Cyprus: De Facto Loss of Sovereignty

[ekrem]

De Facto Loss of Sovereignty
Cyprus Makes Big Concessions for Bailout
Cyprus wants help from the European Union's bailout fund. But the price for the billions in emergency aid money is high. The country will effectively lose its sovereignty.


The Cypriot government and representatives of the troika negotiated for almost five months over the terms of a bailout package, worth at least €17.5 billion ($22.8 billion). The negotiations produced the draft version of a 30-page Memorandum of Understanding (MoU), in which the troika dictates to Cyprus what steps it will have to take in the coming years, down to the smallest detail.

Cyprus Makes Big Concessions for Bailout - SPIEGEL ONLINE

 

[waltky]

SEIZING BANK DEPOSITS: EU Demands Cyprus Raid Accounts to Pay for Bailout...

Residents rush to pull money from Cyprus banks as EU takes aim at Russian deposits
March 18, 2013 - Cypriots rushed to pull their money out of banks and ATMs before the tiny Mediterranean nation’s government could finalize a plan to seize depositors’ funds to satisfy euro zone leaders, sparking a run that prompted banks to be closed until at least Thursday.

The island nation’s leaders were huddling to come up with a way to soften the blow on average depositors, with one proposal targeting accounts with deposits above $130,000. The plan elicited an angry response from Russian President Vladimir Putin, whose nation’s oligarchs may have as much as $19 billion secretly deposited in Cyprus banks. "Putin said that this decision, in case of its adoption, will be unfair, unprofessional and dangerous," Russian news agencies quoted Kremlin spokesman Dmitry Peskov as saying. The Brussels-based euro zone agreed on Saturday to give Cyprus a $13 billion bailout, but demanded levies that would take between 6.75 and 9.9 percent of bank deposits.

Cypriot banks and ATMs faced a run until they were ordered closed while the Parliament figures out how to satisfy demands of euro zone leaders.

Analysts believe the measure is designed to ensure that the bailout doesn’t go toward propping up Russia's billionaires – including Putin himself. "It is clear that (Cyprus) is under tremendous pressure from the European Union," Deputy Finance Minister Sergei Shatalov told Interfax. The $19 billion figure comes from Moody's, and would account for as much as half of all Cypriot deposits. Cyprus’ bank deposits dwarf by 8-to-1 the gross domestic product of the nation of 1 million, indicating a dangerously oversized banking system stuffed with foreign cash. And Cypriot banks are invested heavily in Greek government bonds, which were restructured last year at the EU’s demand, incurring big losses on bondholders.

News of the coming bank accounts seizure sent shockwaves rippling through Europe and beyond. Not only did it spook wealthy foreigners who have long parked money in the island nation’s banks, it was seen as possibly setting the stage for similar grabs in bigger nations within the troubled euro zone. "If I were a saver, certainly in Spain or maybe Italy, I think I'd be looking askance at these measures and think this could yet happen to me," Peter Dixon, global financial economist at Commerzbank, told Reuters.

The Cypriot Parliament put off a vote on the measure until Tuesday in order to blunt the pain for small savers. But without the EU bailout, Cyprus would be headed for default, according to experts. If depositors – especially the foreigners who have made Cyprus the Cayman Islands of Eastern Europe, pull their money from banks, action by the European Central Bank may be all that can stop regional contagion. The Cypriot central bank announced all banks will remain closed until Thursday while talks on the savings seizure continue.

Read more: Residents rush to pull money from Cyprus banks as EU takes aim at Russian deposits | Fox News

See also:

Cyprus a Game-Changer for the Euro
Monday, 18 Mar 2013 | The weekend bailout deal for Cyprus has ignited fears among bank depositors, and currency investors have the shivers as well.

Adarsh Sinha, head of Asia Pacific G10 FX strategy at Bank of America Merrill Lynch, said the pain is not over. "The risk is clearly to the downside, even from here," he told CNBC. Sinha said investors were not focused on the Cyprus negotiations, so some of the immediate reaction is just an expression of shock. "There's a lot of confusion among the clients that I've spoken to about what's going on in Cyprus," he said. "To be honest, it is a big surprise."

