Submitted by Mark J. Grant, author of Out of the Box,
And the Answer is Uniastrum
It's funny how things are done in Europe. Nothing is as it seems. Then everything is orchestrated to try to get you to believe what they want you to believe. The Cyprus fiasco is one good example. The Dutch Finance Minister and Chairman of the Eurogroup broke ranks and spoke the truth; there is now a template in Europe for financial bail-outs which include losses for bond holders and depositors. The ECB had almost all of its members deny that there was any template. Then Spain denied, Portugal was on the tape so many times yesterday denying that you thought it was the newest Cadillac commercial and then virtually every other country in Europe had somebody in the Press with their own denials. "One-off" was the word of the day and the giant European propaganda machine worked well into the night.
The problem is the way these things work. The reporters, from any news agency, are handed out stuff from the government. They have to publish it. There is no choice. So it appears as official jargon that they hope we will all believe. Then the members of the Press cannot be too critical or say too much or they will be shut off and ostracized by Brussels or Berlin or wherever they reside. Consequently much of what we read in or from the European Press is less than forthcoming. Not lies necessarily; but not exactly all of the truth. I do not fault the Press one iota here because there is nothing else they can do but I caution you not to believe too much of what you read. America has much more, significantly more, freedom of the Press than Europe allows.
So let us then turn back to Cyprus and see why the Russians are not quite so upset as they were at the beginning of the crisis. The answer to this question is Uniastrum bank which is headquartered in Moscow. Eighty percent (80%) is owned by the Bank of Cyprus. After the crisis began and right up until the capital controls were implemented the bank was open for business with no restrictions upon withdrawals. So the crisis began, was all over the Press and the Russian depositors walked into the local bank and withdrew their money from Uniastrum, the Bank of Cyprus, or had it wired in from the other local Cyprus banks and it was then withdrawn. Problem solved!
At the same time Laiki bank and the Bank of Cyprus had operating branches in London. There were no restrictions there either so people could walk into those banks and withdraw their money as well. No restrictions at all right up until the time of the Capital Controls. In the meantime, in Cyprus, people and institutions could not get at their money so the Russians and many British took out their money, closed their accounts while the people in Cyprus were left high and dry.
Then the EU and the ECB took a fresh look at the deposits in the Cyprus banks and went ballistic. A huge chunk of the money that was thought to be in the banks was now gone. The amount the depositors were supposed to cover of the European loan was now not what anyone thought or was lead to believe when they were having their late night summit on Cyprus in Brussels. The EU could not reconvene and look like idiots. The CEO and the entire Board of Directors at the Bank of Cyprus was fired and the European Union flew into a tizzy, announced nothing, and had the ECB cover up the disaster. The Cyprus Parliament will be investigating all of this we are told but in the meantime; the money is gone. How much is anyone's guess but I would bet that a significant portion, billions and billions, is nowhere to be found. The EU will make the loan as described, the ECB will provide the rest of the money that can no longer come from the depositors and the cover-up is locked down. That is my assessment of what has happened.
In the short term the Europeans were stupid but in the medium and longer term they were really, really stupid. For a paltry amount of money they ruined Cyprus and it will be in worse shape than Greece in the not too distant future. Cyprus has also played the game badly based upon the fear of leaving the EU and they will suffer dramatically for their poor judgment. The fallout from Cyprus is that the Russians, other Europeans, the British have now been shown exactly what can and did happen when the European Union needs to bail-out some country or another. I predict you will see major capital outflows from Luxembourg, Malta and anywhere else that was once deemed a safe haven.
Goodbye and thanks for all the fish!
Europe, in their flight to pass the burden of bail-outs from the taxpayers so as to lessen their own political fallout has just ruined not only Cyprus, who will require more money certainly, but also the nations of Luxembourg and Malta who may also now be forced to turn to the EU for help. Then we have Slovenia on the brink and the much larger Italy and Spain that are standing there with them. Trouble in River City and BIG trouble in my opinion will be coming to a theatre near you shortly.
The imposition of Capital Controls will also cause further contagion. Quite obviously if it can be done in Cyprus it can be done anywhere the EU so chooses. The definition of a mattress is being re-defined in Europe. Some money may flow to the German banks but more, in my opinion, will flow to the American and Asian banks when that is a possibility. I would suggest that over the next few months that what money that can be moved out of European banks will do so and that the collective amounts will not be small. Europe has pulled out its German luger and shot itself in the foot or maybe the groin. Not dead perhaps but seriously wounded is going to be the result here and the markets, slow to catch on perhaps, will begin to get this joke which will cause all sorts of problems for the European bond and equity markets. Wider spreads, higher yields, more trouble funding and so on. If the Europeans wanted to find a way to cause the Euro to fall against the other major currencies they have done so but the cost will be significantly more than the gain.
When playing with revolvers it is a good idea to make sure the gun is not loaded. The Europeans obviously forgot to check!