Cypriots Stunned by Forced Savings Cuts

[jk]

Re: Cypriots Stunned by Forced Savings Cuts

The outflow from Cyprus (if it's allowed to outflow) is almost certainly going to Dubai, Singapore, London and possibly Switzerland, in roughly that order. Malta is not highly regarded for banking privacy, so if that is not a concern Switzerland or the Channel Islands are the better bet. Gibraltar levies a 10% business tax on remittances, so is somewhat less desirable than Dubai for that reason.

where are the "caribbean banking centers" in this list?



@astonas:

i agree with almost everything you've said here, and much appreciate your logic and extended analysis, and the effort and thoughtfulness that obviously go into your posts. i just want to explain, if indeed you've forgotten or overlooked, some of the legitimate sources of anger at germany in these matters. these feelings are rooted, i think in 2 things: 1. after maastricht, germany along with france immediately violated its terms with larger-than-allowed deficit spending. they suffered no censure, let alone real consequences. 2. the solution of domestic austerity only works if coupled with a vibrant export sector. germany seems to think that every country in europe should imitate germany and become a net-esxporter. the fact that the other eurozone countries are the major markets for german exports seems to be overlooked. this is also linked to germany's refusal to reflate domestically. peripheral austerity might work if coupled with core reflation, but germany refuses to become a greater market for peripheral revenue generation. [e.g. german reflation coupled with southern austerity would further stimulate german tourism to the south.] germany seems to think that southern deficits represent profligacy, while northern surpluses, the other side of the exact same coin, represent moral superiority. so german moral superiority is attained precisely by exploiting southern degeneracy. that's the attitude that is resented.

[GRG55]

Re: Cypriots Stunned by Forced Savings Cuts

where are the "caribbean banking centers" in this list?

...

Although the BVI is a reasonably popular place to register offshore companies, when I lived in the Gulf I found that people don't like using the Caribbean because of the time zone difference compared to Dubai or the offshore centers in Europe.

[lakedaemonian]

Re: Cypriots Stunned by Forced Savings Cuts

Here's a juicy bit of gossip.

Boris Berezovsky has just been found dead in his bathtub:

http://www.bbc.co.uk/news/uk-21913356

Suicide?

Or multiple Russian radioactive bullets to the head suicide a la Litvenyenko's Polonium flavoured tea?

No love lost about the death of an original Russian oligarch(back when the plunder from the post-Soviet collapse WAS the biggest theft in history).

But I wonder if Berezovsky's death has a Cyprus angle?

[don]

Re: Cypriots Stunned by Forced Savings Cuts

The Cypriot president is expected in a snow-bound Brussels later on Sunday for a showdown with European governments and the International Monetary Fund that is likely to determine whether the island, teetering on the brink of insolvency, becomes the first country to be kicked out of Europe's single currency.

Nicos Anastasiades is to see Christine Lagarde of the IMF and Mario Draghi, head of the European Central Bank, as well as the presidents of the European commission and European council, Jose Manuel Barroso and Herman Van Rompuy, who have cancelled an EU-Japan summit to return to Brussels because of the Cyprus emergency.

Anastasiades is expected to unveil new proposals to hit wealthy Cyprus banking clients with heavy levies on their deposits in order to come up with about one-third of the €17bn bailout the country needs.




Fears are growing of Russian reprisals against European businesses as EU authorities desperately seek a deal to save the Cypriot economy by imposing a 25% levy on bank deposits of more than €100,000.

As the island scrambled to put together a rescue programme, its finance minister, Michalis Sarris, said "significant progress" had been made on the latest levy plan in talks with officials from the European Union, the European Central Bank and the International Monetary Fund.

The government in Nicosia faces a deadline of Monday to reach an agreement or the European Central Bank says it will cut off emergency cash to the island, spelling the likely financial collapse of its banking system and a potential exit from the European single currency.

However, with Russian investors having an estimated €30bn (£26bn) deposited in banks on the island, the growing optimism about a deal was accompanied by fears of retaliation from Moscow. Alexander Nekrassov, a former Kremlin adviser, said: "If it is the case that there will be a 25% levy on deposits greater than €100,000 then some Russians will suffer very badly.

"Then, of course, Moscow will be looking for ways to punish the EU. There are a number of large German companies operating in Russia. You could possibly look at freezing assets or taxing assets. The Kremlin is adopting a wait and see policy."

Nekrassov rejected suggestions that Russia might hit back by cutting off gas supplies, a tactic the country used in 2009 after the collapse of talks with Ukraine to end a row over unpaid bills and energy pricing.

"Gas is no longer a weapon," Nekrassov said. "When Russia did that before, it realised that the foreign energy lobby reacted and efforts to find alternative sources were increased. If Russia kept threatening, it knows that nobody would be buying its gas in 20 years' time."

Mike Ingram, an analyst at City broker BGC Partners, said: "In Russia, historically, if they want an asset they just grab it. If they want cash out of a [EU] business [in Russia] they just create a tax bill or raid offices and make your life unpleasant. They could also make life difficult diplomatically on issues such as Syria. They might also rattle a few sabres over deployment of the missile defence system."




They clustered in small groups on the plush couches dotted around the lounge of the Four Seasons hotel in the port city of Limassol. Nervous whispers and furtive glances revealed these were no ordinary tourists revelling in the sun on the Mediterranean island of Cyprus.

They were Russians, who have been flocking to the city for urgent meetings with lawyers and financial advisers, fearing for their personal finances, with sums at stake ranging from the low thousands to hundreds of millions of euros and totalling more than $32bn (£27bn).

"Everyone has flown in hoping to use contacts with locals to pressure the leadership, the deputies," says a man who identifies himself only as Vladimir. "We are all very worried, very scared."

The 45-year-old businessman refreshes his iPad incessantly, seeking news from the parliament in the capital, Nicosia. If the country's banks go bust, he stands to lose €58m. Where the money came from, he declines to say.




As zero hour approaches, a small island population watches and waits, consumed with anxiety and simmering with resentment. "This is the darkest week in Cyprus since the 1974 invasion," said Hubert Faustmann, associate professor of history and politics at the University of Nicosia. "The island has been put on the Greek path. What lies ahead are further cuts, austerity measures, more bailouts, because it won't be able to repay the loans, endless misery and recession. It will take years to recover."

"I have never been so frightened in my life," said Maria Panayides, one of thousands of Cypriots who last week rushed to withdraw cash from ATMs.