The real issue with this admittedly small bailout package "is the precedent it sets," Sinha said. Investors are less concerned about the impact on Cyprus specifically, and the fact that depositors in Cyprus banks will have to take haircuts, than about the possibility that similar deals may be struck in larger euro zone economies. The implications are potentially enormous if investors lose faith more broadly in the euro zone banking system. Investors have been essentially flat on the euro in recent days, according to Sinha. But in the wake of the Cyprus deal, the common currency is approaching its 200-day moving average, a key technical level. "If we go through that, then the market will start to sell the euro," Sinha said.

He doesn't expect the euro to collapse, he said, but added, "if you're an investor and you are flat euros, you have no choice but to go out and sell on the back of this news." Jens Nordvig, global head of FX strategy at Nomura Securities, said the Cyprus deal "raises question marks around the improving trend in euro zone banking flows observed since August 2012." He doesn't expect big outflows from Cyprus banks specifically, but said, "the bigger issue is the indirect effect through tension in euro zone bond markets and potential deposit instability in the entire region."

Nordvig was already forecasting a lower euro before the Cyprus news broke, but he was holding out for a tick upward by the currency to enter a trade. Now he is using options to take a short position. Kathy Lien, a managing director at BK Asset Management, says the Cyprus deal has major, and potentially serious, implications for the entire euro zone. "Investors are shocked by Cyprus' bailout news as they should be since this would be the first time in euro zone history that depositors have taken a loss," she wrote in a note to clients. The deal may be modified, she said, but "the mere possibility that they will be taxed at all undermines the credibility of the entire banking system."

More Cyprus a Game-Changer for the Euro

Granny ain't worried - she hides her money inna...

... aw, thought ya'll was gonna get me to tell where Granny's secret money hidy place is at, didn't ya?

 

[waltky]

Granny says, "Dat's right - dem banks was too big fer dey's britches...

Does size matter? Cypriot bank sector problem went overlooked
21 Mar.`13 - There was no official red flag that Cyprus's oversized banking sector posed a big risk to its economy until last year, when the European Union set up tools to monitor such imbalances, a Reuters review of EU reports dating back to 2003 showed.

The total consolidated assets of the Cypriot banking sector, dominated by three large banks, are 7.5 times the size of the island's economy, which produces almost 18 billion euros ($23.27 billion) a year. Because Cypriot banks suffered heavy losses in the Greek sovereign debt restructuring last year, Nicosia now needs an international bailout. Most of the emergency loans from the euro zone, once agreed, will go to recapitalize the banks.

One of the conditions for the bailout, however, if that Cyprus will more than halve the size of its banking sector by 2018 to match the EU average of around 3.5 times GDP. "The banking sector is completely over-sized. That's why the preconditions to solving this problem are very difficult," German Finance Minister Wolfgang Schaeuble said last week. "Solutions have to be found to that. The Cypriot banking sector, like in other countries, with its special rules that led to it becoming over-sized, has contributed significantly to the cause of the problem," he said.

This is a relatively recent conclusion. When Cyprus was examined as to whether it met the criteria to join the European Union in 2003, a European Commission report on its readiness mentioned no problems with the banking sector - it was not a criterion for membership.

Neither did the European Central Bank mention that anything was wrong with Cypriot banks or their business model - based on funding from deposits, almost half of which are from non-residents - when it evaluated whether Cyprus was fit to join the euro zone in a 2007 report. "They had 10 years to make this point and while it was made informally here or there, nobody ever said or did anything about it," one euro zone official said.

CYPRUS IS NOT THE ONLY ONE

 

[waltky]

Granny says, "Dat's right - dem Russkies liable to lose a lot of money...

Bank of Cyprus big savers to lose up to 60 percent
Mar 30,`13 -- Big depositors at Cyprus' largest bank may be forced to accept losses of up to 60 percent, far more than initially estimated under the European rescue package to save the country from bankruptcy, officials said Saturday.

