25 Lessons From The Cyprus 'Deal'

Tyler Durden's picture

There are many lessons and implications from the Cypriot crisis (we list 25 here). Among the most important is that conditionality is back, energetically, which is very important when considering the circumstances under which other, bigger, countries might access ESM or OMT. We believe, like BNP's James Mortimer-Lee, that the market has been too complacent, seeing OMT and “whatever it takes” as unconditional – that’s wrong. A second lesson is that a harsher line is being taken by the core. This partly reflects more effective firewalls, so that core countries are more willing to “burn” the private sector, where doing so does not represent a serious systemic risk. Cyprus may not be a template, but we have seen enough to glimpse what the new pan eurozone bank resolution system could look like. Risk for certain classes of stakeholders in banks has risen. We are a long way from seeing the eurozone crisis resolved.

Via Paul Mortimer-Lee, BNP Paribas,

There are many lessons to be learned from the Cyprus bailout, and plenty of implications for how things may develop in the future. We list 25 here, but there are more.

Lesson 1: Do not underestimate the ability of the eurozone to do the right thing – after all the alternatives are exhausted;


Lesson 2: Eleventh hour deals can often lead to mistakes and have unintended consequences. The decision to haircut depositors under EUR 100k was a pothole the Troika fell into. It questioned the integrity of the EUR 100k deposit guarantee;


Lesson 3: The disappearance of Mario Monti from the scene has reduced the influence the South has on decisions about the future of the euro;


Lesson 4: There appears to be bailout fatigue in Germany, the Netherlands and Finland. Mrs Merkel is prepared to be tougher ahead of the election than many thought;


Lesson 5: The new Chair of the Eurogroup, Mr Dijsselbloem, seems to be a hardliner compared with his predecessor, Mr Junker from Luxembourg;


Lesson 6: Mr Dijsselbloem can sometimes be too outspoken and not sufficiently diplomatic. Beware future gaffes;


Lesson 7: The ECB is prepared to use the ultimate weapon – “no more money for your banks”. This is not exactly ejecting a country from the eurozone, but would amount to making it very difficult for it to stay in;


Lesson 8: Such a threat has profound political implications and is above even Draghi’s pay grade, so must have the backing of Mrs Merkel and others;


Lesson 9: When a problem is not seen to be systemic, there will be reluctance in Germany and like-minded countries to use taxpayers’ money to solve it. Cost/benefit balancing will ensure each case really is “unique”;


Lesson 10: This puts private interests at greater risk in absorbing the financial pain, or at least the first tranche of it, especially in small non-systemic countries;


Lesson 11: “They” (the Troika) will seek to use private money where they can to limit the size of public sector involvement. While each case is unique, the principles are the same. In Greece, government bondholders took the pain; in Cyprus large depositors. Each case is “unique” but there may well be further “unique cases”, each different in its own special way;


Lesson 12: When it comes to resolving banks’ difficulties there is a hierarchy of who will take the pain: shareholders first, then junior bondholders, then senior bondholders, then large depositors, then the state, then foreign taxpayers;


Lesson 13: How much pain the private sector will take depends on whether or not a problem is seen as “systemic” or not. The less systemic it is, the more private interests will suffer;


Lesson 14: Some countries see firewalls as adequate. So they are now prepared to “burn” stakeholders who were previously protected;


Lesson 15: The probability of direct bank recapitalisation by the European Stability Mechanism (ESM) has gone down;


Lesson 16: Moral hazard has been reduced;


Lesson 17: We crossed a Rubicon of sorts when capital controls were introduced in Cyprus. A Cypriot bank euro is not freely exchangeable with German bank euro. The euro area became more fragmented;


Lesson 18: It may be more difficult to remove capital controls than expected;


Lesson 19: A precedent for the use of capital controls has been set that can speed up capital flight in a crisis, raising the probability of their subsequent re-use;


Lesson 20: It would be surprising if larger depositors were not making defensive moves out of weak banks and banking systems. Watch the scale of ECB MROs and ELA operations;


Lesson 21: The Cypriot economy will see a major recession;


Lesson 22: The Cypriot programme will, consequently, prove to be too optimistic, there will have to be another;


Lesson 23: While Draghi has bought time, the fundamental problems in the eurozone are a long way from being solved, and can come back to haunt markets;


Lesson 24: Do not expect Russia to take the loss with a feeble protest – there will be consequences;


Lesson 25: Conditionality is very important to the core countries. There is no such thing as a conditions-free bailout. There are no blank cheques and no free access to Outright Monetary Transactions (OMT) or ESM. There is no such thing as a free lunch (unless not having a free lunch threatens the system).