Cypriots are torn between fury and fear. On Saturday, despite signs that the country's politicians were edging closer to brokering a deal with rescuers at the European Union and International Monetary Fund, it was panic that had taken over as people stormed supermarkets, jammed streets with cars and piled every conceivable product into trolleys. "It may be the very last time I can use this," said one man waving a credit card outside Athienitis, a mega-store in Nicosia. "We might not have banks next week."

"We're overwhelmed," said Marios Hadjichristofi, the shop's customer care officer. "Everyone is calling in, asking if they can still conduct transactions without cash."

http://www.guardiannews.com/

[don]

Re: Cypriots Stunned by Forced Savings Cuts

Fillings from Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland, show a total exposure to the troubled Mediterranean island of £1.06bn.

Although a tiny fraction of their assets, the collapse of the Cypriot economy could see the banks nursing losses of tens or even hundreds of millions of pounds amid the country’s worsening financial crisis.

Barclays has the largest gross exposure to Cyprus, with £431m of lending and other links to Cypriots, including £102m of exposure to the country’s banks, £120m of corporate lending and £44m of residential mortgages.

RBS has the second biggest exposure of £377m, with £274m of corporate lending linked to Cyprus, as well as £15m of personal lending. Crucially, RBS has no exposure to Cypriot banks, though it does have £2m of assets linked to “other financial institutions”.

In its latest annual report RBS told shareholders that its links to Cyprus comprised mainly “lending to special purpose vehicles incorporated in Cyprus, but with assets and cash flows largely elsewhere”.

HSBC’s $400m (£265m) exposure to Cyprus is not broken down in detail by the bank, which only discloses that its on-balance sheet assets consist “primarily of loans and advances to other financial institutions and corporates”.

Lloyds has the smallest exposure of the UK’s four largest banks, with £102m of Cyprus-linked corporate lending and £2m of bank exposure.

The main risk to the banks would be the exit of Cyprus from the euro, which could lead to losses of about 40pc of the value of their assets if the loans were redenominated into a new local currency, according to economists’ estimates.

Direct exposures to Cyprus’s main banks are likely to be small to non-existent, meaning any closure or restructuring of one of the country’s main lenders will have a minimal impact on British banks.

Last week, Cyprus’s main banks were forced to remain closed as European officials, local politicians and the Russian government discussed a potential multi-billion bail-out.

Cyprus has in recent years become one of the main offshore centres for Russian money and thousands of Russians live in the country.

Jim O’Neill, outgoing chairman of Goldman Sachs Asset Management, said the eurzone had revealed again that it was a group of 17 countries with very different interests.

He said that most deals seemed to be about what politicians thought they could “get away with” in their parliaments.
“The European Monetary Union (EMU) in effect continues to be a union of 17 countries that don’t see their collective shared interests as the same,” Mr O’Neill said.

“Much decision making is not actually decided by the European Union or eurozone bodies but by key politicians whose main criteria is what they 'can get away with’ with respect to their parliaments.

“Can EMU ultimately survive, or indeed, can EMU survive with this system? Behind the scenes, who is going to win the battle over the immediate resolution of the Cyprus dilemma – Moscow or Berlin?”

http://www.telegraph.co.uk/finance/n...ro-crisis.html

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

@astonas:

i agree with almost everything you've said here, and much appreciate your logic and extended analysis, and the effort and thoughtfulness that obviously go into your posts.

Thanks, jk, for your kind words. The part that makes it both fun and worthwhile is having such fantastic discussion partners, who really challenge your thoughts and assumptions, and thereby force you to take your analysis to another level of rigor. So thanks back to you, GRG55, and everyone else for bringing your various objections and concerns up, it really is appreciated!

i just want to explain, if indeed you've forgotten or overlooked, some of the legitimate sources of anger at germany in these matters.

I haven't so much forgotten the points you mention, as I just didn't see a way to easily fit them into my previous, bloated, and already tangent-ridden post. They are important points, that do need to be addressed, particularly because they get such heavy play in the English-language media. (A fact that has appeared sufficiently bizarre to the German media to be commented on in its own right.)

Thank you for giving me another opportunity to address them here. You write:

these feelings are rooted, i think in 2 things: 1. after maastricht, germany along with france immediately violated its terms with larger-than-allowed deficit spending. they suffered no censure, let alone real consequences. 2. the solution of domestic austerity only works if coupled with a vibrant export sector. germany seems to think that every country in europe should imitate germany and become a net-esxporter. the fact that the other eurozone countries are the major markets for german exports seems to be overlooked. this is also linked to germany's refusal to reflate domestically. peripheral austerity might work if coupled with core reflation, but germany refuses to become a greater market for peripheral revenue generation. [e.g. german reflation coupled with southern austerity would further stimulate german tourism to the south.] germany seems to think that southern deficits represent profligacy, while northern surpluses, the other side of the exact same coin, represent moral superiority. so german moral superiority is attained precisely by exploiting southern degeneracy. that's the attitude that is resented.

I'll respond to these two points in reverse order, because I think the answer to your second point includes background information that helps clarify your first point. Since I'm short on time at the moment, I'll cover each point in a different post.



I believe that your point 2 is based largely on misunderstandings, caused by interpreting the same set of facts using very different monetary paradigms. That's not meant to criticize, just to point out that as in so many things, what you see depends on where you stand (physically, in this case). Not many people are even in a position to obtain the information required to "get" all sides of the story. That is one of the reasons I think it is important to present the disparity clearly here.

I'll start by parsing each specific difference, clarifying points of disagreement, and suggesting how a more staunchly germanic Erhardian might respond. I will attempt, as I do so, to build up a general overview that shows how I interpret the germanic monetary philosophy, and its role in the crisis. I might as well also just apologize in advance for getting pedantic and excessively detailed, that inevitably happens whenever I try to make things as clear as I possibly can. Be sure to let me know in which manner I fall short this time around, so I can continue to improve. Here goes:

2. the solution of domestic austerity only works if coupled with a vibrant export sector.

To my understanding, there is nothing that might be described as a "solution of austerity" in any but the Austrian economic model. But the Austrian school of economic thought is not a meaningful part of the thinking of any of the players involved, be they Anglo-Saxon, Mediterranean, or Germanic. No one in Europe is claiming that austerity will produce simultaneous growth (which is what I assume you mean when you say "works", above). Implying that such growth is the intent is at best an innocent, if fundamental, misunderstanding, and at worst a cynical misdirection.

Austerity does not produce growth, quite the opposite. It is certainly not intended to produce growth directly, regardless of the export-dependence of the economy. However, when sufficient parasitic forces are sapping the economic lifeblood of an economy, it is possible for austerity to be a valid response, in the same way that chemotherapy is a valid response to treating cancer. The goal is to kill the cancer faster than the rest of the body, but there is no doubt that the means to do so requires moving toxins into, not out of, the body. No one feels "better" while undergoing chemotherapy. That's not the function of the treatment. The function of the treatment is to reduce or eliminate the cancer, so that the body can subsequently repair to health, when the course of treatment is finished. That's when you can work on feeling better.

