “mafia” and their politicians, could it?

  • Alias

    Cyprus brings the number of EU regions that have had their economies and banking systems destroyed by membership of the Eurozone to 6 out of 17 thus far, or a whopping great failure rate of 41%.

    The proposed theft of deposits renders the EU Directive guarantee on deposits to that amount to be utterly worthless. These people were deliberately misled by fraudulent EU marketing to believe that their money would be guaranteed up to that amount in the event that the bank was unable to meet its liabilities. Instead of honouring its promise the EU simply pretends that the banks are not insolvent and therefore the guarantee on deposits is null and void.

    While utterly despicable it is also utterly destructive to banks already weakened by the eurosystem since the effect will be that depositors transfer their money from the 41% zone to banks in Germany etc.

  • Alias,

    Your calculator is faulty. Buy a new (Japanese) one. Maybe you can tell us the percentage of the population that have been affected and what alternative you propose.

  • Alias

    Yes, my statist friend: zero per cent of the EU would have their economies and banking system destroyed under my policy since there would not have been any single currency. That way, older child, the recent addition of states bailing out bondholders instead of simply protecting depositors would be in place as a domestic sovereign policy.

  • GEF

    “Of the estimated 68bn euros in total held in Cypriot bank accounts about 40% belongs to foreigners – most of them thought to be Russians.”

    If this amount of Russian capital was held in the Cypriot bank accounts why would Cyprus want a 10 billion euro loan from the EU central bank? Could it be possible Russian rich savers are one step ahead and have already moved 90% of their savings to eastern banks in Dubai and Singapore?

  • Greenflag

    @ mister joe ,

    ‘Since the Russian “investors” are trying to avoid taxes by “hiding” their money in Cyprus, why is Russia complaining? ‘

    Well said Joe .So the Russian rich and or mafiosi are no different from the Americans ,British or Irish or African Dictators in hiding their gains ill gotten or otherwise somewhere else .

    Cyprus ,Cayman Islands , Jersey , Isle of Man , Bermuda etc etc etc . It’s a racket .Meanwhile 1% of Americans own 50% of the wealth of USA up from 25% 20 years ago while 170 million Americans have nothing . And the same is happening in the UK . GIven current neo con right wing policies another decade will see the top 1% owning 95% of the wealth and the entire American middle and working classes emisserated to Third World income levels 🙁

  • Greenflag

    Alias ,

    ‘or a whopping great failure rate of 41%.’

    LOL There are lies , damned lies etc . but to be expected from our esteemed Alias he of the far right school of failed trickle down economics 🙁

    Can’t see the Germans or French or anybody else ‘bailing out ‘ the Russian mafiosi ? On the other hand the USA , UK and the EU bailed out their local gangster banksters and assorted mafiosi -so maybe it’s just a question of time .

    The Eurozone will roll on regardless of this Cypriot hiccup . After Chancellor Merkel’s re-election in September there may be ‘modifications ‘ to current Eurozone policy .

  • Drumlins Rock

    6 countries is 35% of the 17. Greece, Ireland, Portugal & Spain, not sure if Italy is the 6th? It has been propped up rather than bailed out so far. However it is more likely Slovenia will become the 6th, I presume the panic could also spread there after Cyprus? How many of the 17 are sound?

  • 6crealist

    “…6 out of 17 thus far, or a whopping great failure rate of 41% [sic].”

    Another trademark misuse of statistics by our self-appointed expert on sovereign theory.

  • Alias

    That’s right, kids: it’s a whopping great 36% and not a whopping great 41%.

  • 6crealist

    Fat fingers?

  • Alias

    Lovely slender fingers… actually quite dainty. Like a pic?

    I was just mocking the mindset of folks who think a whopping great failure rate of 36% is alright then coz’ it isn’t a whopping great failure rate of 41%.

    Any failure rate over 7% is a disaster.

  • 6crealist

    If you can’t do basic maths then why should you scoff at Greeks/Italians/Spaniards etc. for cooking the books?

    Anyway, it’s pretty lazy to claim that the sole reason these countries are up sh*t creek is because “their economies and banking systems destroyed by membership of the Eurozone”.

    The old chicken and egg conundrum comes to mind.

  • Greenflag

    Alias fails to ‘weigh ‘ for population totals .Total population of EU in 2012 is 503 million -Total population of bailed out bankster countries (actually caught ) comes to 73 million of which Spain is the largest country with 47 million. 14% of the EU’s population live in countries which needed their ‘banks ‘ to be bailed out to prevent the entire global financial system from collapse -the consequences of which would have been catastrophic for billions of people.

    Meanwhile as per Alias’s economic sovereignty doctrine the UK ‘s economy is doing fine as it tries to avoid dropping into another recession and the USA ‘s dollar’s strength is wowing them in Beijing and Tokyo and if you believe that then you’d better believe the moon is made of cheese as well .

