Cyprus bailout deal #2

Scofflaw · 21-03-2013 06:41PM

Oracle wrote: »

Cyprus bailout deal exposes the real agenda; the EU wants to privatise the utilities, introduce universal stealth taxes for property and water, and levy after-tax savings and income.
The EU want citizens to pay income tax, pay for State and household services and pay tax again on their personal after-tax spending (VAT), savings and income.

Actually they just want the Cypriots to come up with some of their bailout programme fund, because otherwise the Cypriot debt:GDP ratio is unsustainable, and the bailout votes won't get past the parliaments of the lending countries, or the IMF, without such a contribution. But there's no telling the paranoid that, I guess.

regards,
Scofflaw

KyussBishop · 21-03-2013 07:08PM

clairefontaine wrote: »

How much time to you think it will take?

Right now it looks like Germany is the only country to have a decent economy but if there is no one in the Eurozone with money to buy their stuff and they are sustaining all these loans, how long can that last?

Ya exactly that I've been reading in places lately, that Germany is harming the economic performance of the very countries it depends on exporting to, so it's eventually going to drag them down too.

I've only relatively recently been giving greater attention to Europe, and there's not really a way to tell how much longer it will last, but you can see across Europe the rise of parties like Beppo Grille's (who is also, from what I can tell, a monetary reformist) 5 star movement, and the rise of other anti-austerity parties, and they are only going to get more popular over time as countries get fed-up of these failed policies.

So, the policies in place in Europe now are only going to aggravate the social suffering in most countries, driving the popularity of the anti-austerity parties, and eventually one of them will get in power and will push for more reform policies (unlikely to succeed due to Germany), or will get favourable terms on economic assistance from the EU/ECB (and stay put), or will exit.

It could still take many years though, as there's not really any accurate way to tell what is going to happen politically in countries, so we'll still be stuck in this limbo for quite a while, until some country sets the precedent, by leaving.

I'd still prefer to see recovery while staying in the EU though, as that is the best of all worlds, just can't see Germany ever acquiescing to the necessary policies; exiting from the single currency will be extremely painful in the short/medium-term for countries doing that (but is arguably less painful in the long-term, than sticking with things as they are).

KyussBishop · 21-03-2013 07:26PM

djpbarry wrote: »

For one thing, the interest on your existing debts effectively increases.

Typically bonds are sold at a fixed rate, so their interest rate doesn't increase; and you don't need to go to market for more bonds, once you start utilizing money creation.

You're even able to pay the interest on current bonds (and the principle, but only when the debt falls due; you don't pay it off early) using money creation (always limited by the inflation target), and eventually the country will extinguish all of its debts.

djpbarry wrote: »

Well of course it's not exactly the same - every analogy breaks down at some point. But that doesn't make it an invalid comparison - the basic point still stands.

Money creation breaks that comparison completely though, because it unlinks government spending from taxation; the limit to government spending becomes hitting the inflation target, not government income (i.e. taxes).

clairefontaine · 21-03-2013 07:58PM

KyussBishop wrote: »

Ya exactly that I've been reading in places lately, that Germany is harming the economic performance of the very countries it depends on exporting to, so it's eventually going to drag them down too.

I've only relatively recently been giving greater attention to Europe, and there's not really a way to tell how much longer it will last, but you can see across Europe the rise of parties like Beppo Grille's (who is also, from what I can tell, a monetary reformist) 5 star movement, and the rise of other anti-austerity parties, and they are only going to get more popular over time as countries get fed-up of these failed policies.

So, the policies in place in Europe now are only going to aggravate the social suffering in most countries, driving the popularity of the anti-austerity parties, and eventually one of them will get in power and will push for more reform policies (unlikely to succeed due to Germany), or will get favourable terms on economic assistance from the EU/ECB (and stay put), or will exit.

It could still take many years though, as there's not really any accurate way to tell what is going to happen politically in countries, so we'll still be stuck in this limbo for quite a while, until some country sets the precedent, by leaving.

I'd still prefer to see recovery while staying in the EU though, as that is the best of all worlds, just can't see Germany ever acquiescing to the necessary policies; exiting from the single currency will be extremely painful in the short/medium-term for countries doing that (but is arguably less painful in the long-term, than sticking with things as they are).