So when the parasitic drains on growth are as severe as they are in many states in Europe, growth and recovery can only be hoped for after the austerity process has been used to wring the parasitic influences (corrupt governance, FIRE's regulatory capture, etc.) out of the economy in question.

If one attempts to encourage growth before that point, the only thing that will grow in strength is the parasite itself! Any aid, whether direct or indirect, will simply be siphoned off into the same cronies' pockets that caused deficits to balloon in the first place. People with tapeworms remain gaunt no matter how much they eat; the tapeworm is getting the nutrition. That is precisely why the European tumult is being made to drag out, as painful as it is. Its "lack of resolution" is not, as the Anglo-Saxon press would have us believe, a consequence of "a long string of bungled moves" on the part of European officials. On the contrary, these European officials understand that the "worse" the "crisis" is, the more chances they have of eliminating various parasitic and cancerous influences. They want to get the tapeworm out before they spend precious resources on food that will only strengthen it. And Germany has from the very beginning committed to providing those resources AFTER the problem has been excised. Just not BEFORE, that would make the problem worse.

The parasitic influences are not only in a few, isolated, places. As GRG55 pointed out earlier, they are indeed both manifold and manifest, everywhere in the EU: in London, there is a great need to take down The City's FIRE interests with a Tobin Tax, and dramatic banking regulation, or even bank breakups. (Just like the US needs to modify structures and regulations pertaining to TBTF.) In the south, it is necessary to strip governments, tax structures, and banks of their various corruptions. Some German banks will likely also be broken up, and they will certainly be bound at least as restrictively as London's, likely more.

Incidentally, I often find that tracing the loudest criticisms of the handling of the European situation to their media sources leads to "journalists" who either do not understand the above process, or are deliberately applying misdirection to advance another specific agenda, either pro-bank (Anglo-Saxon FIRE media like the Telegraph, the Economist, and the WSJ) or pro-corruption (eg, Berlusconi's media empire, a few british and french tabloids). If one draws one's news exclusively from the "bullhorn" media controlled by one class of parasite, one can easily, if innocently, come to highly distorted, deliberately manipulated, conclusions.

germany seems to think that every country in europe should imitate germany and become a net-esxporter.

I have only ever seen this suggestion in the English-language press, and never with any reference to a supporting comment from a relevant german official. (Please see the attached PDF of a German politician's policy statement on Europe as an example of the kinds of things that are being said: create a production/consumption, rather than FIRE economy, be willing to spend money to do so.) I suspect that this is one of the red herrings deliberately being dragged out to distract from the real issues.

Germany doesn't care what other countries current-accounts balances or trade-balances are, so long as they don't cause problems elsewhere in the EU. The specifics of how other countries re-establish their growth is entirely immaterial. What Germany does think is that every country in Europe should be a functioning, viable economy, that doesn't route assets to feed corruption. There are many ways to achieve this, not just manufacturing exportable goods. If Greece, for example, could produce sufficient tourist income to meet their needs and pay their bills without resorting to fudging their books, that would be perfectly fine!

If, however, Greece wants to bluff its way out using destabilizing FIRE-industry sleight-of-hand, or keeps trying to fudge its numbers, that presents an intrinsic risk to the rest of the EU, and Germany has not only a right, but an obligation to the whole of the EU to act to prevent that.

So the axis of interest to Germany is not export vs. import but Production/Consumption vs. FIRE economy. THAT is the part of its own economic approach that it hopes others emulate. The P/C might for all anyone cares be entirely domestic. But Germany is extremely and unapologetically anti-FIRE.

That's one of the reasons I was so confused when its approach received strong criticism here on iTulip, where the FIRE industry and its corrupting influence is so well-documented, understood, and even frequently mocked. If anyone in Anglo-Saxon-land can "get" this approach, is readers here. All the logic has already been laid out.

the fact that the other eurozone countries are the major markets for german exports seems to be overlooked.

Not overlooked, just irrelevant.

Remember that I'm asserting that Germany is not advocating that nations export, necessarily, just that they favor activity in the production/consumption economy over activity in the FIRE economy. Both PC and FIRE can just as easily be entirely domestic activity, which has a positive effect not only on headline sales, but also the local velocity of money (one of the few monetary stimuli one can still tweak under a shared currency). So questions of inter-EU trade balances are less central.

But let's take a look anyway, for the sake of argument:

For one thing, talk about Germany as a manufacturing-oriented export economy is considerably exaggerated. According to the Economist's Pocket World in Figures (2013) 71% of its economy is services, and only 21% manufacturing. Yes, 47% of their products are exported, but 41% of consumption is also imported! Furthermore, these imports favor the EU even more than exports do (EU27 accounts for 63.2% of total imports, and 60.1% of total exports. So net exports to the periphery simply aren't the one-sided transfer that seems to be implied in your statement. They are certainly not one-sided enough to conclude that Germany was a beneficiary of others' overwhelming largesse. Germany trades very actively with the EU, but accumulates imbalances that are very small compared to the total volume of trade. That changes the story from one in which one party might conceivable "owe" the other something to one in which all parties have a strong incentive for all others to thrive. Germany isn't a parasite here; that's not a reasonable interpretation of the actual trade numbers.


Furthermore, the quote excerpt above also appears to imply that if there were a reason to do stimulate imports, a simple adjustment of interest rates would permit the German Bundesbank to alter its citizens' spending habits in a meaningful way, and thus stimulate imports from other Eurozone countries.

This is not particularly true, mostly due to cultural perceptions regarding risk.

In business spending, the German Mittelstand company (small-or-medium business, generally family-owned) that forms the core of the German economy is considerably less likely to be influenced in its decision to purchase capital equipment by interest rates, than an analogous US company. This is because growing a company using primarily debt financing is seen culturally as an intrinsically, and not merely incidentally, dangerous activity in Germany. Bankruptcy law there is brutal: debt is frequently not discharged, but merely restructured, and will follow the failed business owner(s) for life until paid off. Thus most small and medium-sized companies still prefer to grow using retained earnings rather than debt financing, regardless of interest rates.

And on the consumer-spending side of things, astonishing numbers of Germans still eschew even credit cards (many I know there still don't possess even a single one!) so you're not going to really increase the number of German tourists going to Greece by dropping interest rates. It just isn't as credit-reliant an economy as the Anglo-Saxon- or even Mediterranean-area economies. Yes, there is still a large debt pool in Germany, but this is seen as a corruption that has been caused by permitting Anglo-Saxon-style FIRE banking concepts to infect the German economy. The desire to purge it domestically is just as strong as the desire to do so abroad.

