Cyprus, It's Not About The Numbers

Tyler Durden's picture

Authored by Nick Malkoutzis, originally posted at ekathimerini,

The Eurogroup agreed on Monday night to allow Cyprus to change the make up of its controversial deposit tax. Instead of imposing a levy of 6.75 percent on savings under 100,000 and 9.9 percent on those above 100,000 – as agreed in Brussels in the early hours of Saturday – Nicosia can play around with the numbers, just as long as it raises the arranged amount of 5.8 billion euros.

Cyprus’s new but already beleaguered President Nicos Anastasiades is proposing that bank customers with deposits under 20,000 euros should not be taxed at all, while keeping the levy the same for the remaining depositors. Cypriot MPs have already shown a reluctance to approve the tax, mindful of the impact on depositors but also the long-term damage it could do to the island’s banking system and economy.

However, what’s happened over the past few days and what’s likely to happen in the days and weeks to come has little to do with numbers. It is much more about perceptions. Even if a financial meltdown is averted in Cyprus this week, the decision to tax depositors there in order to reduce the eurozone and International Monetary Fund contribution to the island’s bailout has sown the seeds for a future eruption.

The Eurogroup’s decision on Monday was a clear attempt to correct a mistake, while steadfastly refusing to admit one had been made. There are different interpretations about what happened in Brussels late Friday and early Saturday but ultimately they matter little compared to the end result, which was that Anastasiades flew home to implement the first depositor haircut in the euro’s history with the blessing of fellow eurozone finance ministers and the IMF’s Christine Lagarde.

There is nothing the Eurogroup had to say to the Cypriot government on Monday night that it could not have said in Brussels a few days earlier. The only difference was that by Monday the reaction in Cyprus and other parts of the eurozone to the idea of a deposit tax, including on guaranteed savings, had underlined what a perilous idea it was to start off with. From Sunday, eurozone governments and finance ministers who had been at the Eurogroup meeting, started to distance themselves from the idea of taxing small-time depositors with such frequency that it seemed hardly any of them participated in the Brussels talks and the few that did were strong-armed by Anastasiades into accepting a tax for deposits under 100,000 euros.

The back-pedalling and hand-wringing has been an embarrassing spectacle but it has also laid bare the unedifying eurozone decision-making process and the lack of stature amongst its decision makers. The only two plausible interpretations for the Eurogroup approving such a self-destructive decision as taxing all bank deposits is a complete disregard for the consequences (doubtful) or an utter underestimation for the effect it would have (more plausible).

The latter suggests that one part of the eurozone is now completely out of step with the other, unable to understand its challenges, its concerns and, ultimately, its reality. Only a core group of decision makers with no sense of the fragile state of societies in the periphery, which have been battered by deepening economic crisis and uncertainty for months on end, would favour a policy that creates a precedent for governments to grab people’s savings without second thought.

Even if capital flight from Cyprus as a result of this decision is less severe than many fear, even if Cypriot banks survive this real stress test, even if the island’s economy is not set back many years, even if savers in Greece, Spain, Portugal and Italy don’t panic, the idea of a deposit tax and the way it was adopted has released something poisonous in the air. It is difficult to see how these citizens will be able to trust the system - be it their governments, banks or eurozone partners - in the weeks to come. Belief in countries where the economy is contracting and unemployment growing is already vitreous and planting fears about a possible deposits grab in the future could shatter it completely.

Some will argue that the numbers involved in Cyprus are not that big, that small depositors will not lose a lot. This misses the point. Again, it’s not about the numbers, it’s about perceptions. Cypriot savers will not be so concerned about losing a few hundred euros here or there. After all, they know what’s going on in Greece and are aware that if they don’t pay a deposit levy, they’ll pay through higher taxes, lower wages and reduced spending. No, their worry will be about what’s going to come next. They have witnessed supposed partners back their country and its new president into a corner with almost underworld-style ruthlessness. The European Central Bank, essentially their central bank, threatened to cut off funding to Cypriot lenders, to cause their collapse, which would bring economic disaster. In these unprecedented circumstances, what basis is there for a relationship of trust between Cypriots and the eurozone? What’s to prevent them thinking that if they’ve been squeezed over this, they won’t be cornered over the island’s natural gas reserves or the terms for reunification with the Turkish-occupied north?

Others will argue that it is unfair to expect Germany or other eurozone taxpayers to keep footing the bill for bailing out member states. This also speaks of different perceptions of reality in the euro area. It ignores the fact that taxpayers in countries that have been bailed out are also paying a price. In fact, if one looks at the eurozone today and chooses any of its main economic indictors, it is abundantly clear who is footing the much higher cost for these rescue packages.

