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The Ballooning Cyprus Fiasco
Wolf Richter www.testosteronepit.com
The government of Cyprus is desperate. It is deliberately slowing down paying its contractors. “We are talking about final payments and settling of bills for work that was carried out and passed through the inspections, and for which an order was issued for payment,” said Nicos Kelepeshis, head of the Federation of Associations of Building Contractors. 120 days, and more. The government also told inspectors to delay inspections in order to slow down payments.
In June, Cyprus had held its nose and requested aid from the Troika, those despised austerity thugs made up of the European Union, the European Central Bank, and International Monetary Fund that have, in Cypriot eyes, wreaked havoc in neighboring Greece. And this week, once again, these despised Troika inspectors are swarming over Cyprus to find out how much money the banks would need to deal with their putrefying balance sheets, and how much the government would need to stay afloat.
If a deal is reached—sticking point are the conditions, namely structural reforms, budget cuts, privatizations, and tax increases—the first bailout money might arrive in October. But Cyprus is bankrupt now! So, the government is raiding the “semi-state“ sector. Last week, it pilfered €101 million from the Cyprus Telecommunications Agency, €50 million from the Ports Authority, and €24 million from the Human Resource Development Authority. Now it’s going after the pension fund of the Electricity Authority to get a couple hundred million. This place is seriously out of money.
At first, it was just a funding crisis. After markets closed the door, Cyprus went begging to Russia and got €2.5 billion late last year. That money has now evaporated.
Then it was the banks. In June, the Bank of Cyprus needed €500 million and Popular Bank €1.8 billion—in total €2.3 billion. A black hole in their regulatory capital had developed when they were forced to write down the defaulted Greek government bonds on their balance sheets [“We owed it to our children and grandchildren to rid them of the burden of this debt,” sneered Greek Finance Minister Evangelos Venizelos at the time as private sector investors got whacked with a 74% loss. Read.... “A harder Default To Come”].
But the banks were joking about the €2.3 billion. They’ve also been eviscerated by Greek corporate debt—40% of the loans on their balance sheets. They’re turning to trash as Greece slithers deeper into its fifth year of recession. Then there are the loans left over from the real estate bubble and title-deed scandal that the banks themselves colluded in. An estimated 130,000 properties are without title deeds—in a country with only 838,000 souls. Those who think they own these properties don’t legally own them. A nightmare gumming up the future of the country [I warned about it in October.... Another Eurozone Country Bites the Dust].
And so in June, as bailout talks with the Troika took off, the €2.3 billion were declared a joke. “Eurozone sources” mumbled something about €10 billion, including a government bailout, which hadn’t needed one before.
Cyprus has been trying to triangulate its bailout negotiations by adding China and Russia. They’re ogling the vast natural gas reserves found off the coast. Awash in natural gas, Russia is the major supplier to the EU through a system of pipelines, and it wants to keep control over its export market. China wants to grab resources around the world. And on July 6, Russian Finance Minister Anton Siluanov confirmed, “Yes, we have a request from Cyprus. They’re looking for €5 billion.”
So since Monday, the despised Troika inspectors have been plying their trade. And it didn’t take long for it to seep out that the banks alone would now need a bailout of €9 billion—a stunning amount for the banks in such a tiny country. Plus, the government would need €4 billion. For total package of €13 billion.
But the €9 billion for the banks is likely to grow even further—because bad debt isn’t bad debt in Cyprus. Under Cypriot rules, loans on the banks’ books that are over 90 days past due aren’t considered bad debt, and no losses have to be recognized, if the loans are secured. Hence, a mortgage that is in default doesn’t have to be written down because the bank might eventually obtain the property, which takes many years, and then sell it to recuperate its money. But property values have collapsed. And worse: the title-deed fiasco resulted in banks securing two or more mortgages with the same property—and only one of them has any value at all. But they’re all “secured”; hence, none have been written down.
The Troika inspectors are circling. They want those loans written down. Government and banks resist. The outcome of this clash will be a big factor in determining the bailout amount for the banks. And the government bailout of €4 billion will certainly rise. The first time is only the beginning—Greece, if it were to stay in the Eurozone, would require a third bailout. Standard and Poor’s tacked on some extra billions and came up with €15 billion. 83% of GDP. €18,000 ($22,000) per resident. Another bottomless pit. Is that why Russia and China haven’t jumped into the fray?
In the run-up to this crisis, people have gotten rich and taken their money to Switzerland. What’s left is debt. But instead of letting it blow up and disappear, wiping out creditors and equity holders in the process, it’s being replaced with new money, but from taxpayers elsewhere: 29% from Germany, 22% from France, even from teetering Italy and Spain....
But Spain is on the brink. The word is out: default. Or bailout. Read.... The Extortion Racket Shifts to Spain.
And here is a great perspective by George Dorgan, a portfolio manager in Switzerland who used to live in Italy. Read.... Italian Euro Exit: why it might come in 2-3 years and why it will help the Eurozone and Italy.
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I need to recuperate my money, too.
Cyprus is surrounded by gas and oil reserves which would enable her to service her debt. The problem is that Turkey is constantly threatening Cyprus and contesting Cyprus rights over her territorial waters.