Deposits of more than 100,000 euros ($128,000) at the Bank of Cyprus will lose 37.5 percent in money that will be converted into bank shares, according to a central bank statement. In a second raid on these accounts, depositors also could lose up to 22.5 percent more, depending on what experts determine is needed to prop up the bank's reserves. The experts will have 90 days to figure that out. The remaining 40 percent of big deposits at the Bank of Cyprus will be "temporarily frozen for liquidity reasons," but continue to accrue existing levels of interest plus another 10 percent, the central bank said. The savings converted to bank shares would theoretically allow depositors to eventually recover their losses. But the shares now hold little value and it's uncertain when - if ever - the shares will regain a value equal to the depositors' losses.

Emergency laws passed last week empower Cypriot authorities to take these actions. Cyprus' Finance Minister Michalis Sarris said the measures were taken to put the Bank of Cyprus on a solid footing. "We suffered a serious blow without doubt ... but we now have a bank which is reformed and ready to assume its role in the Cypriot economy," the state-run Cyprus News Agency quoting him as saying. Analysts said Saturday that imposing bigger losses on Bank of Cyprus customers could further squeeze already crippled businesses as Cyprus tries to rebuild its banking sector in exchange for the international rescue package.

Sofronis Clerides, an economics professor at the University of Cyprus, said: "Most of the damage will be done to businesses which had their money in the bank" to pay suppliers and employees. "There's quite a difference between a 30 percent loss and a 60 percent loss." With businesses shrinking, Cyprus could be dragged down into an even deeper recession, he said. Clerides accused some of the 17 European countries that use the euro of wanting to see the end of Cyprus as an international financial services center and to send the message that European taxpayers will no longer shoulder the burden of bailing out problem banks.

But German Finance Minister Wolfgang Schaeuble challenged that notion, insisting in an interview with the Bild daily published Saturday that "Cyprus is and remains a special, isolated case" and doesn't point the way for future European rescue programs. Europe has demanded that big depositors in Cyprus' two largest banks - Bank of Cyprus and Laiki Bank - accept across-the-board losses in order to pay for the nation's 16 billion euro ($20.5 billion) bailout. All deposits of up to 100,000 are safe, meaning that a saver with 500,000 euros in the bank will only suffer losses on the remaining 400,000 euros. Cypriot officials had previously said that large savers at Laiki - which will be absorbed in to the Bank of Cyprus - could lose as much as 80 percent. But they had said large accounts at the Bank of Cyprus would lose only 30 to 40 percent.

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[boedicca]

Southern Mediterranean members of the Eurozone are being transformed into feudal holdings by the EU centralized bureaucracy and banks without borders. After assimilating them via currency conversion and levering the up with debt, they are now being bled of their wealth.

 

[blackcherry]

Actually the EU has forced the Russians to pay for the bail- out without even asking for their opinion . Serves them right .
Organised Russian crime groups have got away with financial murder for nearly 30 years and people have got sick of Cyprus simply being a Russian "Mafia tax haven" .

 

[editec]

The recent WHOLESALE THEFT by the BANKSTERS of the EU in Cyprus is a harbinger of things to come worldwide, I suspect.

They're not even pretending that they are anything but criminals with the power of government behind them.

You guys who worry about socialism?

THIS is socialist fascism in action, kiddies.

CORPORATIONS running government stealing from the people.

FASCISM, pure and simple

 

[blackcherry]

The recent WHOLESALE THEFT by the BANKSTERS of the EU in Cyprus is a harbinger of things to come worldwide, I suspect.
They're not even pretending that they are anything but criminals with the power of government behind them.You guys who worry about socialismTHIS is socialist fascism in action, kiddies.CORPORATIONS running government stealing from the people.FASCISM, pure and simple

Silly boy . Before sprinkling labels around, make sure you understand their meaning .
The EU has taken money from the Gangsters.
But you would not appreciate that .

 

[ekrem]

EU didn't "take away" any money.
Instead, it sent money to S.Cyprus bailing them out.
This money, which was sent to S.Cyprus represents about 60% of their annual economic output.

 

[ekrem]

Southern Mediterranean members of the Eurozone are being transformed into feudal holdings by the EU centralized bureaucracy and banks without borders. After assimilating them via currency conversion and levering the up with debt, they are now being bled of their wealth.

No one forced them to take debt. And much of that "wealth" is debt (children's future income) in proportions threatening financial stability of other countries they share the same currency with.