This emergence of parallel lives is the illness spreading to the heart of the single currency. How can the eurozone’s two parts understand each other when their realities are growing further apart? How can one side decide for the other when it’s not experiencing the depression, polarization and incertitude of its counterpart? In this two-tier construct, how can those on the upper deck assimilate the warnings from those below that the vessel is sinking, when their feet aren’t even wet?

That’s why Cyprus is about so much more than just numbers.

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CH1's picture

The idiots raised the curtain themselves... and showed themselves for the thieves they are.

El Viejo's picture

What's that I smell? Is it smoke?  Where's the EXIT? What do you mean the exits were locked years ago?

cifo's picture

The only real question is: are the Cypriots going to withdraw their deposits after the banks open or not?

 

WayBehind's picture

You better believe it! So do the Russians and everyone else.

Vampyroteuthis infernalis's picture

Those banks are toast. When they open a bank run is going to happen. Kiss them goodbye. Cyprus' economy will follow afterwards. Other bankrupt Eurotrash economies will see this and never accept a bailout. RIP Euro.

tekhneek's picture

Unfortunatey like every other depositor they have that whole fractional reserve banking (and or lending...)/rehypothecation thing to deal with come withdraw day. Wouldn't surprise me if they're just a passthru vehicle for IOU's.

I can see the propaganda now: "You can withdraw as much as you want so long as it's less than 100 euro/day!"

Unless... of course that is unless, there's a boat and some shiny metal involved.

 

caconhma's picture

It is not serious to speak about free market system and bailouts.

May be it is a good time to ask a very simple question: how could a poor country as Cyprus have more than $60B in local citizen deposits? May be Cyprus government shall stop offering its citizenship to mafia & gangster members from all around world? Cyprus and its government were/are involved in criminal enterprise and its citizens must pay price for it.

 

So, it is the time to stop feeling sorry for thieves and gangsters losing some of their ill-gained money and “poor” citizens who happily benefited from these hot money.

taraxias's picture

What an idiotic post.

Yes, I did junk you, wish I could do it again.

MassDecep's picture

"Cyprus and its government were/are involved in criminal enterprise and its citizens must pay price for it"

 

That's like saying confiscate all the guns in the country because a drug induced idiot went on a shooting rampage.

 

 

The Heart's picture

Well, these guys are really starting to throw the yippie-yi-yo all over aren't they now.

"The European Central Bank, whose Governing Council meets today in Frankfurt, will also have to decide whether to give Cyprus more time or consider cutting off liquidity to the country’s banks."

Hummm...cutting off liquidity. Does that mean a freeze on cash withdrawals? Is that like the mean old crooked landlord cutting off the heating in the middle of a winter storm or something?

"This is not a good result -- neither for Cyprus, nor for the euro zone, and we have to look together for alternatives to the negotiated package,” Frieden said yesterday in a phone interview from Frankfurt. He called the vote “very sad news,” though said the decision by its parliament must be respected."

http://www.bloomberg.com/news/2013-03-19/europe-weighs-cyprus-s-fate-aft...

All this money changer stuff is really so confusing sometimes. Especially when one considers that so far as anyone knows, or maybe they do, but to date(3-19-13) has anyone really been taxed yet, or had anything taken from their bank accounts after the levy tax? Reckon there needs to be someone on the ground reporting there to ask if anyone has actually been BANK HEISTED/tax levied/devalued/robbed/obamacare taxed....Bing bada bang!! That's it! It's the obamacare tax!

Hummmm...pondering in high gear.

 

BorisTheBlade's picture

That's why the next phase of the entire operation will be to impose capital controls in the name of saving banking system. People who didn't get their money out already are essentially fucked.

vamoose1's picture

they  will   not  open   friday   after just now  cancelling   thursday.....    it   squeezes   depositors   too   close  to   a  weekend     but   if    they   wait  till   next  week   thats  a   ten  day   closure     thats   too   long      rock   and  a   hard  place  cooked

Northern Lights's picture

If I were a Cypriot, I'd be lining up tomorrow afternoon (Wednesday), in order to be the first in line when the bank opens Thursday morning.

Yes, for certain Cypriots will be cleaning out their accounts Thursday morning.

After all, if the government gets nervous, they could call another vote and vote to re-institute the "theft" of deposits.

That countries reputation as a banking haven are tarnished forever.  It's going to turn from a banking hub to a tourist hub within a year.

Pseudo Anonym's picture

obviously you dont have much cash in your bank so you cannot relate.  if you had, let's say 100K, 1MM, 10MM - how would you withdraw that type of money?  and if you did, where would you keep it? under your bed?  if you were going wire the money to some place, where would you wire it w/o drawing attention to yourself?  and if you managed to find this special place to wire your money, how would you know that the same would not happen?  see?  once you start thinking in hundreds of thousands or millions, the problem how to withdraw your funds becomes that much bigger.

verum quod lies's picture

Surely you jest; or obviously you have never moved around large sums of money. It's done through the 'financial markets' and large volumes are moved every business day, even for example, and maybe especially, large volumes of drug money can be washed through the system with apparent ease at the mere press of a button.

