Some late news indicates that the 'deal' is further away than many hoped (or rumored) earlier in the day. Welt am Sonntag reports that German FinMin Schaeuble exclaimed "I won't allow myself to be blackmailed," adding his responsibility to the stability of the Euro. Simply put, he adds Cyprus must respect the rules, insistent that, "Cyprus is a hard road to go either way; but that is not the result of European stubbornness, but a business model that no longer works." With that as background, Cyprus President Anastasiades will be meeting with the IMF's Christine Lagarde tomorrow morning with talks at a "delicate point," with his spokesperson admitting the situation is "very difficult." The disinformation-to-total-confusion train pushes on forward; beggars can be choosers and 'demanders' won't be blackmailed.
As we recently discussed, many euroskeptics are pushing Cypriot lawmakers to default, devalue, and decouple from the Euro - understanding that the short-term pain of such a move will lead to much more sustainable gains afterwards. But BofAML raises the question of what damage (and required response) would occur in the remainder of the European Union should Cyprus leave (or be pushed ). Unlike some EU leaders suggestions, BofAML suggests the contagion and growth impacts could last a decade; but it is the policy reaction of the ECB that is most crucial to understand and how it may rapidly lead to a German decision on debt mutualization (or not) that should be most concerning.
Many have asked why the bondholders have not been tagged in the Cyprus fiasco. That answer is simple. Most of Cyprus's bonds are pledged as collateral at the ECB or in the Target2 financing program. Then one may also ask why the bonds of the two large Cypriot banks are not being hit. The answer is the same; most are held as collateral at the ECB or Target2. In both cases, remember uncounted liabilities, the government of Cyprus has guaranteed the debt. Consequently if the two Cyprus banks default it is of small matter as the sovereign has guaranteed the debt. However if the country defaults and leaves the European Union then it will matter and matter significantly as the tiny country of Cyprus would wipe out the entire equity capital of the European Central Bank. While it is not a matter of public record it is estimated that Cyprus has guaranteed about $11.6 billion of collateral at the ECB.
There are no regulated financial markets open today; no BIS-buffered FX market, no Fed-spoon-fed US equity market, no BoJ-jawboned Nikkei 225, and no ECB-sponsored Spanish bond market to judge today's news and rumors. But there is one 'market' open - a market that prices in the belief (or lack thereof) in the status quo to a lesser or greater extent. Illiquid as it may be, today's Bitcoin prices (and volume) says a lot about the headlines of the day...
The situation in Europe remains fluid. 'Rumors' circulate from 'anonymous' sources but seemingly confirming what 'news' we do have from Olli Rehn that there is no deal; Xinhua reports that the Cypriot Parliament has cancelled the debate over the deposit levy for today (following daylong negotiations with the Troika). Further to the 'no deal' meme, ekathimerini is reporting, via another senior Cypriot official,
- *CYPRUS, TROIKA NOT CLOSE TO DEAL, CYPRUS NEWS AGENCY REPORTS
“We are not in touching distance of an agreement,” the official, who preferred to remain anonymous, commented adding that the impasse was a result of the “inflexible” stance of the IMF - "Every half hour, new demands are made." Further comments indicate the 'low levy' on the rest of Cyprus-based bank deposits has been abandoned - implying a potential 25% haircut for Bank of Cyprus deposits.
Up until just a week or so ago, the euro, the market seems to be telling us, has been saved, and peripheral Europe is widely seen as being out of the woods. Thanks to the ECB - who are willing to pump as much liquidity into the markets as it needs - it seems rising debt levels, greater political fragmentation, and a worsening economy somehow don't really matter and it is impolitic to sound pessimistic. But is peripheral Europe really suffering primarily from a liquidity crisis? It would help me feel a lot better if I could find even one case in history of a sovereign solvency crisis in which the authorities didn’t assure us for years that we were facing not a solvency crisis, but merely a short-term problem with liquidity. A sovereign solvency crisis always begins with many years of assurances from policymakers in both the creditor and the debtor nations that the problem can be resolved with time, confidence, and a just few more debt rollovers. The key point is that bankers are not stupid. They just could not formally acknowledge reality until they had built up sufficient capital through many years of high earnings – thanks in no small part to the help provided by the Fed in the form of distorted yield curves and free money – to recognize the losses without becoming insolvent.
Based on the most recent data, JPMorgan notes that the share of large or uninsured deposits is likely to be close to half of total deposits in the European Union. With deposits already flowing out of some of the peripheral EU nations (as we warned here), we thought it appropriate to point out just which nations have the largest share of uninsured deposits (and are not yet under the ECB's 'standard of living' capital controls). It seems - among many others - that despite France throwing in the towel on the 75% income tax, there is another good reason for the wealthy to leave...
