A Word Out Of Place Sends Europe Tumbling

Tyler Durden's picture

Perhaps the best example of a "word out of place" comes from the new Eurogroup head, Dijsselbloem, also phonetically known as Diesel-BOOM, who just may have ushered in the next, next wave of the Eurozone crisis:

  • "Cyprus a Template For EU"

Er... wasn't it a special case, inside a unique case, wrapped in a one-time case? We will ignore the rather hilarious Freudian slip, and focus on what he was explicitly talking about with Reuters, which is the resolution model which was just put in place in Cyprus:

A rescue programme agreed for Cyprus on Monday represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors, the head of the region's finance ministers said.

 

"What we've done last night is what I call pushing back the risks," Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times hours after the Cyprus deal was struck.

 

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'. If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders," he said.

 

After 12 hours of talks with the EU and IMF, Cyprus agreed to shut down its second largest bank, with insured deposits - those below 100,000 euros - moved to the Bank of Cyprus, the country's largest lender. Uninsured deposits, those accounts with more than 100,000 euros, face losses of 4.2 billion euros.

 

Uninsured depositors in the Bank of Cyprus will have their accounts frozen while the bank is restructured and recapitalised. Any capital that is needed to strengthen the bank will be drawn from accounts above 100,000 euros.

 

The agreement is what is known as a "bail-in", with shareholders and bondholders in banks forced to bear the costs of the restructuring first, followed by uninsured depositors. Under EU rules, deposits up to 100,000 euros are guaranteed.

The punchline:

The approach marks a radical departure for euro zone policy after three years of crisis in which taxpayers across the region have effectively been on the hook for resolving problem banks and indebted governments via multiple rescue programmes.

 

That process, with governments and taxpayers bearing the costs and providing the back stop, had to stop, Dijsselbloem said. Recent financial market calm meant now was the time to make the change, although he conceded there was some concern that it could unsettle markets again.

 

If adopted by the euro zone, Dijsselbloem's template could also sound a death knell for a plan hatched nine months ago when the euro zone debt crisis was threatening to blow the currency area apart.

 

Then, euro zone leaders agreed that the bloc's future rescue fund should be allowed to recapitalise banks directly, thereby breaking the debilitating link between teetering banks and weak governments forced to bail them out. That may now never happen.

 

Asked what the new approach meant for euro zone countries with highly leveraged banking sectors, such as Luxembourg and Malta, and for other countries with banking problems such as Slovenia, Dijsselbloem said they would have to shrink banks down.

 

"It means deal with it before you get in trouble. Strengthen your banks, fix your balance sheets and realise that if a bank gets in trouble, the response will no longer automatically be that we'll come and take away your problem. We're going to push them back. That's the first response we need. Push them back. You deal with them."

Translation: it now officially sucks to be an unsecured creditor in Europe. In other words: an uninsured depositor.

Why this ad hoc dramatic shift in the European approach to bank solvency, which if anything makes the link between bank and sovereign closer than ever, and crushes all that Draghi achieved in the summer of 2012?

Simple: because what Cyprus allowed was the effective usurpation of democracy - the only reason the Cypriot bailout "passed" (at least so far) is because it was structured as a bank restructuring, a financial system "resolution", not a tax, and thus not in need of a parliamentary, democratic vote. Because as Cyprus also showed, votes to deprive depositors of cash, whether insured or uninsured, simply won't fly.

Hence the shift.

However, there is a problem: it means that depositors are now fair game everywhere, and that the ESM or EFSF, with their unlimited scope but "democratic" impleention pathway, are on the backburner.

And now, the scramble to pull uninsured deposits out of banks everywhere begins. Thanks to the new Eurogroup head.

"You ask for miracles, Theo. I give you Diesel-BOOM"

And now, every European depositor is going to their local financial dictionary to look up the definition of General Unsecured Claims, only to see a picture of... themselves.

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km4's picture

you mean Cyprus a Template For EU and FU

medium giraffe's picture

Yup.  Welcome to Fuckyounomics in SuperMarioLand.

defencev's picture

Simple: because what Cyprus allowed was the effective usurpation of democracy - the only reason the Cypriot bailout "passed" (at least so far) is because it was structured as a bank restructuring, a financial system "resolution", not a tax, and thus not in need of a parliamentary, democratic vote.

What a bullshit! Not only the restructuring law has passed their parliament but (to indicate the incredible hypocracy of local comments): the very same Tyler praised Icelandic government for refusing the bail out of local banks (and allowing huge losses of account holders in UK and Netherlands) and now blaming Cypriot government and EU doing exactly the same. Do you think we are total idiots?