Pseudo Anonym's picture

aaah, i see.  that' why the poster above, northern lights, is lining up at the door.  to press the button.

I'd be lining up tomorrow afternoon (Wednesday), in order to be the first in line when the bank opens Thursday morning.

to move his large balance as you suggested, by pressing a button;  besides that, my question clearly was where, these days, do you move it w/o attracting attention and exposing yourself to yet another haircut?

tip e. canoe's picture

as biggie smalls said so eloquently : 

mo money, mo problems

NoDebt's picture

Agreed.  Which leaves them what alternatives moving forward.....?

This may not be a very nice thing to say, but I'm starting to think that Europe is almost as un-fixable as the Middle East.  My thoughts on the place only get darker from there, so I'm not going to share them.

WHAT A CLUSTERFUCK.

verum quod lies's picture

I generally agree; but you don't see any parallels with the U.S.? For example, how many citizens actually wanted TARP vs. how many politicians and their handlers?

rotagen's picture

Don't give em a damn penny, and if they take it from you, make the politicians and bankers pay, the longer you wait for the inevitable revolution the worse it will get.

Alpo for Granny's picture

Right now.. across the world from me in tiny Cyprus, there is a man sitting with his head in his hands and that gut wrenching, awful feeling of doom is washing over him.  Fear. Uncertainty. Regret for trusting the bankers. He is kicking himself in the ass as I type and you read.

"Fuck I should have withdrawn it last week. All my work..my life's savings..may be gone. I now may have nothing. How will I live and retire?"

THINK ABOUT IT.

YES...YOU.

THAT GUY NEVER THOUGHT IT WOULD HAPPEN TO HIM.

DON'T BE THAT GUY.

GET YOUR MONEY OUR OF THEIR BANKING SYSTEM (wherever you are) AND INTO PHYZZ.

DO IT AS SOON AS YOU CAN IF YOU HAVEN'T ALREADY.


Archduke's picture

 

let's not forget how cypres has enormously benefitted from the un peacekeepers, pax europa,

all the while squandering euro funding and flaunting tax evasion and money laundering.

europe is saying: time to pay back -we don't care how you do it -but if you don't...

 

it's good of you to mention the turk elephant in the room

they have been unusually quiet in the western press,

 

 

 

 

toys for tits's picture

 

 

The IMF says they aren't money laundering.  But even if it's true do you think the Troika just now found out? NO. They've known that those banks were broke because they're the ones that gave the greek bondholders a 70% haircut.

http://www.spiegel.de/international/europe/imf-and-europe-disagreement-c...

tip e. canoe's picture

yes, and probably were the ones who "encourged" the Cypriot banks to buy those Greek bonds in the first place.

TraderTimm's picture

I want to thank Cyprus and the Eurogroup buffoons for spiking interest in bitcoin from spain and other countries. Just wait until other EU savers are "taxed". This is going to be quite epic.

machineh's picture

the idea of a deposit tax and the way it was adopted has released something poisonous in the air.

Schaeuble farted!

Renewable Life's picture

I predict the banks won't be open for more then 3 hours on Thursday!!

You can not put this genie back in the bottle!

xtop23's picture

It's an electronic world. 3 hours is considerably longer than any of those banks will remain open. 

I'm guessing 20 minutes? Tops.

If they reopen at all.

ronaldawg's picture

My understanding is that the banks cannot open without the 17 billion bailout.  The banks will stay closed until the deal is reached - anyone want to bet who blinks first?  i think it will be the EU.

defender's picture

You think that the reaction now is bad, just wait until they close the banks again.  A person can go a week without food if they see sunshine at the end of it, but if you change that sunshine with the palor of dispair, the pale of death will be fast on its heels.

lewy14's picture

In these unprecedented circumstances, what basis is there for a relationship of trust between Cypriots and the eurozone?

This destruction of trust isn't an unfortunate consequence. Rather the destruction of trust and the forced realization among the people of Cyprus that they are without alternatives - without freedom - is precisely the point.

A Lunatic's picture

How dare those greedy fuckers have savings...........

toys for tits's picture

 

 

Thanks Tyler(s) for recognizing this as the important story that it is and covering it so well.

Are there European deposit stats that can be published? This will probably be the only way to show the bank runs.

TheProphet's picture

Agreed. ZH was all over this and understood why it was important. Only later did the FT and the WSJ catch on. Hours and hours later.