    Former London Mayor Ken Livingstone got it right –

    Hang a bankster a week until they improve ‘

    These ‘f***kers ‘are about as capable of self regulating their sector of the economy as an alcoholic teenage drug addict is capable of climbing to the moon on a ladder 🙁

  • Alias

    Greenie, there are 17 members of the eurozone, not “503 million”. And 6 of them have had their economies and banking system destroyed by membership of it.

    In Ireland’s case, its external debt exploded from 11 billipn punts to 2.3 trillion euros within 10 years of joining it.

    But according to our friend, 6realist, that would have happened whether Ireland joined the eurozone or not. You have to laugh….

  • Alias

    Incidentally, the only factor that is preventing the collapse of the German and French banking system as a result of their membership of the eurosystem is the EU policy of containing debts in the borrowing state rather than allowing them to default to the lending state.

    Germany’s banks, in particular, are massively over-leveraged, with no major German bank having a leverage ratio under 52.

    By way on contrast, no major US bank exceeds the World Bank upper leverage ratio limit of 20. A safe limit is 6 to 9, depending on the risk.

    With Germany’s massively over-leveraged banks, the debts of these German banks must be underwritten by the taxpayers of the borrowing state since if they defaulted to the lending state, the Germany finance minister would be on his way to Russia for a loan…

  • 6crealist

    Alias

    “But according to our friend, 6realist, that would have happened whether Ireland joined the eurozone or not. You have to laugh….”

    Point out exactly where I said or implied that.

    You can’t? Probably because you’re talking shite and twisting words/numbers beyond all recognition to suit your own parochially puerile narrative: as is your forte.

  • Harry Flashman

    Apparently what happens next is that Gazprom buys Cyprus (and its territorial seas) and the Russian navy get a new warm water Mediterranean base (after having to abandon the one in Syria).

    We were sold for decades on the ever increasing union of Europe as a basis for greater stability in Europe and an end to wars and disputes, the EU even got the peace prize (even though NATO actually secured the peace).

    So tell me how’s that all working out these days?

    http://www.dailymail.co.uk/news/article-2296234/Cyprus-finance-minister-begging-mission-Moscow-Russia-offers-write-debt-Gazprom-access-untapped-oil.html

  • Alias

    “Point out exactly where I said or implied that.”

    As you wish:

    “Anyway, it’s pretty lazy to claim that the sole reason these countries are up sh*t creek is because “their economies and banking systems destroyed by membership of the Eurozone”.

    The old chicken and egg conundrum comes to mind.”

    “You can’t?”

    I just did. And, sincerely, thanks for the laugh in your claim that Ireland’s external debt could have exploded to 2.3 trillion euros in 10 years if it wasn’t a member of the eurosystem. Maybe someone very patient will attempt to explian the joke to you?

    “Probably because you’re talking shite and twisting words/numbers beyond all recognition to suit your own parochially puerile narrative: as is your forte.”

    Tut tut… someone has unresolved e-anger management issues.

  • 6crealist

    Alias, whatever keeps you happy.

    But no one on this site twists and distorts things to suit their own tired agenda quite like yourself. It’s just utterly pathetic.

  • Alias

    I can’t decide if I should be insulted by your latest impudent reply or regard the claim therein as a unique accomplishment. How about I settle for my customary indifference?

    Now, whenever you’ve calmed down, you might like to expound on your claim that Ireland’s external would still have exploded from 11 billion punts in 1999 under a sovereign monetary regime to 2.3 trillion euros a mere 10 years later even if it didn’t join the eurosystem – or have you simply dropped that risible nonsense? 😉

    Think about that figure, my friend: 2.3 trillion euros in 10 years. That’s a massive profit for the other banks in the eurosystem who were flooding that cheap credit into this state – and completely risk-free given that non-sovereign monetary states must do as the sovereign regime requires (such as forcing its citizens to bail out the eurosystem).

    As the finance minister of Cyprus is finding out, as Brian Lenihan found out before him, you do what you are told as you are dependent on those to whom you have transferred your monetary sovereignty to govern your monetary system.

  • I have come to the conclusion that Chicken Little was an optimist.

  • GEF

    “As the finance minister of Cyprus is finding out, as Brian Lenihan found out before him, you do what you are told as you are dependent on those to whom you have transferred your monetary sovereignty to govern your monetary system.”

    100% correct Alias, “Germany Calls the Shots”

    THE crisis in Cyprus has taken a nasty turn, but it will not wreck the euro. Chancellor Angela Merkel will simply not allow it to happen. For Germany the euro is the goose that lays golden eggs. It has allowed Germany to accumulate more than €1 trillion in trade surplus with other E.U. countries in a little more than a decade. Germany will not let the golden goose die.
    http://www.nytimes.com/2013/03/22/opinion/global/germany-calls-the-shots.html?_r=0

  • 6crealist

    “Now, whenever you’ve calmed down, you might like to expound on your claim that Ireland’s external would still have exploded from 11 billion punts in 1999 under a sovereign monetary regime to 2.3 trillion euros a mere 10 years later even if it didn’t join the eurosystem – or have you simply dropped that risible nonsense?”

    How can I respond to or defend a claim that I never made?

    Chutzpah par excellence.