In light of this, the idea that the Bundesbank is going to convince German consumers to go on a Greek vacation by dropping interest rates just doesn't fly. (Though not shouting "Nazis out!" in Greek street demonstrations might make a difference.) The decision-making process that precedes spending simply relegates interest rates to at most a secondary consideration, whereas in the Anglo-Saxon culture, it is much more primary. The Anglo-Saxon culture is structured to reward risk-taking, which is seen in that perspective as a driver of economic growth. Contrast this with the Germanic culture, in which prudence (maximally judicious, rather than merely risky) spending is seen as the main driver of economic growth. It is the risk-encouraging structures that are seen as the foolish underlying elements of the FIRE economy, and the Anglo-Saxon monetary policies in Britain and the UK.

So German purchasing decisions just aren't dominated by how cheap it is to go into debt to make a purchase, because other than the parasitic FIRE portion of their economy, they prefer to avoid that path, regardless of rate. And that's not principally a moral stance, it is a practical one. When a bankruptcy is pretty much guaranteed to destroy your life until you die (make it hard to get a job, garnish your wages even if you do) and not just go away after 7 years, your risk calculation becomes very different. You won't be as eager to pull out a credit card, even at 0% interest rates, if you know the story of someone who did so, and was subsequently destroyed.

At the end of the day, even if stimulus were warranted, the knob that the Bundesbank gets to turn by tweaking interest rates simply doesn't function the same way the US Federal Reserve's equivalent knob does. That's because both money, and lending, are perceived very differently in both societies. Not so much morally different, but just practically different. The math itself (in the risk-reward calculation) does not give the same answer in all places, because the inputs to that computation are different.

this is also linked to germany's refusal to reflate domestically.

The germanic thought process rejects both mediterranean Keynesianism, and Anglo-Saxon Neoclassicism, which would both advise reflation or inflation to stimulate economies. Instead it embraces a uniquely germanic Erhardian economic model, that appears to have permeated much of northern and eastern Europe. This sees both Keynesianism and Neoclassicism as soundly disproven descriptions, based on the incorrect predictions that each of these produced for two major events in Germany's history (its recovery from World War 2, and its reunification).

In the post-world-war-2 era, the economy was essentially handed over to a man named Ludwig Erhard, who ignored much of the economic thinking of the day (particularly Keynesianism) and created a new path to surprisingly rapid growth in the face of dramatic devastation that has since been commonly known as the Wirtshaftswunder, or German Economic Miracle. It was the lessons that were learned there that informed the process of reunification, and were thus validated when that process went relatively smoothly. They were applied again, successfully, in Germany's recent self-imposed domestic austerity. The current strength of the German economy thus serves as a validation of the Erhardian monetary school, and a repudiation of currently-held alternatives in the US, Britain, and much of southern Europe. Germany sees itself as successful, not because of moral superiority, but because its monetary school of thought has been empirically proven to be consistent with reality, while the Anglo-Saxon and Mediterranean's struggles are similar empirical proof that the monetary school of thought that brought these problems about are not consistent with reality.

Domestic reflation, like inflation, is seen in Germany as a process that will not only make scant difference to inter-Euro trade balances, but is furthermore seen as fundamentally weakening the economy as a whole. This view is in fact a core principle of the prevailing Erhardian economic philosophy, which is subscribed to far more broadly in Germany and the germanic states than the more Mediterranean Keynesianism, and the more Anglo-Saxon Neoclassicism. This model posits that it is the strength of the currency itself that underlies all economic growth, so "reflating" domestically will directly reduce confidence, growth, and economic activity - especially those purchases of imports from the periphery that Keynesians expect it to stimulate.

That's why requests to reflate are viewed in Germany as bizarre instructions: they advise one to do exactly the opposite of what could convince Germans to spend their savings, based on an understanding of money that has already been proven to be incorrect. The only thing that inflation or reflation might achieve is a run to gold, domestic real estate, and other hard, inflation proof, local assets. It would never trigger consumption spending in Germany, as it might in America. In extremeum, it would likely trigger panic, rather than imports.

peripheral austerity might work if coupled with core reflation, but germany refuses to become a greater market for peripheral revenue generation. [e.g. german reflation coupled with southern austerity would further stimulate german tourism to the south.]

I've already covered why Germany can't encourage german tourism in the south. That simply isn't a decision that is connected to any of the knobs that German authorities have on hand to fiddle with. This fact is a consequence of the reversal of assumed causality intrinsic in the Erhardian economic model. German spending will only increase when the European economy is finished with austerity, and already be seen to be improving in health. In Keynesianism, the amount of spending is what matter in driving growth, in Erhardianism, a high return on invested assets is the only way to produce growth, regardless of the magnitude of the spending. Spending more does not in itself help economies, and if money is poorly spent, it can even devastate them.

So trying to force the issue using interest rates or deficit spending, if anything, might have the opposite effect than it would here. German officials aren't REFUSING to stimulate. There is simply no tool available to them that would achieve that effect, given the obviously precarious state of the European economy at the moment.

In any event, relative stimulation in the periphery vs. the core can only at best redistribute growth. By itself this will not serve any meaningful purpose, not only because austerity is not intended to coincide with growth at all, but also because stimulation, like austerity is a transitory, and not a long-term, steady-state, condition.

Instead, the end-goal is to get the WHOLE of Europe working properly (past the austerity phase) not to fight over which part is taking growth from which other part. In other words, to expand the size of the whole pie, rather than fight over who gets the biggest piece of an ever-shrinking pie. This can only be done by making ALL parts, not necessarily net exporters, but necessarily more efficient. And that means killing some parasites. The faster, the better.

germany seems to think that southern deficits represent profligacy, while northern surpluses, the other side of the exact same coin, represent moral superiority. so german moral superiority is attained precisely by exploiting southern degeneracy. that's the attitude that is resented.

You are citing the appearance ("seems to think") that is being presented in the media available for your consumption. But the southern "profligacy" is in general not seen in Germany as a characteristic of individuals in the south, but instead a characteristic of the institutions of the south. Electoral laws, tax structures, tax enforcement mechanisms, bank regulations, bankruptcy laws. These are indeed targets of considerable derision in Germany. And it is indeed seen as foolish to permit widespread graft in an economy.