So my next question is, if Germany is doing most of the lending here, than what is to say they wont need a bailout eventually? Who will bail them out?

Their economy shrank last quarter.

So my feeling is, we are in the very early stages of this problem, and we have a lot more time before we see this russian doll unfold, but it will not be pretty when it does.

djpbarry · 21-03-2013 07:58PM

KyussBishop wrote: »

Typically bonds are sold at a fixed rate, so their interest rate doesn't increase...

I said effectively increases - devaluing your own currency makes those interest payments more expensive.

KyussBishop wrote: »

Money creation breaks that comparison completely though, because it unlinks government spending from taxation; the limit to government spending becomes hitting the inflation target, not government income (i.e. taxes).

You're talking about these things like they're completely independent variables - money creation influences all of the above!

KyussBishop · 21-03-2013 09:11PM

clairefontaine wrote: »

So my next question is, if Germany is doing most of the lending here, than what is to say they wont need a bailout eventually? Who will bail them out?

Their economy shrank last quarter.

So my feeling is, we are in the very early stages of this problem, and we have a lot more time before we see this russian doll unfold, but it will not be pretty when it does.

I think the German banking system is largely healthy (but not really that sure to be honest), though they do have significant exposure in other countries; still, I doubt they would need a bailout (if they did, the ECB is always able to create money directly, instead of sourcing it from other countries).

As their economic output decreases though, austerity will begin to bite harder in Germany as well, which may eventually bring about some political changes (which may not matter by then, because they have an election in September, and there isn't enough of an anti-austerity movement there now, so it will be a pro-austerity part for a number of years still).

Blogs like www.nakedcapitalism.com and also Yanis Varoufakis' blog often discuss the EU, but I don't know where would be a place to get similarly good information on individual countries in the EU, and their possible future (they tend to come up on those two sites though, when something of note happens, like in Italy with Grillo).

KyussBishop · 21-03-2013 09:33PM

djpbarry wrote: »

I said effectively increases - devaluing your own currency makes those interest payments more expensive.

Not when your debts are denominated in your own currency; it is crazy for any country to hold significant debts in a foreign currency.

djpbarry wrote: »

KyussBishop wrote:

Money creation breaks that comparison completely though, because it unlinks government spending from taxation; the limit to government spending becomes hitting the inflation target, not government income (i.e. taxes).

You're talking about these things like they're completely independent variables - money creation influences all of the above!

Public use of money creation would be used for government spending, sure, but taxes would not have to be linked to government spending.

For macroeconomic accounting to match household/business accounting, spending has to match income (taxes), which (when you introduce money creation) it doesn't; you can deficit spend without debt.

Boulevardier · 22-03-2013 01:27PM

Am I the only person here who would not consider it completely mad for the EU (not just the Eurogroup, the whole EU) to come up with a 6.5 bn grant-in-aid for Cyprus, with no repayment strings attached?

They would still get the 10bn Troika loan and this extra handout would cut through the remaining difficulties without adding to Cyprus's debt. It is a small economy and the EU could afford this in these special circumstances.

Scofflaw · 22-03-2013 03:13PM

Boulevardier wrote: »

Am I the only person here who would not consider it completely mad for the EU (not just the Eurogroup, the whole EU) to come up with a 6.5 bn grant-in-aid for Cyprus, with no repayment strings attached?

They would still get the 10bn Troika loan and this extra handout would cut through the remaining difficulties without adding to Cyprus's debt. It is a small economy and the EU could afford this in these special circumstances.

It would also be illegal, and a heck of a precedent, particularly as a way of saving rich Russians.

cordially,
Scofflaw

Scofflaw · 22-03-2013 03:15PM

KyussBishop wrote:

I think the German banking system is largely healthy (but not really that sure to be honest), though they do have significant exposure in other countries; still, I doubt they would need a bailout (if they did, the ECB is always able to create money directly, instead of sourcing it from other countries).

The German banks have had a bailout to the tune of €295bn.

cordially,
Scofflaw

carveone · 22-03-2013 03:24PM

Boulevardier wrote: »

Am I the only person here who would not consider it completely mad for the EU (not just the Eurogroup, the whole EU) to come up with a 6.5 bn grant-in-aid for Cyprus, with no repayment strings attached?

