Greece

The View From Greece On "The Hypocrisy Of Leaders" And Why "There Is A More Insidious Infection That Could Spread"

The implications for people’s trust in their government and financial system are obvious. It would be remiss to think that this wariness will be contained just to Cyprus. While many will be watching next week for signs of financial contagion from the Cypriot decision in other parts of the eurozone, with Spaniards or Italians possibly withdrawing savings from their banks, there is a more insidious infection that could spread... Citizens in other troubled eurozone countries will watch and grow warier. They will interpret the policies advocated by the stronger members as punitive for the weaker. They will consider the hypocrisy of leaders who cry foul about money laundering in Cyprus but turn a blind eye if it is happening in Lichtenstein, Switzerland, Luxembourg, the City of London or anywhere else in Europe.  They will begin to ask themselves where their interests lie, what’s in the euro for them and whether other options would be better. And, as they are mulling over these thoughts, they will look to other parts of Europe and see people like them but also analysts and policy makers wondering what all the fuss is about. They will hear others who have not had to suffer any hardship or financial losses wonder why there is such a negative reaction to wages being slashed, taxes being hiked or deposits being taxed. This is the point at which the links within the eurozone will begin to pop apart, when citizens will turn to Beppe Grillo-style solutions, to nationalists, extremists or to anyone who promises a different path. This is the point at which the vehicle stops functioning and the road ends.

The End Of Systemic Trust: The Canary Just Died

Prior to yesterday, if you were trying to handicap how the unelected leaders of the Eurozone were going to react to a tough situation, you only had to refer to the quote "When it becomes serious, you have to lie" from Mr. Junker to understand their mindset. But so long as someone at the ECB was willing to flood the world with free EURs (with significant backup provided the US Federal Reserve) the market closed its eyes, held its breath and took the leap of faith that all was well. However, post the Cyprus decision, the curtain has been pulled back and wizard revealed with all his faults and warts. It would be hard to over-emphasize how significant the Cyprus situation is. The damage done here is not related to the size of the haircut - currently discussed between 3 and 13% - but rather that the legal language which each and every investor on the planet must rely on in order to maintain confidence in the system has been subordinated to the needs of the powerful elite.

Postcards From Cyprus

While not the Molotov-cocktail-throwing, smoke-bomb-hurling debacle that Greece (and Spain) became, the Cypriot demonstrations are gathering pace with a large protest planned for this evening and tomorrow during the parliament's vote. The following images give a sense of the feeling among the people...

"All The Conditions For A Total Disaster Are In Place"

The Cyprus bailout package tax on bank deposits is a deeply dangerous policy that creates a new situation, more perilous than ever. It is a radical change that potentially undermines a perfectly reasonable deposit guarantee and the euro itself. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors in Spain and Italy. The really worrisome scenario is that the Cypriot bailout becomes euro-systemic – in which case the collapse of the Cypriot economy will be a sideshow. This will happen when and if depositors in troubled countries, say Italy or Spain, take notice of how fellow depositors were treated in Cyprus. All the ingredients of a self-fulfilling crisis are now in place: It will be individually rational to withdraw deposits from local banks to avoid the remote probability of a confiscatory tax. As depositors learn what others do and proceed to withdraw funds, a bank run will occur. The banking system will collapse, requiring a Cyprus-style programme that will tax whatever is left in deposits, thus justifying the withdrawals. This would probably be the end of the euro.

 

Lesson 1: Greece; Lesson 2: Cyprus - Pay Attention

Deposit Insurance at a bank, any bank in Europe, is now meaningless. A bond indenture, any clause, any paragraph, any promise or assurance; now meaningless. The notion of private property, land, cash, house; now meaningless. The European Union will take what they want as they deem it necessary and the IMF will follow along. The question has been asked, during the last few days, why the bond holders of Cyprus were not tagged along with the bank deposits. We can answer the question. Virtually all of the Cyprus sovereign debt is governed under British law and so the EU did not pursue this course. Greece came first. Lesson one and "shame on you." Cyprus comes second and now "shame on me." What will come next? What will you tell your partners or your shareholders when they say, "You should have known." You will have no excuse!

Goldman's Cyprus Post-Post-Mortem: "A Depositor “Bail-In” – And/Or – A Wealth Tax"

Can't get enough of Cyprus? Then here is yet another post-post-mortem from Goldman's Jernej Omahen, once more trying to put some very silvery lining on this particular mushroom cloud, and providing some useful facts in the process. "As part of its rescue package, Cyprus introduced a one-off tax on deposits. This “tax” can be viewed as both (1) a depositor bail-in, and/or (2) a wealth tax. Cyprus aims to capture €5.8 bn of tax revenue in this way, which compares to the total bailout package of €10 bn. In absolute terms, the amounts are low; regardless, the market focus on potential read-across will be high, in our view. The tax on depositors is setting a precedent, which is likely to have an impact beyond the immediate term, in our view. Resilience of, in particular, retail deposits was an important element of stability during crisis peaks (e.g., Spain). Post the Cyprus precedent, however, it is reasonable to expect that the deposit volatility in stressed sovereigns could rise, for two reasons: firstly, perceived risk of deposit bail-in will have increased; secondly (independent of failing bank issues), perceiving savings as a potential tax-base – for wealth taxes – is new."

Monetary Metals's picture

The root of the problem is the manufacture of counterfeit credit. Examples of counterfeit credit include Greek government bonds... Depositors are paid the lowest interest rate of all, and in return are promised to be made whole, even if it means every other class in the capital structure is utterly wiped out. In Cyprus, they were not. This reckless and politically-expedient decision has consequences.