It would not surprise me to find they read this site looking for what matters and why.

ronaldawg's picture

FT and WSJ - the official proproganda arm of the banksters...

tony bonn's picture

this theft will force the cypriots into the russian arms.....that reaction was intended because it is the hook in the jowls of russia to entangle it in the eu....the eu doesn't necessarily want russia in the eu, but wants its tentacles in russia to control it economically....

the eu is run by the most sophisticated rockefeller nazis....attributing stupidity to them is a  gross miscalculation....

Alea Iactaest's picture

Something doesn't add up.

Last I heard Germany was cozying up to Russia to create a new eastern alliance that would be friendly with China and Iran. House of Saud was due to collapse. EURUSD was rangebound at 1.30 (+/- 5%) and US was losing reserve currency status. Race to debase was in sprint mode.

What's changed? Not much except now we're supposed to believe that Germany and Russia are playing tug-of-war with Cyprus in the middle and Russia will imminently have a warm water port and a stranglehold over gas supplies for western Europe. With no opposition from the west. Right.

The key question has not been answered: why now?

Indeed.

jonjon831983's picture

Been keeping this in back of mind when I heard of Cyprus: "Putin Backs Efforts to Compel $1 Trillion Repatriation

http://www.bloomberg.com/news/2012-12-12/putin-backs-efforts-to-force-1-...

Rich Russians will be scared and running once their accounts are unlocked.  EU forcing Cyprus to propose the deposit levy, either dumb or really smart part of plan to assault "hot money" locations.  Places like Switzerland already under attack for tax avoiders by the US.  Cyprus another big target, this time to help Russia repatriate funds.

 

Here's one that CNBC just tweeted: "It's Been Ten Years Since the Goldman-to-Cyprus Theft Trial" "http://www.cnbc.com/id/100569798"

They're systematically destroying banking havens.

Archduke's picture

we accuse govts of colluding with tptb.

yet here's a fine counterexample.

 

perhaps it's more accurate to say, they're going at it slowly,

going after some tax havens with prejudice, preferrably those

that back other nations' savings.  this is a sacrifical lamb orgy.

 

 

Day_Of_The_Tentacle's picture

My guess is that it is because they are ready now - to introduce the new trade settlement system.

That does not excuse them from being a bunch of dishonest bullies as per below post.

sitenine's picture

@tony bonn, who wrote, "the eu is run by the most sophisticated rockefeller nazis....attributing stupidity to them is a  gross miscalculation...."

+1 for the good laugh

TheProphet's picture

But this is where i am struggling. Do you think all of this was a happy accident?: That's naive.

No. Germany has had enough. Maybe they've repatriated enough gold, maybe they finally can predict a path to the return to strength for the Deutschmark, whereas there is no end is sight in the Euro scheme.

So, yes, they siezed the wheel and for a while paid for the gas, and now, helmet and fireproof and seatbelt on, are driving the car off the cliff having carefully calculated the impact, and the time required to recover.

sitenine's picture

"Do you think all of this was a happy accident?"

Here's my theory on that: It's not really that 'they' have to plan shit at all, is it? Debt is money, and 'they' have all the fucking money, so 'they' win regardless. Seriously, what the fuck do 'they' care either way? ;)

ChacoFunFact's picture

in mother Russia we have saying....  worse is better.

max2205's picture

I am going withdraw everything tomorrow

Truther's picture

Fuck you Rockefellers.....And all the retards that subdue. Period.

bankonzhongguo's picture

Seems like a physical run on the banks is inevitable.

The (joke) Cyprus Central Bank or whomever is decreeing the banks stay closed are going to take their take on depositor BEFORE the Thursday reopening?

I don't think they can act that fast.

If they keep the banks closed for weeks until the steal what they want it will destroy all bank confidence.

If they rape the accounts in the next 24 hours, the same confidence is destroyed.

Now THEY are talking the same game in New Zealand?

 

IamtheREALmario's picture

One has to wonder on which balance sheets the billions of Russian deposits lie. Could the Cyprians have been so stupid as to depost the money as collateral with the EU, the BIS, the IMF or any other central bank? Did they lose it betting on Greek bonds? It looks as if the Russians are about to get Corzined and they will most likely get pissed and take out contracts on the Eurocrats.

zorba THE GREEK's picture

Lam... I believe you have it nailed. That is exactly what Cypriots did with the money. They "invested" it in

Greek bonds and MBS and other now worthless junk. They probably leveraged it up too, so they are beyond

broke, they are deep in a hole. The Russian mob should have bought gold with their money. How can the Cypriot

government take 10% of something that doesn't exit? The whole concept is a scam. The only money in any banks anywhere

is what central banks are printing and pumping into the banks. Bank deposits are like Social Security, it was borrowed "stolen"

long ago and only exist as debt somewhere.