Furious Merkel: "Cyprus’ Decision To Test Europe Is Unacceptable"

Europe's paymaster - that would be Germany for those who have not paid attention to events over the past four years - is not used to being snubbed. It certainly is not used to being snubbed by what every empty chatterbox and their kitchen sink will tell you is a "small and irrelevant" country (all the more so in the aftermath of last summer's embarrassing defeat in its head on confrontation with the ECB, in which the Bundesbank showed that sometimes the best offense is a gracious retreat). It most certainly is not used to not being invited to discussions involving the future of its precious mercantilist European union, especially when said union may no longer exist as we know it in 48 short hours. And Germany is angry.

From Bloomberg:

As Russia spurned the island nation’s bid for a loan, Merkel told a closed-door meeting of legislators in Berlin today that she’s annoyed the Cypriot government hasn’t been in touch with the so-called troika of international creditors for days, according to a party official who spoke on condition of anonymity because the briefing was private. Cyprus’s decision to test Europe is unacceptable, she told them.

“We’re not ready to accept solutions that are full of wind,” Michael Fuchs, deputy parliamentary leader of Merkel’s Christian Democratic Union, said after the meeting. “I don’t think it’s appropriate to play poker in this matter, especially when you think that there’s a risk that two banks will become insolvent next Monday.”

In other words, how dare the pesky Cypriots think a "union" is comprised of equal "units", instead of being a despotic tyrrany in which the adjusted version of the golden rule (perhaps explaining why the Buba is pulling all its French and a lot of its NY Fed gold) applies.

Germany will have none of that nonsense.

So while "experts" wait with bated breath for the results of today's Cypriot debate and vote, the reality is it is completely irrelevant, and any of the proposed terms and "resolution" ideas are irrelevant. Why? Because without Germany's blessing (which also means the idea should have originated with Germany in the first place), there is no solution, especially not one that benefits the abovementioned paymaster.

Which means either there is a deposit tax on the wealthy, which was the whole point of this carefully structured, politically punitive exercise, or there is no deal.

Because in Europe, like everywhere else, it is quid (even if it will soon be quit)-pro-quo.

Comments

[Bugsquasher]

Zo Frau Merkel tell us bitte vhy zee Cypriots zud be zo anxious to talk mit zee Troika ven it vaz zee Troika zat forced the Cypriot banks to buy zee vorthless Greek papiern in ordnug to save you and zee ECB ze last time around?

[Herdee]

Cyprus needs to let any insolvent banks go under.It is really very simple.The assets get divided up.Get bankruptcy over with and start over.Iceland did it and quite frankly,today they are doing just fine.Cyprus can easily stay an international banking center and market itself.All the banks in the world can go broke,who cares.That's the biggest mistake that the Americans made.The situation stinks of politicians protecting the banking elite.

[psyops]

The NationalSocialist German EU just did a summary execution of a small Eurozone country, on a brutal show of force to the rest of the South.They delivered an ultimatum to Cyprus, only choice being the means to kill itself and its economy.  From now on Southerner Untermenschen are to sumbit or be subjected to immediate famine and misery of their entire population. This is so 1941...
Cyprus was an EU major banking hub of the eastern Med. In a "normal" EU, its banking sector would have been safeguarded as an EU asset. In the racist, NationalSocialist 4rth Reich that is the "EU" now, it was seen as an opportunity for another final solution against one more repulsive, dark-skinned, usurious mediterranean tribe, that needed to be scapegoated and then killed off, the banking spoils being siphoned to Germany, Luxemburg, Switzerland and other german speaking safe heavens. Good God, Luxemburg has a banking sector of 26 times GDP, its a good thing they speak german! The morality arguement (moneylaundring , Russians) was just Goebbelist propaganda to instigate the racist ensticts of the German electorate and win Führer Merkel her elections.  This thing is economically irrational. It was politically and racially motivated. It is the beginning of the use of political terrorism and collective punishment against entire countries of Southern European Untermenschen, that would break them into submission to debt serfdom to their German Übermenschen overlords. The sooner the Southern Europeans get what Cyprus is about, the sooner this neocollonialist, postdemocratic, neofascist EU farce could end.