Terminus C's picture

Do you think we are total idiots?

No, just you...

Frank N. Beans's picture

i think the difference is that Iceland itself did the dirty work to reset their banks, not the EU.

In the case of Cyprus, it was the EU banking committee that told Cyprus what to do. 

takeaction's picture

I never listened to Billy Corgan, or knew who he was (Never listened to Smashing Pumpkins).  Spend 19 minutes and listen to a very wise man...

#1 "Even if you are right it is so hard for your average American to believe it is true". 
#2 "Those people that don't react now...there will become a point when what is happening will touch them in a way such that they will have to do something about what is going on."

https://www.youtube.com/watch?v=SngRsxsHmCg

 

McMolotov's picture

I've always thought 1979 is one of the best songs of the '90s:

http://www.youtube.com/watch?v=4aeETEoNfOg

ParkAveFlasher's picture

1979 was after their peak. If you like that song, go back further.

IMO Siamese Dream - produced by the same cat who did Nirvana's Nevermind - was far more masterful a rock album than is widely known. 

Also, get the "Singles" soundtrack.  Although they were not a Seattle / NW band, SP's Drown cut is one of the most poetic tracks of the time and genre.

NotApplicable's picture

That cat would be one Mr. Albini.

Crash Overide's picture

+1 for Siamese Dream & Singles

 

 

Now back to the bank runs and chaos...

Cathartes Aura's picture

dudes!  a Billy Corgan break, nice.

my vote goes to Gish, his first - Rhinoceros. although there's something on each release that can stop you in your tracks. . .

Siamese Dream's Silverfuck live (roadies nightmare, ha), still one of my all time faves.  I admire him for being so open about his abusive childhood, and supportive of his fans/charities, letting others know they're not the only ones, he gives back.

by the way, Billy's been clued up for a long time, though he can end up in a few blind alleys along the way, heh - check the covers of his albums Zeitgeist (2007), and his latest is called Oceania. . . yeah.

B-side cover to Disarm single, of Fleetwood Mac's Landslide, can't find anything but a live version - which always has numpties yeehawing all through, grrr - but if you can find the actual single, it's an amazing version.

kk, sorry, what can I say?  music geek. . . you guys started it!!

chubbyjjfong's picture

Never apologise for being music geek bro. Music, the emotional medium, keeps us sane in this mad world (shout out to Tears for Fears). Massive respect to you for the post!

Cathartes Aura's picture

ahh no, I occasionally get shit about this being a financial blog, stop with the music links - and I do respect the space for this, but occasionally my inner soundtrack just bubbles over!

music has always kept me sane, my constant companion.

have you heard the Gary Jules version of Mad World?  directed by one of my faves, Michel Gondry.  *goosebumps*

thanks mate.

Randall Cabot's picture

Corgan should stay away from the secret jew supremacist agent Alex Jones though.

Meat Hammer's picture

It reminds me of a song that applies to all of us who are trying to expose the Matrix and are getting the "you're crazy" look.  

"Despite all my rage, I'm still just a rat in a cage."

Cathartes Aura's picture

Bullet with Butterfly Wings

just in case anyone else wants to hear it. . .

nope-1004's picture

There appears to be no need for a government in Cyprus.

 

 

medium giraffe's picture

This is also part of the EU template.

asteroids's picture

No, what it has shown is that Cyprus has given up its sovereign right to deal with monetary and fiscal matters to unelected officials at the Troika. The Cyprus parliament should have taken over and nationalized every single fucking bank on the weekend and made whole every depositor. It should have done that by selling every single fucking ECB bond it was holding. It should have taken the Iceland route. It's still not too late. The Cypriot politicians screwed up. They were looking for a free ride. There ain't no such thing. Now they are broke and they still have to answer to the Troika.

pods's picture

The plan that is being implemented reminds me of this:

 

“Everybody has a plan until they get punched in the face.”

 

English professor Mike Tyson

Wait until this one percolates down to the people.

pods

collon88's picture

"And if that doesn't work, wait until I bite their ear off!"

zorba THE GREEK's picture

It looks like gold and silver are also climbing on the news with gold nearing $1605.

But 321 Gold and Kitco are frozen, maybe due to heavy volume. They have done

this a couple of times lately.

zorba THE GREEK's picture

A slip of the lip, could sink the EU ship.

rotagen's picture

I got all you need to know about economics right here.