But the people in the south, on the other hand, are more often seen as the victims of their predatory institutions, which they cannot throw off because so much of the corruption has been legalized that the system is now free to propagate power, with little actual say from voters. In principle, the people can still act against the institutions, but the manipulation of the masses by biased media (look again at Berlusconi's personal media monopoly) means that this requires considerable rage to unite the populous, so that change can be forced.

So the sense of superiority has nothing to do with moral superiority, but is instead a conviction that Germany has due to its own past struggles figured out a better answer: Rules and institutional structures that do a better job in resisting parasitism. (Not perfect, of course, in Germany it is broadly acknowledged that aspects of Anglo-Saxon banking (FIRE) has managed to creep in, and should be vigorously stamped out as well.)

It sees these carefully-constructed and optimized rules and institutions as a gift for the rest of the Eurozone, that will, if accepted, free the people of the south from their corrupt masters, which have managed to de facto enslave them by denying them real say in their own future, both by media brainwashing, and by the implementation of opaque and corrupt fiscal distribution channels.

In light of the fact that the individual are not blamed, the "moral" judgement that you describe is simply non-existent. There remains only a practical question of what amount of political pressure is required to repair the broken institutions. (This "moralizing german" meme, however, does make for a juicy bullhorn story, and it undermines any attempt at reform, so if you happen to be a banker, kick-back recipient, or other form of parasite, you'll make sure it is dragged out and waved around every possible time it can be.)

Thus the "attitude that is resented" is not an attitude that actually exists, but an attitude that is perceived to exist, and in some media outlets consciously projected onto germanic states to deflect blame onto them, thus preventing TPTB and TBTF from being seriously challenged.

Hence: Bring on the pain. Not to punish, but to kill cancers, and banish parasites. Not because the people in the south are "profligate" and "deserve" it, but because the institutions and politicians victimizing them require it; for without it, they refuse to reform. (And no reform, remember, means at best extended victimization, and at worst total collapse.)

If the situation in Cyprus scares the s--t out of the leaders of Greece, Spain, Italy, and Portugal, that alone could vastly reduce the total suffering on the continent, by causing the parasitic leaders to realize their days are numbered, and start fleeing. In this way, if the threat of austerity is credible enough, that alone can in principal get the job done, so that the austerity phase is not needed at all.


So to summarize, when you write:

2. the solution of domestic austerity only works if coupled with a vibrant export sector. germany seems to think that every country in europe should imitate germany and become a net-esxporter. the fact that the other eurozone countries are the major markets for german exports seems to be overlooked. this is also linked to germany's refusal to reflate domestically. peripheral austerity might work if coupled with core reflation, but germany refuses to become a greater market for peripheral revenue generation. [e.g. german reflation coupled with southern austerity would further stimulate german tourism to the south.] germany seems to think that southern deficits represent profligacy, while northern surpluses, the other side of the exact same coin, represent moral superiority. so german moral superiority is attained precisely by exploiting southern degeneracy. that's the attitude that is resented.

I think an "anthropomorphized Germany" would reply:

There is no solution that intrinsically requires domestic austerity. Austerity is merely an unfortunately unavoidable phase that all countries need to go through before they can be in a position to try any "solution" for stable growth, whatever form that may take. The nature of the solution chosen for implementation after austerity is immaterial to us. We do not, for example, think that every nation can, or should, become a net-exporter.

But whatever path a country chooses, it is wise to build the infrastructure for it with no waste or corruption, not only because that is the only way for it to succeed, but also because the assets we will (willingly) provide you to help with that phase will necessarily be finite. Anything artificial games to alter that would weaken the currency, and therefore, to our Erhardian understanding, destroy the economies of all countries using it.

Germany does not refuse to reflate, but is not capable of creating that effect. It also has neither an obligation based on imbalances (which are small) nor the means (if such an obligation were to exist) to meaningfully affect imports from the periphery of Europe.

This is not a moral choice on the part of any party, but the logical conclusion of the Erhardian (germanic) monetary philosophy, which has been proven valid by virtue of defining a path to growth that works. In contrast, other monetary approaches (Keynesianism, etc.) have been proven (indeed, in this very crisis!) to be invalid. We consider requests to act based on such flawed reasoning as not immoral, but illogical, and hence irrational. Southern nations are not acting immorally when they defend their debt, but they are acting irrationally.

Irrational behavior is the enemy: It is what permits FIRE to consume economies, and corruption to concentrate wealth in ruling elites, who use that wealth to force policy changes that perpetuate their power indefinitely. This process is fundamentally exploitative, or if morality must be invoked, immoral. Consequently, being stridently rational to oppose this trend is also to be maximally moral: it enables the exploited to be freed from their exploiters. And being strident in one's defense of the obviously corrupt and exploitative status quo is to conversely be immoral, as it necessarily recommends the perpetuation and expansion of a modern-day state of feudalism.

Thus, to the germanic mind, when Anglo-Saxon or Mediterranean leaders shout at them "why won't you just end this crisis and stop everyone's agony?" the response is "why won't you stop strangling your people so that this crisis will end?" The cause and effect, the problem and solution, are entirely reversed in the disparate mindsets.


So that covers the basics. Now let's project forward:


It is curious that the electoral disfunction in the US is frequently projected onto German politics. It is a very poor fit indeed. In the US, the tea party represents a nearly Austrian economic view, and some Democrats are pretty solid Keynesians. The differences are not superficial, but fundamental.

In Germany, all parties in the Bundestag, (government and opposition alike) with the exception of the communists, have been nearly unanimous in their support on every major vote regarding European policy issues! Such is the unanimity of feeling regarding the Erhardian monetary philosophy.

Thus, there really is no readily imagined electoral result that will alter this rationally-driven mindset, even if opposition parties do occasionally take opportunities to snipe at the governing coalition when they can. These are superficial differences, overlaying near-unanimity regarding the core philosophy. For one thing, everyone has the same voting record on Europe, so they couldn't really campaign on meaningful differences in this sphere if they wanted to. German parties do have considerable differences of opinion, but not significant differences in their underlying monetary philosophy, which is what is driving decisions on Europe at this time.

For the same reason, asserting that actions taken in Europe are "driven by upcoming elections" implies that the parties have different stances on Europe, and therefore stand to gain at the polls by taking an action. They don't, and therefore they won't. They differ, but on details, not the big picture.

I wouldn't count on Germany to turn around on broader European issues any time soon. That would require a complete change of the discussion from economics, to a different sphere of concern.

[big67]

Re: Cypriots Stunned by Forced Savings Cuts

Instead, the end-goal is to get the WHOLE of Europe working properly (past the austerity phase) not to fight over which part is taking growth from which other part. In other words, to expand the size of the whole pie, rather than fight over who gets the biggest piece of an ever-shrinking pie. This can only be done by making ALL parts, not necessarily net exporters, but necessarily more efficient. And that means killing some parasites. The faster, the better.