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knukles's picture

Jesus this is getting tiring

seek's picture

Pace yourself. This is just the warm-up.

kaiserhoff's picture

Lesson #26 - Doing business in any form larger than a lemonade stand is impossible in the South until they GET THE HELL OUT OF THE EURO.

Lesson #27 - There is no problem so awful, that the EU can't make it much worse, and destroy all incentives for the private sector.

Xibalba's picture

Lesson #28 - the first 27 lessons were really about the USD

Schmuck Raker's picture

Lesson #29 - Don't eat all your popcorn in one go. You'll get a tummy-ache.

TheLooza's picture

Lesson #30 - An uncovered BJ from a hooker is a sure way to get herpes.

dick cheneys ghost's picture

Good point.......Jim Willie writes in his latest letter that Cyprus could be all about the petro-dollar........

''Cyprus might indeed have been all about trying to save the Petro-Dollar, more than the European banks. Perhaps the Moscow Summit dictated the Cyprus timetable.''



Buck Johnson's picture

I know, who's going to want to do business with any country in southern EU if said country has no say in it's future.  Hell, Cyprus politicians essentially went quite after this.  They should get out of te EU and save their country.

Not Too Important's picture

I hope no one was thinking of purchasing farmland:

'USDA agricultural census program is a covert surveillance operation to compile government database of food and farm assets'


cherry picker's picture

We continue to hear the "sky is falling", but it hasn't happened yet.  There is a lot wrong on this dissfunctional planet and a lot right too.

At this point in the ball game, I no longer believe anyone until I experience for myself.

I started reading Zero Hedge some three years ago.  Some contributors keep on sounding like doomsday will happen within 24 hours and it hasn't.  ZH has to sell its advertising too and good news rarely sells.

Banksters's picture

Are you fucking kidding me?  


THe mother fucking fed is printing 85 billion dollars a month.  48 million Americans are on food stamps.  9 plus trillion dollars of deposits are backed up with a few billion  at the FDIC.  Banks are marking their assets to myth.  


I could go on, but the point that zerohedge contributors are making is this:  This fucker is going down and here is why.   When, well like wtc7 that depends on when they decide to pull it.  How would be easy.  Pull QE and raise interest rates 1/2 point.   The market would drop 2000 points in a day.



northerngirl's picture

Amazing isn't it?  You can pacify 48 million American's with a few hundred dollars a month in food stamps.

RafterManFMJ's picture

 Dude: Look, nothing is fucked, here, man. 
The Big Lebowski: Nothing is fucked? 
The Big Lebowski: The god damn plane has crashed into the mountain! 

GCT's picture

Spot on Banksters. 

For the fellow stating we are all doom gloom and then boom!  I read ZH daily and have for two years.  I am not the sharpest tool in the shed.  Having said that not one time has ZH stated the world will end tomorrow.  The Tylers are merely pointing out this is not sustainable and if simple math is applied it will indeed end.  As a matter of FACT every single time in history when these types of operations began, coupled with voters voting wealth on the back of the taxpayers, the system has failed 100% of the time in recorded history. So is this time any different?  Not at all.

People think they can wish and hope and dream this will not happen to them, when it is already happening to them.  I love the comments about the frog in the slow boiling pan many use here.  This is exactly what is indeed happening.  If you think your government is out to save the people your dreaming at best or just plain ignorant believing the propaganda. 

I will agree there are alot of comments about doom and gloom but the reality of the situation is we are being screwed while crooks are making off with your money and will never see the inside of a jail cell.  Already has happened many times.  Wake the fuck up we are not doom and gloomers just people that state many things that are already reality if you only opened your eyes.  ZH was the first followed by a British site to point out thie is outright theft of depositor's and the money in the know got out of this deal.  Guess what it has happened and now the EU wants to know where the money went lol.  Hell leaving branches in countries open where the EU had no control tells it all! 


LoneCapitalist's picture

Well said. But if they pull QE rates will go up way more than 1/2 %.

IridiumRebel's picture

Seems you and a few others have doom fatigue. God plays a long game. Just when you think this will sort itself out will be when you caught with your pants down. Do a little something everyday. Keep positive and have fun. Love much and establish your community. It's coming. Be prepared, but not scared. We can do this. We shall overcome.

masterinchancery's picture

Well said. Yes, the shit will hit the fan exactly when you least expect it, probably on a Friday afternoon or holiday, so plan for that. Otherwise, seek joy and love.

RaceToTheBottom's picture

Plus your community will help you when you have to splat someone for stealing your carrots.

JR's picture

 When a great nation with the promise to have been one of civilization's greatest achievements has been torpedoed and now takes on water as it may head to the bottom, then some of those dire predictions are not only warnings but they are just now, just this minute, underway.

