Monday 18 March 2013

Cyprus; the penny drops

Just in case the citizens of Europe were in any doubt about who is in charge and what their fate maybe, the EU decision to try and impose a 9.9% levy on Cypriots - via closing down their banking system, will perhaps wake a few more people up to the ugly reality.

In a fatally flawed move the EU is trying to get Cyrpus to pay for 50% of its own bailout directly from its tax payers. No doubt this will be very popular in Germany and the Nordic states, who want to see less of their own money wasted in pointless bailouts and more 'input' from the locals.

But this weekend's decision shows up some many of the difficult and complex realities of a single Euro system. Firstly, the foreigners who have invested in Cyprus are hit hard, even the British armed forces are. Plus if you have not voted for the current Government or the past ones you are having your money expropriated without much in the way of personal legitimacy.

Perhaps the EU thinks people should leave badly run states to avoid the consequences? This could have interesting consequences for Portugal and Spain in the near future. The few people who have survived with money are now fully incentivised to take it off shore or indeed leave the Country themselves.

As much as the EU says this is a special one-off measure, it sets a precedent - something in the UK we take very seriously as it is the basis of our legal system.

Even more deeply, it may tip the Euro-scepticism debate in further away from being pro-Euro. If the Northern states don't want to underwrite transfers, then they should not allow the Southern states in. If the Southern states want to run inflationary basket case economies, then they too should not join a single monetary system.

But overall, way to go EU, just as you had calmed the crisis, back it comes for the sake of a few couple of billion euro's! I thought they were meant to be all-powerfully intellectual supreme beings.....

31 comments:

Demetrius said...

Is it time for Zeus to allow the Santorini Caldera to go up again? Its been a long while since the Bronze Age, perhaps time for us all to go back the the Stone Age.

Blue Eyes said...

It's unbelievably stupid. Apparently the Brussels negotiators didn't realise how strong the reaction would be in Cyprus. What, you didn't think that people would see this "deal" as "theft"? I'll take 6% of your money and give you shares in a bankrupt bank in return? Hmm, let me think about that.

Is it supposed to give German voters the impression that the Euro in their pocket won't be worth less?

If the UK government took a penny directly out of my bank account that would be the last time I used a bank to store my money. And this is supposed to shore up the banks in Cyprus??

Ryan said...

It is unbelievably stupid. They might as well just have gone in and taken 10% out of everybody's savings accounts. In fact why stop there? Just take 20% out and be done with it.

It seems British armed forces will not be affected as somehow their accounts have been ring-fenced. But Russians with money in Cyprus are a different matter. Apparently the whole scheme has been introduced by the EU specifically to take more of the money off non-Cypriots. It can only result in a run on the banks, certainly in Cyprus and quite possibly in other troubled EU states as well.

All in the name of giving the impression that the Euro is a strong currency that can take the place of the $. It seems they will break the backs of Europeans before the EU will give up on that dream.


hovis said...

I know these thoughts are garbled .. however if this were a nation state demanding / imposing this on another, rather than trans-national institutions this would be tantamount to an act of war surely? ( ok I know the Cypriots have not forces etc etc ...)

Anonymous said...

I think this is all being misjudged.

It's part of the usual F,U&D. They don't want you storing money in savings account, they want you to take it out and spend it increasing the liquidity in the EU.

They could have asked nicely but instead they go off to a tiny corner of Europe and let of a big bang.

Nick Drew said...

It nicely illustrates an important - and very basic - point: when the chips are down, politicians will do anything to keep the show on the road for this week and next (and maybe that's their job ...)

this has always included seizing private resources by one means or another

for the UK, we know about taxes and the slow-burning effects of inflation & erosion of pensions: one might try to guess what other 'quick-win' tricks are in the Treasury play-book

- all NS&I instruments converted to an ultra-low coupon Consol ?

- all gold seized @ 60 cents on the dollar, a la Roosevelt ?

etc etc

Blue Eyes said...

Note the FSA has now been making sure that us Brits think this could never happen here. I think I'll be removing my savings stat, just in case.

Crap, just realised that my ISAs are with Northern Rock.

Blue Eyes said...

"when the chips are down, politicians will do anything to keep the show on the road"

ND, indeed. Which is why "we" have carefully constructed a system to try to avoid that sort of stuff, be it submitting the Monarch to the rule of law, or being able to chuck out the ruling elite via the ballot box, etc. etc.

I'm not sure I feel confident that there are not plenty of loopholes that might be used to stuff us anyway.

CityUnslicker said...

re the Ruskies - I did not mention that becuase it is covered elsehwere - but this is a really mental geopolitical stand too. Bascially FU Cyrpus with your oligarch tax haven, you want a bail out then bail them in.

Sadi Oligarchs, Putin included, are non plussed. There will be this desperate Gazprom offer to buy out the country but that surely is not possible and remaining in the EU if Russia has bought them.

So instead, its likley the Russians will leave and with it a huge chunk of the economy.

However, that will be interesting to watch as Richard numpty Murphy and all the lefties say we would do better without all the hot money in the UK too - this might well prove an illuminating example of what happens when this choice is forced through...........

DtP said...

I liked (?) the fact that the President got elected 2 weeks ago specifically on a ticket of not allowing this to happen and now the gimp is stalling. What an absolute weasel. Ho hum de dum. Another day in Euroland. Makes ya proud to be a sucker (er...is that right? Ed)

Anonymous said...

Still, the Euro reaction blows Gideon and Mervins recent devaluation out of the water, doesnt it.

Blue Eyes said...

The weather's not so good in London, but the rule of law and range of entertainment is much much better.