Europe could easily tell Turkey to keep wthin her territiorial limits but France and Germany prefer to let Greece feel threatened so she and Cyprus keep buying their ships, subs and other hardware.
Until Europe tells Turkey to park herself within her boundaries, the Cypriots and Greeks will not be able to exploit their oil and gas reserves.
So why is Europe not helping?
Peter Pan: Bingo.
EVERYONE - please pay attention to Peter Pan's post. THIS is how things go behind the scenes.
The headlines are worked for public consumption.
They could start taxing all the dubious Russian money and offshore holdings parked there...
cyprus has easy solutions: legalize all vice, no income tax, estate tax, only consumption taxes on vices and lux taxes..bank accounts that are never reported to any gov (IRS)..any small independent country esp an island with good weather has such a golden fleece at it's door step..but we know the pols of the world would never bite of that apple.
Stop offering suggestions that have actually worked and make sense!'. We all know that more social welfare, debt and control is the way to progress.
can you blame people for getting their money out? NO!!!
mine is out 2 years ago but I can't seem to erase all the traces....
Its the most oil dependent state in the EU with all its power stations oil consuming........ which is incrediable as this problem was solved by most western countries in the 70s ,early 80s , it has no rail lines .....zero......public transport via buses is Ad hoc at best.
Tourists also need to fly in etc etc......
Its Fucked.
So what? The Cyprus I remember was a beautiful getaway with nice folks, rural ways, great food and easy ambiance. I was not looking for another Germany. When Med nations try to keep up with their northern neighbors they are doomed. The Troika's big problem is that they expect all EU states to operate like Estonia or Finland instead of Span or Cyprus.
Hey - I have no problem with that......but it is not now a agrarian society
But their built envoirment is now not very rustic - its demands , I repeat DEMANDS massive amounts of the black stuff.
www.iea.org/stats/pdf_graphs/CYTPES.pdf www.iea.org/stats/pdf_graphs/CYTPESPI.pdfwww.iea.org/stats/pdf_graphs/CYELEC.pdf These are the most horrible energy balance graphs that I have ever seen.!!!!!!
Its now a over developed shithole.
They had one of the greatest credit / holiday home binges on the planet..... almost as bad as Ireland.
Almost nothing remains of the Med coastline.
The only Med island that has kept a pristine pre WW 11 coastline is bits of Corsica simply because the locals are so unfreindly.
the title-deed fiasco resulted in banks securing two or more mortgages with the same property—and only one of them has any value at all. But they’re all “secured”; hence, none have been written down.
Some how this would seem to be a problem that simply can not be fixed. Basically someone is fucked in a bad way here.
Wunderbar! German troops...I mean inspectors are now INVITED! Excellent.
cyprus is europe today! ain't that poetic?
What cy prus does europe sighs to do as cy prus is so much like sur prise...
It wasn't that long ago there was bloody revolution in Cyprus, the war in the late 1950s to get independence from Britain. Lots of violent death on the streets, British soldiers torturing Cypriot prisoners to death, and so on.
One of the streets in Nicosia in Cyprus, became known as the 'Murder Mile' ... this phrase then became part of the lyrics of Elvis Costello's hit song in 1979 lampooning British militarism, with the erudite title 'Oliver's Army' (the song title refers to the invention of the modern-style mass-citizen military by England's Oliver Cromwell, who autocratically governed England during much of the 1640s - 1650s when the Brit monarchy was briefly abolished).
During the Brit colonial rule of Cyprus, beginning in the early 20th century - when the Brits took the place from the crumbling Turkish Ottoman Empire - they faced continued rebellion from among the Greek-speaking majority of Cypriots, many of whom wanted union with independent Greece. Merger with Greece was a main goal of many revolutionary Cypriot leaders in the 1950s who were fighting the Brits.
The spiritual kinship of the majority of Cypriots today, with their suffering Greek cousins should not be underestimated.Mentally, many Cypriots see themselves simply as 'Greeks'.
In the 1950s, to counter the independence agitators, under a typical Brit divide-and-rule strategy, the Brits greatly agitated Turkish nationalism among the Turkish speaking minority, which eventually contributed to the invasion of Cyprus by Turkey in the 1960s after Cyprus became independent. So Cyprus, and the old city Nicosia, remain divided today between Greek-speaking and Turkish sectors.
Cyprus is yet one more country caught in conflict left by bloody and quite recent colonial rule, with those who experienced the 'Murder Mile' still living. It should not be surprising Cyprus remains a mess.
Too bad the Dutch could not keep the Brits busier during the 1650-'s and 1660's when they stole Manhattan from the Dutch's Peter Stuyvesant, aka, Pegleg.
first case of "modern style mass citizien military" is SWITZERLAND.
already in 1450 all males between 16-65 were forced to go drill with some 9 foot pike ;)
"Cyprus is yet one more country caught in conflict left by bloody and quite recent colonial rule"
What is happening in Jewish controlled puppet governments such as Argentina, France, Egypt, Libya, Iraq etc. is going to make "old school" colonial government positively benevolent.
What? Contagion from Greece? That's UNPOSSIBLE!?!
Come on Malta, you are next!!!!