I guess that's the essence of brinksmanship but then (IMHO) Ireland wasn't too enthusiastic to play that game at the time - count on the fear of contagion to force a deal versus vaporise your economy. People complain a lot but I moved to Ireland from Africa in 1982. It's like a gravy train now in comparison to Ireland in '82. I remember thinking "Africa was better than this place".

My personal opinion is that they may revisit the one-time-levy option. It wasn't a bad plan relatively speaking; unless you were rich and owned media outlets in which case it was the end of the freaking world. The financial markets blipped, then apparently decided they could care less about a €25bn GDP.

If given the option - 7% of your account over 20 grand to continue with pensions and health care and public services - I personally would have no problem. (ok, that's a fib, I wouldn't have been dancing in the streets either). On the other hand, I can only dream of having 20 grand in the bank so it would affect me how? :P

People on soc.politics have speculated for years on what would happen in the case of a banking collapse - credit controls and printing presses and euro exit. They are already implementing the first (is that legal?) so we may find out.

carveone · 22-03-2013 03:27PM

Scofflaw wrote: »

The German banks have had a bailout to the tune of €295bn.

cordially,
Scofflaw

That much? I didn't know that. (At the risk of starting something I shouldn't) I wonder how much of that was the Depfa/Hypo disaster.

Scofflaw · 22-03-2013 04:31PM

carveone wrote: »

That much? I didn't know that. (At the risk of starting something I shouldn't) I wonder how much of that was the Depfa/Hypo disaster.

Somewhere around a third - if you add in Sachsen (also IFSC based) it would be more. As far as I recall, the German authorities suggested Ireland might like to contribute to the Hypo bailout, and were told to get lost.

European bank bailouts, measured only by way of their impact on debt (so not including any cash like our NPRF or the Cypriot levy):

Country|BankSize end-2007 (€bn)|Bailout Impact on GG Debt (€bn)
AT|785|7.55
BE|1362|24.5
DE|6625|294.74
DK|745|8.23
EL|312|5.09
ES|3008|24.41
HU|43|0.5
IE|584|45.57
IT|2422|2.6
LT|5|0.87
LU|88|2.5
LV|12|1.34
NL|1807|44.51
PT|340|7.29
SE|1100|0.63
SI|35|1.31
UK|7329|122.26
Total|26602|593.9

See, some bailouts are small, while other bailouts are far away...

cordially,
Scofflaw

Glengormanjay · 22-03-2013 05:36PM

Ireland, Southern Euro Zone, Britain, US, Japan and by the sounds of it several North European countries are all hurtling down an ever narrowing pot holed country road called "DEBT". All states no matter how mature or emerging are driving high powered delicately tuned cars that are fuelled on “near future politics” and “single perspective media”. None of these cars were built for this road and apparently all of them are now showing signs of fatigue and breakdown (none are guaranteed to be able to sustain this level of attrition)! Smaller countries are braking furiously to miss the impact whilst others are putting down the pedal in a belief that they can drive through and clear of any impact. All are playing the game of "chicken" and "brinkmanship". We are literally on a road to nowhere!

My questions are separate to the daily / weekly negotiations and triage that feeds this frenzy.
How did the industrialised World bring itself to this dead-end road?
Was it stupidity or was it planned short term gain? Either answer means that “we the people” are not asleep at the wheel but actually unconscious!
Who in fact owns this road called debt? If it’s all counties and all people then, we truly are lunatic boy racers! Where now is the actual seed wealth that enabled this debt to be created?

Maybe if one country actually stops and gets out of the car they can tell the rest of us what’s really happening!!!!!

Moderators; I beg your forgiveness if this analogy and angle is slightly off topic and but I also ask that you let us find forum and understanding of the lunacy and wealth shift (theft) that we have been a part of for the last number of years. Or maybe it’s not theft if the EU takes money from Cypriotes & Russians. Maybe I should call it a “haircut”?
Remember it was never meant to be a crash it was always meant to be a soft landing!