In my opinion it is difficult that you can "expand the pie" in some european countries without meaningful reform, but reforms can't be made at Germany's knife point, you need the majority of the people with you, that is you need local politics with sufficient vision and leadership.

Your "killing parasites" sentence has that very distinct "eugenics" flavor that got my spine chilled... what would you sacrifice to efficiency?

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

In my opinion it is difficult that you can "expand the pie" in some european countries without meaningful reform, but reforms can't be made at Germany's knife point, you need the majority of the people with you, that is you need local politics with sufficient vision and leadership.

Your "killing parasites" sentence has that very distinct "eugenics" flavor that got my spine chilled... what would you sacrifice to efficiency?

The killing is strictly metaphorical. Germany has for many years been extremely anti-death-penalty.

As far as what should be sacrificed: I think, for example, it is entirely fair that any politician or banker whose assets are shown in court to have been derived from malfeasance be required to disgorge 100% of the amount taken, back into their national treasuries, without the option of discharging the obligation in bankruptcy. I don't see THAT as being particularly odious to the people. But even that far exceeds in gravity the requests that are actually being made in negotiations.

Of course, it certainly isn't the sort of message that the people in the periphery are hearing. But threatened interests are defending their wealth very aggressively in the media, and I suspect that plays an outsized role.

Which of the demands that have actually been made by the troika (and not by their counterparts in the periphery itself) are particularly damaging to the masses when viewed objectively? So far, I see a huge amount of spin making that claim, but no analysis that supports it at all!

It was Cyprus' government that wanted to appropriate pensions, and Germany's that declared that to be unacceptable, not the other way around. But it wouldn't surprise me if that point barely gets mentioned in, for example, Berlusconi's Italian media machine. To point that out threatens the machine's owner, since it makes it harder for him to pull the same stunt when it's his turn again. Try to get the people's interests put on the chopping block along with his own, and then hide behind their protests.

The only hope parasites like Berlusconi have rests in lying to the masses, so that they continue to rally against their own (mathematically defined) economic self-interest. That is exactly the same dynamic that is happening here in the US with too-big-to-fail banks capturing their regulators. Their only hope is that the masses believe that their corruption is being propagated for the public good.

But their saying that doesn't make it true. The breaking point in the crisis happens when the people see that fact. I will certainly agree that most haven't yet.

[jabberwocky]

Re: Cypriots Stunned by Forced Savings Cuts

In my opinion it is difficult that you can "expand the pie" in some european countries without meaningful reform, but reforms can't be made at Germany's knife point, you need the majority of the people with you, that is you need local politics with sufficient vision and leadership.

Your "killing parasites" sentence has that very distinct "eugenics" flavor that got my spine chilled... what would you sacrifice to efficiency?

I thought the metaphor was less than ideal, but clearly referred to institutional rentiers who bleed wealth away from the national economies. I believe the best "medicine" would not be a form of toxic chemotherapy given the entire structure of the body politico-economic, but rather, ligating the vessels to the parasitic actors. In the 20's and 30's, folk such as Mises, Roepke, etc saw this coming, and predicted the ultimate collapse of the over-extended credit cycle.
Astomas very elegantly describes the difficulty of meshing European cultures with different histories, and world views. This huge problem was warned about by Eurosceptics, but chronically ignored. I refer you to Fred Sheehan's writings and his references.
This is all about power, money, and privilege for bankers and politians.
In an energy constrained world, growth will be very difficult, even if the currency area was functioning properly.
Energy is going to be a problem even in "growing" areas, with better demographics and balance sheets.

Despite the rhetoric, Southeast Asian governments have been slow to tap their oil reserves. Fracking could make progress even slower.

• How to Get Southeast Asia Right
• Southeast Asia’s Internet Dilemma
• America’s “Rebalance”…Towards Southeast Asia
• Korea: A Model for Southeast Asia?
• Southeast Asia and the Grexit Danger