Cyprus: The World’s Biggest "Poker Game"

While this kind of 'wealth tax' has been predicted, as we noted yesterday, this stunning move in Cyprus is likely only the beginning of this process (which seems only stoppable by social unrest now). To get a sense of both what just happened and what its implications are, RBS has put together an excellent summary of everything you need to know about what the Europeans did, why they did it, what the short- and medium-term market reaction is likely to be, and the big picture of this "toxic policy error." As RBS summarizes, "the deal to effectively haircut Cypriot deposits is an unprecedented move in the Euro crisis and highlights the limits of solidarity and the raw economics that somebody has to pay. It is also the most dangerous gambit that EMU leaders have made to date." And so we await Europe's open and what to expect as the rest of the PIIGSy Banks get plundered.

Angela "It's What's Right" Merkel Parody Paraded In Greece

Following Angela Merkel's address to her people this evening, explaining, "anyone having their money in Cypriot banks must contribute in the Cypriot bailout. That way those responsible will contribute in it, not only the taxpayers of other countries, and that's what is right," we thought it ironic that the people of Greece envisioned her in a slightly different light today during a parade in Patras. 'Union'? No tension here at all...

Guest Post: Why Europe Is Still In Peril, In Two Charts

A lot of analysts have given the European situation a rest since last year. There were certainly some 'market' signs that the ECB and IMF had slowed (if not stopped) the deterioration by providing liquidity backstops to the addled banking system. But perhaps that was just the calm before the storm. In truth, things were still probably just as perilous as ever up until yesterday when the ECB and IMF decided to start a banking panic by enforcing a haircut of up to 10% on bank depositors. That was literally the stupidest thing that anyone has done since the Euro crisis began, and while it may not lead to utter disaster, there is a significant chance that it will. If bank runs materialise across Europe next week, the unemployment situation is most likely to worsen even further. If that happens, expect more and more unemployed, underemployed and angry Europeans to start voting for increasingly radical political parties. This is suicidal.

Meanwhile, Greeks Are Celebrating...

A short trip across the sea from the debacle occurring in Cyprus and it appears the tension is rising up in Greece once again. It is well known that Golden Dawn 'nazi' party won a surprising and disconcerting number of parliamentary seats at the last election, and the massively unstable size of Greece's youth unemployment continues to spell trouble; but, now Greece's most popular sport - soccer (football) - is infected by the increasingly nationalist fervor. As Fox reports, national soccer player Giorgos Katidis has been banned for life from playing for Greece after giving a Nazi salute while celebrating a goal this weekend. Cited as "a deep insult to all victims of Nazi brutality," the striker took to twitter (@GiwrgosKatidis) to proclaim his innocence of the meaning of the gesture (you decide in the image and clip below) - right arm extended and hand straightened - adding that he detests fascism. The question now is - when does the Cyprus soccer team play next? as it seems the peripheral European nations are starting to wake up to the Union's reality and the haircut is the next catalyst.

JPMorgan Asks "Has Europe Bazookaed Itself In The Foot", Answers "Yes"

"Has Europe bazookaed itself in the foot? Even if we avoid a negative outcome this week, events in Cyprus invite broader questions about the region’s commitment, repeated ad nauseum since June to ‘break the feedback loop between sovereigns and banks’. The IMF warned as recently as Friday that the Euro area lacked an effective deposit guarantee framework (before agreeing to a haircut that adroitly proves its point). The Cypriot package reinforces the fact that existing deposit guarantee schemes are only as strong as the sovereign which backs them; something which is unlikely to go unnoticed in the rest of the region (although we think specific contagion risks are limited near-term). Other EU member states will likely be affected, there are significant numbers of UK depositors in Cypriot banks, some of whom the UK has now promised to protect (with echoes of the Icesave situation), and some potential contagion channels may not be obvious. It is notable that German policy-makers have been insisting on Cyprus’ significant ‘systemic relevance’ over recent days while pushing a package that may test it."

Cyprus Bank Holiday Extended Through Tuesday As Confusion Spreads

For those who read the previous article on the topic of last minute chaos and confusion in Cyprus, and Europe, it will come as no surprise that the previously scheduled Monday bank holiday (aka Green Monday) has been extended into Tuesday. So prepare to not be surprised. "The Cypriot cabinet has declared Tuesday a bank holiday, for fear of capital flight, and this may even be stretched to Wednesday, as depositors are certain to withdraw huge sums from the Cypriot banks after the haircut imposed." So, if the official name of the March 18 holiday was "Green Monday", will the March 19th ad hoc holiday be called "Red Tuesday"? Inquiring minds want to know.

Cyprus Parliament To Delay "Rescue" Vote Due To Lack Of Support, Despite ECB Pressure For Pre-Trade Open Decision

The painfully shortsighted Cyprus bail-out, pardon bail-in (also known as wealth tax to those who are actually doing the in-bailing), plan is going from bad to worse. Because in addition to all the previously discussed macro-implications, all of which are adverse and have the full potential of destabilizing the Eurozone once more and lead to bank runs across not only the periphery but the core as well, especially by offshore (read Russian) depositors, there is now a risk that the entire hurriedly-cobbled together "plan" may be on the verge of failure as it may not get a majority vote in domestic ratification. Today, at 4pm local (2pm GMT) the Cypriot parliament was scheduled to meet to vote through and ratify the tax levy plan, presented as a fait accompli at least by the Eurozone FinMins. A few hours ago, this meeting was delayed until 4 pm local on Monday "after signs lawmakers could block the surprise move.... If [parliament fails to ratify the bail-in], President Nicos Anastasiades has warned, Cyprus's two largest banks will collapse." And so the late hour scramble to procure enough vote to pass the depositor impairment begins as the alternative is simply "or else."