22-03-2013 10:13PM

Glengormanjay wrote: »

Or maybe it’s not theft if the EU takes money from Cypriotes & Russians. Maybe I should call it a “haircut”?
Remember it was never meant to be a crash it was always meant to be a soft landing!

Christ. The EU isn't getting anything from the Cyprus deal. The reason that deposits have to be hit, is to avoid having Cyprus going above an unsustainable level of national debt. I.e. Cyprus will have to come up with some of its own bailout cash, much like we had to.

What is so fundamentally hard to grasp about this story? Where are people reading that the EU is demanding money for itself? I must be missing those headlines...

KyussBishop · 22-03-2013 10:27PM

Scofflaw wrote: »

It would also be illegal, and a heck of a precedent, particularly as a way of saving rich Russians.

cordially,
Scofflaw

In fairness, that hasn't stopped the EU at all thus far, as it is illegal to renege on depositor insurance as well; if they can wrangle their way out of that by labeling it a 'tax', they can wrangle their way out of giving Cyprus the money they need, no strings attached, as well (and could also directly legislate to make it legal).

Scofflaw wrote: »

The German banks have had a bailout to the tune of €295bn.

cordially,
Scofflaw

Ah, interesting, did not know that; I don't know the extent of it, but there is much talk about current EU problems being a solvency crisis rather than just a simple liquidity crisis, so as more economies across the EU slow down, exposing more cracks in banking/financial institutions (and contagion from that across countries), perhaps there will be plenty more bailouts on the way.

View · 23-03-2013 01:40AM

KyussBishop wrote: »

In fairness, that hasn't stopped the EU at all thus far, as it is illegal to renege on depositor insurance as well;

To repeat, deposit insurance applies ONLY when a bank fails. It does not apply while a bank continues to operate. Also it is up to each member state to honour (or illegally renege) on their respective deposit insurance scheme (not the EU).

KyussBishop wrote: »

if they can wrangle their way out of that by labeling it a 'tax',.

They don't need to "wrangle" anything - governments are free to impose taxes or levies on bank accounts if they so choose.

Offhand, I can think of some here. There is the levy you pay if you get a cheque card, one for an ATM card, one for a credit card and stamp duty applied on each cheque in a cheque book. And that's not counting D.I.R.T.

There is nothing illegal about those even if many are stupid (as "physical" money is way more expensive to process than "electronic" money and has much higher security costs to prevent bank robberies etc).

KyussBishop wrote: »

they can wrangle their way out of giving Cyprus the money they need, no strings attached, as well (and could also directly legislate to make it legal).

Nobody is obliged to loan Cyprus any money. There is a loan offer on the table (which can be withdrawn at any time). It is up to Cyprus what happens next.

Scofflaw · 23-03-2013 01:41AM

KyussBishop wrote: »

In fairness, that hasn't stopped the EU at all thus far, as it is illegal to renege on depositor insurance as well; if they can wrangle their way out of that by labeling it a 'tax', they can wrangle their way out of giving Cyprus the money they need, no strings attached, as well (and could also directly legislate to make it legal).

They could do the latter, of course, but it's hardly going to get past some electorates. As to the depositor guarantee, it applies in liquidations, and is irrelevant to a government levy. There is no "blanket guarantee" that nothing will happen to deposits under the limit as people appear to think.

I don't think people read the law before deciding it's being broken.

KyussBishop wrote: »

Ah, interesting, did not know that; I don't know the extent of it, but there is much talk about current EU problems being a solvency crisis rather than just a simple liquidity crisis, so as more economies across the EU slow down, exposing more cracks in banking/financial institutions (and contagion from that across countries), perhaps there will be plenty more bailouts on the way.

It seems mostly to be a bank solvency crisis, certainly - if it's still being characterised in some places as a liquidity crisis I'd be a little surprised. Not a lot surprised, mind you, just a little. The liquidity crisis has exposed solvency problems, which to some extent are related back to the liquidity crisis - although in our case, for example, I would have said the bubble was already bursting to create a solvency crisis before the liquidity crisis stopped allowing the banks to juggle their way through.

cordially,
Scofflaw

View · 23-03-2013 01:57AM

Scofflaw wrote: »

The liquidity crisis has exposed solvency problems,

It would appear to be the government equivalent of Warren Buffet's comment about businesses that you get to see who has been swimming naked when the tide goes out....