Oil and gas have long held the promise of untold riches for Southeast Asian countries. Yet, success in the region has been mixed: Brunei has flourished and Malaysia has seen steady progress, but Burma, Cambodia, the Philippines, Vietnam and East Timor have struggled to exploit their reserves.
Negotiations with oil companies and powerful neighbors are already tough as it is. However, the advent of hydraulic fracturing (a.k.a. fracking) will make this process even more difficult, especially when it comes to developing reserves in the South China Sea, the Gulf of Thailand, the Timor Sea and the Andaman Sea.
The term "fracking" refers to the practice of making fractures in rocks and rock formations by injecting various fluids into cracks to force them to further open. The bigger fissures permit added oil and gas to gush out of the formation and into the wellbore, where it can then be extracted. This innovative technique for tapping reserves has revolutionized the oil and gas industry. To be sure, many harbor deep concerns for the damage it can cause to the environment. Nonetheless, its ability to extend the life of existing oil fields has changed the industry’s outlook.
The use of fracking is most suitable for mature energy producers with established markets, developed oil fields and infrastructure already in place. Countries such as the United States, Australia, Canada, and in Europe and Central Asia will benefit most from this innovative method. For example, disused oil refineries on the U.S. East Coast are being reopened to accommodate producers whose fields were once thought spent.
Alongside extending the life of existing oil fields, fracking has helped to substantially lower oil prices. According to a report by PricewaterhouseCoopers, fracking could keep oil prices up to 40 percent lower than the levels they were previously expected to reach by 2035.
This means crude could be valued at less than U.S. $90 per barrel, compared with the current price of about U.S. $100 a barrel and the peak oil price of U.S. $145 per barrel that producers were earning in 2008 amid dwindling supplies.
“There’s no doubt fracking offers a technical solution to countering rising hydrocarbon costs and helping end energy dependency on often volatile source countries,” Gavin Greenwood, a risk analyst with Hong Kong-based Allan & Associates, told The Diplomat.
For the last ten years, Cambodia and Thailand have failed to reach a production sharing agreement over reserves held in overlapping claims. Likewise, the future of agreements East Timor has forged with Australia is uncertain.
Meanwhile, an agreement on production sharing in the South China Sea is as elusive as the much vaunted Code of Conduct for dispute resolution. China, the Philippines, Vietnam, Malaysia, Brunei and Taiwan all have competing claims.
Gunboat diplomacy has dominated regional politics in the South China Sea and is particularly disheartening for the Philippines and Vietnam. Their claims surrounding the hotly contested Paracel and Spratly islands are particularly convincing. These island chains are believed to contain vast reserves of natural resources, including oil.
Conservatively, Cambodia has an estimated 400 million barrels within its jurisdiction. Prime Minister Hun Sen, who loathes criticism of his government’s handling of the issue, has promised Khmers that oil would flow and standards of living would rise by 2012. To date, however, nothing has been produced.
Greenwood says that family elites involved with running many of these countries may have glimpsed a rare opportunity to pursue policies that would enrich themselves at the expense of their respective countries.
“For most of the countries the problems of developing an oil and gas sector are technical and legal,” Greenwood said. “None of those above have the resources to develop their usually offshore oil and gas sectors without foreign investment and skills.”
He added, “In the case of Cambodia, Vietnam and the Philippines, competing territorial claims either with neighbors or with China also hamper development as oil/gas companies cannot justify the massive investment involved unless there is legal certainty over ownership and contractual obligations.”
In short, these countries are becoming much less attractive as potential sources of oil given the diminished financial returns and improved oil and gas recovery rates from fracking, coupled with the political risks of doing business in these countries.
East Timor has its own issues, in particular its sometimes prickly relations with Canberra and the Treaty on Certain Maritime Arrangements in the Timor Sea, which was supposed to guarantee the revenue split between Australia and East Timor for the next 50 years.
Recently an agreement between East Timor and Australia expired and now Dili must decide whether to construct a liquefied natural gas (LNG) processing plant with operator Woodside Petroleum. Such a plant is necessary to develop the Greater Sunrise field. Dili wants to build the plant on East Timorese soil, but Woodside insists this is neither economical nor technically advisable. It wants to construct the plant on a floating pontoon.
Nevertheless, some analysts are more optimistic about East Timor’s prospects.
Charles Scheiner of La'o Hamutuk, the East Timor Institute for Development Monitoring and Analysis, explained that, on one hand, fracking has capped the price of oil and made these fields less lucrative. Yet, he also noted that the Greater Sunrise field was considered commercially viable in 2003 when oil was trading for around U.S. $30 per barrel.
Scheiner added that East Timor is “not nearly as difficult as many other places where oil companies go to make money,” such as Nigeria, Saudi Arabia, Iraq and Iran.
“Phillips Petroleum, Woodside and many other companies began exploring in TL's (East Timor’s) part of the Timor Sea in the early 1990s, under contracts with an illegal occupier in a war zone,” he said, referring to Indonesia’s occupation of East Timor from 1975 to 1999. He said, “They take political risk – and sometimes violate the law – to reap profits. Timor-Leste today is a piece of cake in comparison with then.”
Scheiner has a point, but fracking has enabled oil companies to reopen old sites and put equipment to work that has lain dormant for years – in their own backyards where the return on investment is much greater. Thanks to fracking, the U.S. is expected to eventually be self-sufficient and could become the world’s largest oil and gas producer within the next five years.
This game changer will effectively leave countries like Cambodia, East Timor, Vietnam, the Philippines and perhaps even Burma back where they were five to ten years ago. Political rhetoric in Southeast Asia during that time promised much from the oil industry. To date, however, it has delivered little.
Editor's Note: The text has been updated

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

I thought the metaphor was less than ideal, but clearly referred to institutional rentiers who bleed wealth away from the national economies. I believe the best "medicine" would not be a form of toxic chemotherapy given the entire structure of the body politico-economic, but rather, ligating the vessels to the parasitic actors. In the 20's and 30's, folk such as Mises, Roepke, etc saw this coming, and predicted the ultimate collapse of the over-extended credit cycle.
Astomas very elegantly describes the difficulty of meshing European cultures with different histories, and world views. This huge problem was warned about by Eurosceptics, but chronically ignored. I refer you to Fred Sheehan's writings and his references.
This is all about power, money, and privilege for bankers and politians.
In an energy constrained world, growth will be very difficult, even if the currency area was functioning properly.
Energy is going to be a problem even in "growing" areas, with better demographics and balance sheets.

I agree that my metaphor, like all metaphors, is limited. And I certainly shouldn't, on re-reading it, have mixed the metaphors of cancer and parasites, even if both do have different aspects that resemble the current situation.

I did give consideration to the inclusion of "killing" the parasite. Given the history of Germany that term is obviously fraught, and prone to misunderstanding. However, I included it anyway to underline the idea that certain economic entities may, indeed, need to be ended. The closure of an irreparably corrupt company, the shuttering of a hopelessly underwater bank, or perhaps the shame of lifetime banishment from politics of a bribe-taking politician, is equivalent to "killing" these things. If one is not willing to accept that level of action, then there is a greater chance the disease will return, and the suffering be rendered pointless. A certain amount of courage and determination will at some point be required on the part of the people in the periphery of Europe to see the last of any reforms through to their end, all while sustaining and fine-tuning based on local variations any parasite-resistant structures that are implemented. The strength of the word was meant to invoke that determination.

So I took the risk that the term would not be interpreted in the light it was intended. As I say, I would love to have better metaphors, so feel free to suggest some! I really like the "ligating of vessels to parasitic actors", since it captures what is happening more accurately. If I can think of a way to explain it using slightly less specialized language, I'd go with that one from now on. But I do still want to underline that if one is incomplete in following through, the disease returns. Should I be using a metaphor of a bacterial infection, where if the antibiotics course is not carried through, the disease can return and spread with newly-evolved resistance to the antibiotic?


What kind of disease is most like a TBTF banker? Today, I look at my young son in his innocence, and it's hard to believe that I was once innocent enough that such a question would never have crossed my mind. I'd like it not to have to cross his, but doubt that such things are possible.

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

And the latest from Reuters:

Swiftly endorsed by euro zone finance ministers, the plan will spare the east Mediterranean island a financial meltdown by winding down Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank".

Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalize Bank of Cyprus through a deposit/equity conversion.

The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros, Eurogroup chairman Jeroen Dijssebloem said.

Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution.

An EU spokesman said no across-the-board levy or tax would be imposed on deposits in Cypriot banks, although the hit on large account holders in the two biggest banks is likely to be far greater than initially planned. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits.

German Finance Minister Wolfgang Schaeuble said lawmakers would not need to vote on the new scheme, since they had already enacted a law setting procedures for bank resolution.

"It can't be done without a bail-in in both banks... This is bitter for Cyprus but we now have the result that the (German) government always stood up for," Schaeuble told reporters, saying he was sure the German parliament would approve.

A senior source in the talks said Anastasiades threatened to resign at one stage on Sunday if he was pushed too far. He left EU headquarters without making any comment.

Conservative leader Anastasiades, barely a month in office and wrestling with Cyprus' worst crisis since a 1974 invasion by Turkish forces split the island in two, was forced to back down on his efforts to shield big account holders.