The daily reports on Zero Hedge are hardly cautionary tales; they are details of disasters. Cyprus has all but been destoryed. And the dominoes in the European Union are leaning and falling: Greece, Spain, Italy, Portugal, Ireland... Only the banker-financed world media would have the people believe that this is a rough patch in man's history.

It is no a rough patch when tyrants are at the controls and millions of innocent people are having their lives destroyed.

Cherry Picker, the sky has fallen. You just can’t see it because of the clouds.

It is a bargin my friend's picture

Cherry..just because things never happened at the pace you expected them too dosen't mean they never will, you just miss judged the current at which posters post. A few years is nothing in the timescale of things

valley chick's picture

Exactly.  I had read an article on the Economic Collapse Blog regarding how the system would come down...step by step.  At the time I thoroughly disagreed with it thinking it would be something that would trigger an event and then the floor would fall out.  Obviously I was wrong.  So another step down we go...another step closer to the bottom.  I just take advantage of the extra time to keep on stacking and preparing. ;)

dudebum's picture


The 'when' question is the hardest one to answer.  It could happen in the PIIGS next week and still see Germany, UK, US good for months maybe even years.  The problem is, when it hits my town I better have some way to get my basic needs met because that will get a whole lot harder real fast.  Just how much harder - it depends, just how fast - depends.  Tail scenarios don't happen in many of out lifetimes so we just don't have the experience to guide us.  I just hope my preparations are good enough when I finally see it.

exartizo's picture

you misspelled "dysfunctional"

AurorusBorealus's picture

Predicting the future is difficult business.  Social Science is an oxymoron... economics included.  Human civilization (what is left of it) is not a laboratory system with predictable outcomes as variables change.  Do not believe any economist who tries to make this argument... in fact, this is one of the primary problems with economics, in general, the belief that human society correlates with some mathematical model or logical set of theorems (this includes Austrian School economics).

Good sense is the best one can hope for... and who do you think has better sense... Tyler Durden, et al., who have been pointing out that Europe is not fixed, that the U.S. is in the same straights, that big banks and government are 1-in-the-same, that the current fiat-debt-as-money-fractional-reserve system is inherently instable or the apologists who continuously insist that all is well even as one leak after another appears in the dam of the world financial system?

algol_dog's picture

While I cam relate to your sentiment at times, regarding the endless tirades here of impending doomsday, keep in mind that by the time you "experience" that fact, the time will be over to do anything about it.

I like to use zero hedge as a barometer of what my risk is out there. To be forewarned is to be forearmed ...

Tango in the Blight's picture

You are like the type who after all his neighbors got burglared still says "It can't happen to me" and refuses to upgrade his locks even when he is advised to do that.

And after he does get burgled hollers "why didn't the government protect me from burglars?".

Banksters's picture

Apply Cyprus to the US

There is no way that the largest wave of retirees in the history of the planet- US and European baby boomers  will get anything close to what they thought they had.   It is simply impossible.  Either they get seriously devalued fiatscos or they are told outright that the pensions, ss, bank accounts, IRAs, equity portfolios, etc, are going to be "taxed" or "levied".   I think they are docile and depressed because they intuitively know this will happen and they also know that revolting will definitely precipitate this outcome.  Therefore, they sit on their asses waiting for the news.   And it will come because of simple mathematics- plot credit growth vs wages and inflation.  Add in a few dashes of medicare and SS and you will see the graph quite clearly. It spells FUCKED.


I'm not sure what is wrong with the rest of the population.  Is it the water, shitty food, tv, lack of exercise, or the some combination thereof,that has resulted in pathological apathy?   All I know is that I am a pissed off, well informed human being, that is chomping at the bit for SOME TYPE of action, preferably criminal prosecution, though I'm not holding my breath..   As the London cab driver aptly put it, " these bankers are like pedophiles, they can't stop themselves..."   


I know, I am a terrorist, and all that shit.   FUCK YOU OBAMA, HOLDER, CONGRESS, and the JUDICIARY.  FUCK YOU!

akak's picture

You just summed up in one succinct phrase the very concept and phenomenon that I have been trying for the last several years to put my finger on, and I wish I could give you 1000 up-arrows for it:

Pathological Apathy

Let that be listed as the cause of death of Euro-American freedom and prosperity.