KyussBishop · 23-03-2013 11:03AM

View wrote: »

To repeat, deposit insurance applies ONLY when a bank fails. It does not apply while a bank continues to operate. Also it is up to each member state to honour (or illegally renege) on their respective deposit insurance scheme (not the EU).

It doesn't matter what it is legally defined as, the entire point of it was to give depositors confidence that their money is safe, which it obviously is not.

It's exactly that there are legal loopholes allowing such actions, which is part of my point; if there are for this, chances are there are for the EU to provide direct monetary assistance.

View wrote: »

They don't need to "wrangle" anything - governments are free to impose taxes or levies on bank accounts if they so choose.

Offhand, I can think of some here. There is the levy you pay if you get a cheque card, one for an ATM card, one for a credit card and stamp duty applied on each cheque in a cheque book. And that's not counting D.I.R.T.

There is nothing illegal about those even if many are stupid (as "physical" money is way more expensive to process than "electronic" money and has much higher security costs to prevent bank robberies etc).

Come off it; dipping into depositors funds below the insured limit, is an unprecedented move in the crisis thus far, and doing it as a 'tax' is nothing more than a legal nicety for reneging on the deposit insurance.

That deposit insurance is totally meaningless now, for every EU country, because all you have to do is slap down a deposit tax, the moment before you liquidate a bank; that being the case, the deposit insurance was meaningless to begin with, and this is an obvious reneging of that.

View wrote: »

Nobody is obliged to loan Cyprus any money. There is a loan offer on the table (which can be withdrawn at any time). It is up to Cyprus what happens next.

Did I say anyone was obliged to? No. The decision is not Cyprus's alone, because the EU is perfectly capable of providing any kind of bailout package it wants, and they've traded depositor confidence across the EU, for a measly €6 billion.

clairefontaine · 23-03-2013 11:19AM

Let's face it. What Cypriot would put another penny into a Cyprus bank after this.

Phoebas · 23-03-2013 11:19AM

KyussBishop wrote: »

The decision is not Cyprus's alone, because the EU is perfectly capable of providing any kind of bailout package it wants, and they've traded depositor confidence across the EU, for a measly €6 billion.

But it doesn't want to provide a different kind of bailout package where that additional measly €6bn is provided, because its citizens (at least the ones in the rich countries) won't wear it.

KyussBishop · 23-03-2013 11:30AM

Scofflaw wrote: »

They could do the latter, of course, but it's hardly going to get past some electorates. As to the depositor guarantee, it applies in liquidations, and is irrelevant to a government levy. There is no "blanket guarantee" that nothing will happen to deposits under the limit as people appear to think.

I don't think people read the law before deciding it's being broken.

You don't view it as a reneging of depositor insurance though? If you can dip into insured deposits, just by calling it a 'tax', the moment before you liquidate the bank, then deposit insurance is completely meaningless.

The EU just got around the illegality of that, by calling it a tax; if they utilize loopholes for something like that, they can for other things.

Separate to that, there is also some grumbling about the ECB bond buying program being illegal, with threats of potential legal action on that.

Scofflaw wrote: »

It seems mostly to be a bank solvency crisis, certainly - if it's still being characterised in some places as a liquidity crisis I'd be a little surprised. Not a lot surprised, mind you, just a little. The liquidity crisis has exposed solvency problems, which to some extent are related back to the liquidity crisis - although in our case, for example, I would have said the bubble was already bursting to create a solvency crisis before the liquidity crisis stopped allowing the banks to juggle their way through.

cordially,
Scofflaw

Part of what I've read, in bits, regarding the solvency crisis now as well, is that it's not being properly dealt with either, with Europe still not having properly isolated the bank solvency issues from issues with sovereign debt (though not totally sure on the details of that).

So it looks like that may be causing more problems in the near-future, as more EU economies slow.

KyussBishop · 23-03-2013 11:34AM

Phoebas wrote: »

But it doesn't want to provide a different kind of bailout package where that additional measly €6bn is provided, because its citizens (at least the ones in the rich countries) won't wear it.