 

http://www.youtube.com/watch?v=gL0gWaZS_5w

Son of Loki's picture

"Fast & Furious" some say.

Ratscam's picture

What strikes me as almost comical is the lack of shock and disgust in the media and among the majority of the people on the street outside of cyprus and greece.
They seriously believe the words of their overlords: stay calm, everything is ok, now obey.
In the meantime I got more money out of the bank, dug more holes in the garden and bought a vault

PolishErick's picture

most people won't react at all untill they can't take anything out of the banks, the food won't get delivered for a week and they and their brats will get hungry. Thats when instead of getting angry at the government and banks they will come to Your house, to kill you, take your cash, bust the vault, and dig up your garden.

 

Sorry but thats just what they are.

PolishErick's picture

Nope... Just get the fuck out of the way of the mobs with pitchforks and torches... :)

 

Buy a shack in syberia or something... get crative... I dunno...

mick_richfield's picture

A job that you can work at remotely, and a house on 10 acres of land 50 miles from the nearest suburb, with good neighbors.  Stored food, firewood, & a fireplace.

The best way to win a battle is through manuever.

Go where the enemy isn't.

 

machineh's picture

Diesel is one the most explosive substances known to man.

If a small tank of diesel could bring down WTC-7, just imagine what it can do to the global financial system!

 

Ratscam's picture

in Oklahoma only half of the building came down, maybe the fertilizer mixture was a bad idea....

NotApplicable's picture

You'd think they could've done better given there were two explosions.

francis_sawyer's picture

Diesel-BOOM... Bubby!... I'm ya white knight...

DavidC's picture

"Cyprus a Template For EU" - what a fucking idiot.

I sat and watched the Eurogroup presentation last night. I-uh had-uh to-uh turn-uh the-uh volume-uh down-uh every-uh time-uh Olli-uh Rehn-uh spoke-uh. The smugness of Dijsselbloem made me want to kick the screen.

DavidC

DavidC's picture

Articulate, indeed.

Smug, yes.

DavidC

knukles's picture

Buncha class A fuckups. Epitome of some more equal than others.

THE DORK OF CORK's picture

@David

He is not a idiot.

Capital controls within the Euro (even more so islands) means a country cannot rebalance its external trade or function with any rational internal commerce.

The island fiefdoms transfers its oil & gas consumption to the core so that they can continue their global entrepot operations (think of the lowlands in the 1500 & 1600s )

The island surplus population is reduced as the people fight for the last euro in the company store.

,

As I have kept saying for some time now .............the Irish are worth more dead then alive within the Euro construct.

 

This very closely resembles the Irish disaster of the 1600s when these same global banks operating out of the lowlands & London moved to push Ireland into massive physical surplus via depopulation / extermination measures.

 

These banks will continue to push resourses upwards via interest bearing money............as that is what they have always done.

DavidC's picture

THE DORK OF CORK,
Yes, you're right, he's certainly not. And the points you make are spot on.

It's my anger at all this that coloured my terminology!

DavidC

HelluvaEngineer's picture

"Wait!  That's not quite how I meant it."

LetThemEatRand's picture

Notwithstanding Diesel Boom's words, Ben will make sure the American taxpayer is on the hook for all bank losses for the rest of time.  It's how he rolls, and Jamie needs a new pair of (diamond) shoes.

beastie's picture

Putin signs off on Cypress deal on condition he can pose for playgirl

http://screwtapefiles.blogspot.com/2013/03/putin-signs-off-on-cypress-on...

LetThemEatRand's picture

"Putin is pushing for a further concession involving posing with Chuck Norris and said, 'Not in a gay way. I want to do a cowboy type theme along the lines of a Fist Full of Dollars or Brokeback Mountain.'"   Not only is this hilarious, it is also a sad commentary on what appeals to the public in terms of "leadership."  It's just not that much of a stretch.

riphowardkatz's picture

Until the President returns to Cyrpus to impose this plan. You shoud wait for it to be a template until it actually is implemented.

And how is that template going to work when the magnitude of the loans from IMF/EU are much greater than 10 billion. Germany will not allow it.

 

 

Cursive's picture

He may have just as well have said, "ALL YOUR MONEY ARE BELONG TO US"

 

The European bank run is well and good started.

Schmuck Raker's picture

What happened to the green shoots I read about this morning? [sigh]

monopoly's picture

I never thought human beings, of any nationality could be so fucking stupid as to believe that what transpired this weekend was "good for the people of Cyprus and Europe".