I for one will be happy to roll out the red carpet. And for any French and Germans and Portuguese and Spanish and Italian moneyed types too.

Ryan said...

But really imagine the massive German default of 1953, and imagine that instead of letting their creditors go hang, the German government had said they were going to stop people taking their own money out of the banks, but take a big wedge of it for themselves instead. I wonder how that would have gone down? One rule for the Germans, another rule for everyone else.

Lessons will be learned.

Ryan said...

By the way, I was in Cyprus last year and most of the Russians I saw were ordinary professionals, not the gangster types. Frankly Cyprus is not nearly plush enough for your average Russian gangster. I suspect that any Russian money there is more likely to be the life savings of Russian professionals that have realised that keeping their money in Euros was a better bet than Roubles and Cyprus would be such a nice place to retire (plenty of Russian-speaking estate agents selling small retirement appartments in Cyprus). Unless you can find some names of real dubious Russians out there, I'll assume that all the real gangsters are in Switzerland... or London. The Russians I work with tell me that all the real gangsters they would like to see brought to trial are in London - a fact that might blow up in our faces once Putin has gone.

andrew said...

1
my decision to buy us banks was right
2
if there is really dodgy money in Cyprus., it is probably in northern Cyprus
3
working with some of my most interesting clients, it seems that the legal structure in Cyprus seemed to be very friendly towards anonymous trusts (set up in the channel Islands or Luxembourg) being run by a legal entity in Cyprus, administered somewhere else (a nice reliable country) and the money could be anywhere, but the float is often in Cyprus

Anonymous said...

I think you're all missing the really big story.

It seems that a few years ago this actor fancied a bunk up with the fattest hooker he could find....

Electro-Kevin said...

Anon @ 5.56

I agree.

'Actor' ? Are you sure ?

(Toby Young of the Telegraph has some interesting things to say)

Timbo614 said...

I think its unbelievable stupid because the reaction is being provoked in the ordinary working person.

This type of blatant theft is something Mr & Mrs working couple can get their head around "they just took it, and then closed the banks AND the cash machines". For a lot of people inflation and QE effects are too subtle/difficult to understand. This is not.

The reaction of the Financial word/markets has been muted to say the least, an initial cautious bit of selling while waiting for other responses. When they didn't come, back to business as usual.

Even tho' I am aware that this can happen (depositing your money in a bank means you lose absolute control of it, i.e. you have lent it to the bank). As Peston pointed out today - this type of blatant taking/theft/taxing/levying is outside of the normal rules of the game!

Steven_L said...

So you make a bank deposit, and, with the stroke of a pen, it becomes a convertable bond.

The scams just get more and more audacious.

You can't blame this one on incompetence surely?

Budgie said...

CU, the EU is not run by "all-powerfully intellectual supreme beings" but by men with a ruthless will to power. However there is no doubt this deal is a giant bungle for eurokind. Behind the scenes there will be blood and feathers flying all over the place. Delicious.

Anonymous said...

Ryan@5:18

Your account of the Russians you encountered there is interesting. I can tell you that in Greece there are a lot of Russian + Ukrainian accents to be heard, some of which deffo belong to grade-A 'heavy duty citizens', they buy whole villages, mayor, magistrate, the lot, they are all for sale these days.

Sometimes even the prefecture.

CityUnslicker said...

umm..russian gangsters have been in Cyprus for quite some time....seer this artcile from, err. 20 years ago...

http://www.independent.co.uk/news/world/europe/moscows-mafia-finds-an-island-in-the-sun-cyprus-is-awash-with-dubious-dollars-from-russia-robert-fisk-reports-from-limassol-on-the-visitors-with-private-jets-bulging-suitcases-and-a-reluctance-to-answer-questions-1381056.html

Ryan said...

I have seen plenty of Russian gangsters built like nightclub bouncers and with a quiet scared looking little blonde walking two paces behind with her tight jeans and little Gucci handbag. But not so many of these in Cyprus. Plenty of Russians - about half of Cyprus' tourists are Russian. Cyprus is cheap to get to for a Russian.

I'm guessing that 20 years ago Cyprus was indeed awash with gangsters. But they've moved on I'm guessing - too many ordinary Russians are going there now and it just isn't posh enough. I have plenty of Russian colleagues - engineers - that love Cyprus. Ordinary people. I'm sure that the Russian money in Cyprus is "dodgy" - but I'm guessing most of it is money from middle class professionals doing a bit of tax avoidance/ForEx protection. Whether they will kick up a fuss is another matter - they might not want Putin taking a closer look at their savings either.

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Visceral said...

Whether a large % of money in Cyprus is dodgy is immaterial. It is the destruction of trust, and the inversion of the legal structure that this appropriation creates, these are the real issues, all else is a misdirection/smokescreen.

gsd said...

there's a brilliant comment on the BBC : "Had the whole thing been handled better, it could have been called a cock up."

well made me laugh anyhow!

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Référencement Maroc said...

n a fatally flawed move the EU is trying to get Cyrpus to pay for 50% of its own bailout directly from its tax payers. No doubt this will be very popular in Germany and the Nordic states,

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"his could have interesting consequences for Portugal and Spain in the near future. "

agence web said...

But overall, way to go EU, just as you had calmed the crisis, back it comes for the sake of a few couple of billion euro's! I thought they were meant to be all-powerfully intellectual supreme beings

cours informatique said...

Firstly, the foreigners who have invested in Cyprus are hit hard, even the British armed forces are. Plus if you have not voted for the current Government or the past ones you are having your money expropriated without much in the way of personal legitimacy.