That's an unbacked assertion, and it doesn't make any logical sense either, because you are saying EU citizens, would prefer a massive loss of confidence in their deposits, instead of directly creating €6 billion, which would have practically zero effect on the wider EU economies.

Phoebas · 23-03-2013 11:52AM

KyussBishop wrote: »

That's an unbacked assertion, and it doesn't make any logical sense either, because you are saying EU citizens, would prefer a massive loss of confidence in their deposits, instead of directly creating €6 billion, which would have practically zero effect on the wider EU economies.

I think German and Dutch citizens probably have as much confidence in their deposits as they ever did. Italians and Spanish not so much.

But it is as clear as day that the German and Dutch (etc) citizens don't want to create €6bn to capitalise Cypriot banks, unless you think that their leaders don't represent their wishes. Now that would be an unbacked assertion.

KyussBishop · 23-03-2013 12:41PM

Phoebas wrote: »

I think German and Dutch citizens probably have as much confidence in their deposits as they ever did. Italians and Spanish not so much.

But it is as clear as day that the German and Dutch (etc) citizens don't want to create €6bn to capitalise Cypriot banks, unless you think that their leaders don't represent their wishes. Now that would be an unbacked assertion.

So a governments actions always represents the will of the people; naturally then, you think the initial actions of the government in Cyprus, in approving reneging of depositor insurance, represented the desires of the Cypriot people?

You don't speak for the German or Dutch citizens, to say what they would or would not approve of, and there is no hint that there was even any floating of such a proposal either.

What exact reasons would they have, for opposing it? Neither Germany or Denmark would be providing funds in the circumstance I'm talking about, so what exact problem would their citizens have with it?

Phoebas · 23-03-2013 01:01PM

KyussBishop wrote: »

So a governments actions always represents the will of the people; naturally then, you think the initial actions of the government in Cyprus, in approving reneging of depositor insurance, represented the desires of the Cypriot people?

Broadly speaking, governments do represent the will of the people. Obviously the Cypriot people don't want to have their deposits taxed, but I didn't see the protesters putting forward too many alternative proposals last week.

KyussBishop wrote: »

You don't speak for the German or Dutch citizens, to say what they would or would not approve of, and there is no hint that there was even any floating of such a proposal either.

I don't, but their governments do, and their governments aren't willing to print money right now. I don't see any substantial body of dissenting opinion on the ground in Germany or the Netherlands, and certainly not at the political level.

KyussBishop wrote: »

What exact reasons would they have, for opposing it? Neither Germany or Denmark would be providing funds in the circumstance I'm talking about, so what exact problem would their citizens have with it?

I guess they're afraid of inflation or damage to their credit rating. Maybe they just don't like the idea of handing more money to feckless southern states.
Personally I think that a bit of money creation would do little harm, but it isn't on the cards in the short term anyway.

bmaxi · 23-03-2013 02:51PM

I have emptied my bank account. I consider it preferable to keep what little I have in my home, where I can more easily defend it from the thieves roaming abroad than I can from the thieves in Leinster House and Brussels. If there was ever one single event likely to provoke a run on banks throughout the EU, then this is it.
I realise that Governments can still take our money by increasing indirect taxation but I thought that the primary concern was to increase market confidence in the banking system, thereby lowering borrowing costs. I'm at a loss to see how this does that.

Jonny7 · 23-03-2013 03:57PM

bmaxi wrote: »

I have emptied my bank account. I consider it preferable to keep what little I have in my home, where I can more easily defend it from the thieves roaming abroad than I can from the thieves in Leinster House and Brussels. If there was ever one single event likely to provoke a run on banks throughout the EU, then this is it.
I realise that Governments can still take our money by increasing indirect taxation but I thought that the primary concern was to increase market confidence in the banking system, thereby lowering borrowing costs. I'm at a loss to see how this does that.

You get paid cash in hand?

bmaxi · 23-03-2013 04:21PM

Jonny7 wrote: »

You get paid cash in hand?

What's that got to do with it? What I get paid goes into a current account, I don't get paid 20 years accumulated savings every week, which is what was in my deposit account.

Cyprus bailout deal #2

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