Diplomats said the president had fought hard to preserve the country's business model as an offshore financial centre drawing huge sums from wealthy Russians and Britons but had lost.

...

About 200 bank employees protested outside the presidential palace on Sunday chanting "troika out of Cyprus" and "Cyprus will not become a protectorate".

...

On Friday, lawmakers voted to nationalize pension funds and split failing lenders into good and bad banks - the measure to be applied to Laiki. The plan to tap pension funds was shelved due to German opposition, a Cypriot official said.

A solid, if small, blow to the worldwide FIRE economy.

Germany, for the first time in this crisis, has been allowed to get exactly what it wants, without compromise. Now the world will be watching to see if it works. If things resolve well for the people of Cyprus, perhaps it will be the turning point in all of the PIGS, and more generally FIRE interests worldwide. If they resolve poorly, Germany is unlikely to get its way again, since it will be too easy for other governments to rally their populations in protest of intervention.

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

Unsurprisingly, the Telegraph sees things differently:

Also:

Cyprus facing ruin regardless of deal, islanders warn

Cyprus may be on the verge of hammering out a deal to address its chronic debt crisis but many Cypriots fear that the island’s economy is destined for ruin regardless.

and

Eurozone offers Cyprus the exit - our way or the highway

The eurozone will show Cyprus the exit from the EU single currency today unless it bows to demands to effectively wind down its largest bank, devastating the island's economy.

Note the hyperbole, and the panicked tone. If FIRE can be successfully countered in Cyprus, why not also in the City of London? The bankers' henchmen (and mouthpieces) are getting nervous.

But this isn't about principle alone. No, there is interest as well.

Fears grow as banks reveal exposure to Cyprus euro crisis

Britain’s largest banks have a combined exposure to Cyprus of more than £1bn, raising the prospect of new losses for the lenders.

Mega, if you're looking for an opportunity to celebrate "Britain's bankers on the run" this may be one of the best chances you'll get. Enjoy it, it sounds like you could use some cheering up. :-)

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

... and the Economist chimes in on cue with a less hysterically biased, but still very grudging admission that the deal is, in fact, an improvement.

The Cyprus bail-out

A better deal, but still painful

IT WAS an appalling way to reach a decision, but in the end the euro-zone’s €10 billion ($13 billion) bail-out package for Cyprus, agreed in the early hours of March 25th, was something approaching a reasonable compromise. At any rate, it dealt with the most egregious errors of the previous all-night deal.

I am very curious how this particular newspaper will tack next. It has always been both unabashedly pro-FIRE and pro-Bank, but also reasonably pro-Europe. Now that there has been a turning point that threatens to more clearly divide those positions, even perhaps bringing them into direct opposition with one another, I wonder which will win?

[astonas]

Re: From Cyprus Gambit to Gazprom

Just to tell that I received official confirmation by BullionVault that, as I expected, there is a precise procedure in place to allow clients to use a different bank account to recover their funds, in case the original bank account used in connection with BV is frozen (e.g. bank holiday, bank seizure etc.). They sent me some details and I am satisfied.

Thanks for the update, I'm sure there are many here that are feeling relieved. :-)

On a separate note, we received the new by the Italian press that Cyprus ATMs are working and cash withdrawal is available, and also credit cards are working, albeit with amount limitations it seems.

I'm curious what the Italian press might be saying at the moment. The different perspectives in the English language press has been illuminating.

[soliver]

Re: Cypriot Gas Deposits

From Credit Writedowns:

http://www.creditwritedowns.com/2013...s-bailout.html

Editor’s Note: The Eurogroup released the following statement moments ago in connection with the banking and sovereign debt crisis in Cyprus.
The Eurogroup has reached an agreement with the Cypriot authorities on the key elements necessary for a future macroeconomic adjustment programme. This agreement is supported by all euro area Member States as well as the three institutions. The Eurogroup fully supports the Cypriot people in these difficult circumstances.
The programme will address the exceptional challenges that Cyprus is facing and restore the viability of the financial sector, with the view of restoring sustainable growth and sound public finances over the coming years.
The Eurogroup welcomes the plans for restructuring the financial sector as specified in the annex. These measures will form the basis for restoring the viability of the financial sector. In particular, they safeguard all deposits below EUR 100.000 in accordance with EU principles.
The programme will contain a decisive approach to addressing financial sector imbalances. There will be an appropriate downsizing of the financial sector, with the domestic banking sector reaching the EU average by 2018. In addition, the Cypriot authorities have reaffirmed their commitment to step up efforts in the areas of fiscal consolidation, structural reforms and privatisation.
The Eurogroup welcomes the Terms of Reference for an independent evaluation of the implementation of the anti-money laundering framework in Cypriot financial institutions, involving Moneyval alongside a private international audit firm, and is reassured that the launch of the audit is imminent. In the event of problems in the implementation of the framework, problems will be corrected as part of the programme conditionality.
The Eurogroup further welcomes the Cypriot authorities’ commitment to take further measures. These measures include the increase of the withholding tax on capital income and of the statutory corporate income tax rate. The Eurogroup looks forward to an agreement between Cyprus and the Russian Federation on a financial contribution.
The Eurogroup urges the immediate implementation of the agreement between Cyprus and Greece on the Greek branches of the Cypriot banks, which protects the stability of both the Greek and Cypriot banking systems.
The Eurogroup requests the Cypriot authorities and the Commission, in liaison with the ECB, and the IMF to finalise the MoU at staff level in early April.
The Eurogroup notes the intention of the Cypriot authorities to compensate potential individual victims of fraudulent practices, in line with established legal and judicial procedures, outside the programme.
The Eurogroup takes note of the authorities’ decision to introduce administrative measures, appropriate in view of the present unique and exceptional situation of Cyprus’ financial sector and toallow for a swift reopening of the banks. The Eurogroup stresses that these administrative measures will be temporary, proportionate and non-discriminatory, and subject to strict monitoring in terms of scope and duration in line with the Treaty.
Against this background, the Eurogroup reconfirms, as stated already on 16 March, that – in principle – financial assistance to Cyprus is warranted to safeguard financial stability in Cyprus and the euro area as a whole by providing financial assistance for an amount of up to EUR 10bn. The Eurogroup would welcome a contribution by the IMF to the financing of the programme. Together with the decisions taken by Cyprus, this results in a fully financed programme which will allow Cyprus’ public debt to remain on a sustainable path.
The Eurogroup expects that the ESM Board of Governors will be in a position to formally approve the proposal for a financial assistance facility agreement by the third week of April 2013 subject to the completion of national procedures