The conflicting headlines continue to spew forth from the union of European nations. Reuters CYBC is reporting that Cyprus has agreed a 'deal' with EU/IMF lenders a 20% levy on deposits over EUR100,000 for Bank of Cyprus and a 4% levy on deposits of the same amount at other lenders (and the Cypriots have dropped plans to nationalize pension funds) citing a senior Cypriot official (who demanded anonymity). At the same time, EU Commissioner Olli Rehn emailed a statement saying that a 'deal' has yet to come forth:
- *REHN SAYS COMMISSION WORKING HARD TO FIND CYPRUS SOLUTION
- *REHN SAYS ONLY HARD CHOICES LEFT FOR CYPRUS
- *REHN SAYS `ESSENTIAL' CYPRUS SOLUTION REACHED ON SUNDAY NIGHT
So who does one believe? And with no market open to test this strawman, what will the decision-makers have to guide their choices? One thing is for sure:
- *REHN SAYS 'NO LONGER ANY OPTIMAL SOLUTIONS AVAILABLE'
- *REHN SAYS ONLY HARD CHOICES LEFT FOR CYPRUS
With money, or the lack thereof, a popular topic of discussion in Cyprus currently, we go straight to the source, the Central Bank of Cyprus, where in prose that can only be described as the definition of unintentionally prophetic irony, we read the following:The historical development of money in Cyprus has followed the sometimes stormy and turbulent course of the island’s political history. The various conquerors that ruled Cyprus throughout its history introduced their own monetary unit to the island. Hence, among other monetary units, the stater, the obol, Roman and Byzantine coins, the gross, the dinar, the cartzi, the para, the piastre and the pound have been used as the island’s currency. And now the Euro, although perhaps for not much longer.
Just your ordinary run of the mill Russian billionaire oligarch in exile who had so much money he was terminally depressed... or just the opposite, and the first tragic casualty of the Cyprus capital controls which are about to eviscerate a whole lot of Russian wealth (and ultraluxury Manhattan real estate prices)? From RT: “Just got a call from London. Boris [Abramovich] Berezovsky committed suicide. He was a difficult man. A move of disparity? Impossible to live poor? A strike of blows? I am afraid no one will get to know now,” the lawyer said on his social network page."
Texas Rep. Giovanni Capriglione has a bill in play that would move the state’s gold from New York (where its under the “safekeeping” of the ultra shady Federal Reserve) to a depository within the state of Texas itself. The reason this would be such a big deal if it happens, is because a lot of the gold bought and sold globally is not very likely not actually owned by those that “buy” it. From my perspective, pretty much the only countries that actually buy gold and bring it within their borders are China, Russia and Iran. Most other nations that claim they “bought” gold, most likely hold a certificate that states they have gold in London or New York. So in other words, they have no gold. It looks like Texas is wising up.
Former Cyprus Central Bank Head And Senior Fed Economist: "The European Project Is Crashing To Earth"Submitted by Tyler Durden on 03/23/2013 - 11:21
Back in August 2011, one of the most prescient European (ex) central bankers, Cyprus' very own Athanasios Orphanides was optimistic, but with a caveat: "I am optimistic that with the right actions and effort by all we will pull through this," Orphanides told reporters after a meeting with Finance Minister Kikis Kazamias. They were Orphanides' first public comments since warning authorities in a July 18, 2011 letter that Cyprus ran the risk of requiring an EU bailout unless urgent action was taken to shore up its finances." Two years later, following endless dithering and pretense that just because the ECB has stabilized the markets, all is well, and "action was being taken" when none was, Cyprus is beyond the bailout stage - it is now quite literally on the verge of total collapse. This is also why Orphanides, who recently quit as Central Banker of Cyprus following a clash with the new communist government (and was replaced by a guy named Panicos), no longer is optimistic. "The European project is crashing to earth,” Athanasios Orphanides told the Financial Times in an interview. "This is a fundamental change in the dynamics of Europe towards disintegration and I don’t see how this can be reversed.”
Cyprus Deposit Levy Vote Delayed, Will Go "Down To The Wire" As Up To 70% Deposit Tax Contemplated For SomeSubmitted by Tyler Durden on 03/23/2013 - 08:58
While GETCO's algos were poised to set off a buying tsunami yesterday the millisecond a flashing red headline hit Bloomberg with even the hint or suggestion that Cyprus is fixed, we said to sit back and relax because Cyprus "will get no resolution today, or tomorrow, and may at best be resolved on Sunday night following yet another coordinated global bailout, (although our money is on a last, last minute resolution some time on Monday when Cyprus is closed but the European markets are widely open)." As it turns out, we were right, following reports by major newswires that the vote on the deposit levy will only take place (if at all) on Sunday night, after the Eurozone finance ministers' meeting on Sunday. The reason for the delay? Deciding how to best bring the news to Russian, and other wealthy depositors, that not only will they not have access to their funds for a long, long time, the ultimate haircut on what they thought was safe, easily accessible cash as recently as a week ago, may be a stunning 70%!
There exists a super-Bernanke who proved also a super-Hollande, a gentleman who Japanese Prime Minister Shinzo Abe cannot compete with: his name is Robert Mugabe, the president of Zimbabwe. When he took power, he seized the farmlands of one social group to give them to another social group. Afterwards, in part because the new social group did not manage the farms that well, the economy took a turn for the worse. Therefore, the state issued some bonds to finance its spending and asked the central bank to issue some money to buy this government debt. But they printed big time and turned the printing press into something of a cosmic proportion. According to Professor Steve Hanke from John Hopkins, monthly inflation was 80 billion percent, so per year it is a 65 followed by 107 zeros. This is what we call Mugabenomics, the conjunction of (i) state-forced wealth transfer between two social groups along with (ii) the monetisation of the debt. As we shall see below, Mugabenomics, or at least its mild version implemented now in the Western hemisphere, has drastic consequences on the final episode of the global financial crisis.