Bicycle Repairman's picture

One of the main political tenets of politics is to spread the pain around.  As long as there is a system, that's what will happen.  The idea that the baby boomers will be singled out for some kind of retribution is not reality based.  It is simply something from some juvenile's wish list.

gonetogalt's picture

Off topic, sorry, but I need some guidance. I need to take 50 oz to Europe, either the UK or Holland in a few days.  I'll probably wear rough cast jewellery to leave home port, but the question is, will I have a problem entering either of these countries? Anyone with real knowledge out there? I'd prefer to have it in a carryon.

disabledvet's picture

sew it into your clothes. wear dark glasses. have an entourage. call yourself a rock star. that's what i did...had no problems whatsoever.

Solarman's picture

Sell it and take $1500 in cash and rebuy it in Europe if you are that worried.

donsluck's picture

Gather ye coinage of many realms. Put thine pure coinage amingle. Place in coin tray at security. Pass through.

DangerClams's picture

Gather ye coinage while ye may?

Mine Is Bigger's picture

If you are talking about 50 oz of siliver, then I don't think you have anything to worry about.  I flew with 200 or so oz of siliver in my carry-on from NYC.  At JFK, I was pulled aside to explain what they were.  I just told them coin cllecting is my hobby, and I also regard my collection as my retirement savings.  The guy looked at me strangely.  But that was it.

Unless you act strangely, it is highly unlikely you will be stopped at the customs in the U.K.  I can't tell you about the Nertherlands, since I've never been there.

Hope this helps.

RaceToTheBottom's picture

I fly weekly and for the last few weeks I have been carrying 100 OZ Silver bricks back home in carryon. 

1)  Each time I have been pulled out of line cause the brick shows up on the machine.

2)  Ask for a "personal screening" if you are traveling alone.  They will bring you into a separate cubicle and open your bag to find the brick.

3)  Make sure the brick (or whatever) is in a brown paper bag, because they will have togather it up and put it through the machine by itself outside of your bag.  Stay within eyesight of the TSA workers and joke with them about letting it out of your sight as they will be carrying it back to the XRay machine.  You cannot go with them.

4)  When it goes through the machine again and you get both your bag and your brick (or whatever) back again, thank them and put it in you pack and move on.  They are minimum wage slaves and will undoubtedly do worse than you when TSHTF.

5)  Thanks for your question, I am going to try something new this week: I will separate the brown bag from the pack when I first go through the machine.  That might remove the need for them to do the second trip.....

Good luck sir.

e-recep's picture

convert it to fiat, swift it to your own account, buy coins there where the metal will stay and not move. i wouldn't go thru customs with such a load. only in case of emergency maybe.

Tango in the Blight's picture

Sell your PMs for fiat, exchange into Bitcoin, put Bitcoins on a memory stick or on your laptop, tablet, smartphone whatever. Go to Holland then sell Bitcoins for euro's (try localbitcoins.com). Go to a reputable Dutch gold dealer such as Doijer & Kalf or Amsterdam Gold and buy PM's there with cash (at an amount of less than 11,000 euros per transaction else you have to show identification and it it will be reported). If you try to smuggle your phyzz into the country you risk confiscation, if you declare it you will be severely taxed. Same thing applies to the UK I guess.

one-in-nine's picture

It is getting old but this is a marathon, not a sprint. Just when you think it's over another shoe drops and you realize you are know where near the finish line. It's not over yet and it's definitely not safe.

I was a bit slow getting started not realizing we were closing in on end-game until Lehman Bros went TU, then I reduced exposure to anything related to banks. We were nowhere near end-game, but thinking we were got me thinking seriously.

Most people are still clueless and have no idea what is happening in Cyprus or why they should care. Greece, Cyprus, Italy, Slovenia -- what's the big deal? Who are the PIIGS and why do you spell it with two I's? Face it, most peeps don't know, don't care and don't want to be bothered.

It's a marathon, but it's not a race; all you gotta do is finish on your feet.

Why didn't PIIGS have a "C" in it?

paperlessforms's picture

Is the location of Cyprus a factor in that it is not so easy to bring Euros into the country across a land border. So controls are more effective?

kaiserhoff's picture

I think not.  Grand theft is the issue.  Cash flow is a side effect.

Where the island comes in, is you can't easily go across a border to get gas, hang out with relatives for a while, or pick up an illegal BB gun.

Yen Cross's picture

   True that Knuks. That list was about [15 Lessons] redundant.

The Reich's picture

Thank you for calling the Department of Redundancy Department.

GFKjunior's picture

Most of ya'll on ZH have probably seen it but I recommend this documentary on 3d Printed Guns.


A must watch.

My favorite line is "I don't think we're utopians. I think the real utopia is the idea you can go back to the 1990's and everything will be perfect forever. All we are saying is; No You Can't. Now there's the internet."

hairball48's picture

I hadn't seen this video.Thanks

Very interesting. I'm surprised Cody is still among the free and living.