[psyops]

http://www.guardian.co.uk/commentisfree/2013/mar/22/cyprus-deserted-isla...

OutsideLookingIn 23 March 2013 3:10am Still pushing the myth that Cyprus is a dirty-money launderer for Russian mobsters? Some inconvenient facts:

(a) Banking assets of Cyprus are about 7.1x GDP relative to the EU average of 3.5x GDP and similar to Ireland and Malta. Luxembourg, by contrast, where Anglo-Saxon firms do their tax arbitrage has banking assets of 21x GDP. So, Cyprus’s exposure is similar to that of an economy that has large financial services sector, but that still has a real economy too. It is not Luxembourg nor the Cayman Islands nor the Bahamas nor the Channel Islands or the Isle of Man.

(b) 20B of the 70B of deposits in Cyprus are non-EU (aka Russia/CIS) which, while meaningful (28%), hardly dominate the system

(c) The banks are almost 100% deposit funded (something that regulators across the world have been encouraging because deposits tend to be sticky if you take care of them)

(d) Cyprus' problems largely arise due to their exposure to Greece, Cyprus’s neighboring economy, both on the commercial side, but most importantly and most critically because of the Greek Government Bond EU restructuring (this accounts for about 40-50% of the capital needs) which Cyprus signed up for in the spirit of EU / Greek solidarity. It was understood at the time that there would be some protection in exchange for this later on otherwise, Cyprus should have taken a harder line at the time such as ensuring the that Greek branches get covered by the Greek bailout.

(e) Cyprus has two money-center type banks: Laiki (Popular) Bank and Bank of Cyprus. Laiki was purchased by a Greek vehicle (Marfin Investment Group) backed by Gulf money. Marfin’s purchase of Laiki took Laiki from being a fairly conservative local bank to being highly exposed to Greece. Laiki is definitely insolvent and needs to be restructured.

(f) Bank of Cyprus has been more conservative vis-a-vis Greece, but still has meaningful exposure. It is conceivable that, given time, Bank of Cyprus could survive.

(g) Beyond the main two banks, there is Hellenic Bank (a much smaller bank with much less Greek exposure), Cyprus Development Bank (no Greek exposure), the Co-ops (no Greek exposure) and the Cyprus subsidiaries of foreign banks (aka, Russian, English, etc banks), also with no Greek exposure.

(h) All the local oriented banks (BoC, Laiki, Hellenic, Coops) have exposure to the local real estate market that went through a bubble during the 2000-2009 period. This exposure however is not short-term and could be resolved over the period of years. It is a problem, not a crisis, and is offset by the fact that the two main banks have quasi-monopolistic earnings power locally. Given the time and some financial represssion (a la the United States) and the local issues would be manageable yet the depositors with them are being hit to bail out the profligate ones. So much for moral hazard.

(i) There might be some true money laundering in Cyprus just like there is at dozens of Western banks (HSBC, Standard Chartered, and so on). However there are also legitimate tax reasons for investment in Russia to be routed through Cyprus (BP Russia is also a Cyprus company for example) for well-known and transparent tax treaty reasons, no different than Ireland, Luxembourg, Netherlands, Bahamas, Delaware, Nevada and so on. Moreover Cyprus and its courts uses English commercial law which makes it very attractive to international trade.

(j) This is not a bail-in of Depositors of Bank A to rescue Bank A, but a bail-in of Depositors of Banks A-Z to rescue Depositors of Bank A (Laiki), B (Bank of Cyprus) and C (maybe some small amounts to the others). There are for example 3B dollars of Russian money in a subsidiary of VTB in Cyprus, a perfectly solvent Russian bank. This will be haircut in order to bail out Laiki, a bank it has nothing to do with while the depositors in Laiki’s branches in Greece (aka a totally insolvent bank in a much more insolvent sovereign) will not be haircut.

(k) If you're happy that Cyriot savers should be punished en mass for having a 'bloated' financial industry that found itself in trouble, I must assume you would have no objection to having your savings docked the next time the City of London screws up.