The Seven Broken Taboos Of The Cyprus Deal

Tyler Durden's picture

Via Barclays,

From a European perspective, the list of broken taboos and assumptions continues to grow. It includes:

1. EU sovereign debt cannot be restructured: broken by the Greek PSI.


2. Senior bank debt-holders cannot be bailed in: broken several times with respect to banks in Denmark, Ireland and now two Cypriot banks.


3. Depositors are sacrosanct: broken by Cyprus – deposits greater than the formal guarantee (EUR100k) in the two biggest banks, with EUR4.2bn of uninsured deposits in Laiki Bank set for a large haircut of unknown size, and Bank of Cyprus deposits set for a haircut of around 35% according to several news reports (eg, Economist, Reuters).


4. Depositors should not be punitively taxed: broken by the Cypriot government and implicitly endorsed by the EU, but vetoed by the Cypriot parliament.


5. If capital controls are applied in the euro area, it is ‘game over’: broken by Cyprus – banks were shut for nearly two weeks; draconian controls of uncertain duration have been imposed.


6. Discussion of a euro exit is ‘off limits’: already it is apparent that euro exit was discussed with respect to Greece during H1 12; this topic again re-emerged last weekend with respect to Cyprus.


7. The EU can rely on the IMF to be sympathetic in providing financing without haircuts, even for countries with high public debt: from the Greek and now the Cypriot experience, the Fund is evidently evaluating new programmes more critically, particularly when debt/GDP ratios rise above 100%.

Cyprus can also be considered “the exception that proves the rule”. The euro’s core founding principles, based on the Maastricht Treaty’s “irrevocable” fixing of currency rates, and of the free movement of capital, have been violated. The euro will never be the same again; its preservation now depends urgently upon economic recovery. Without the delivery of economic growth, unemployment will rise to yet higher post-war record levels, and the widespread and growing disillusionment felt by EU citizens towards their economic regime will threaten to spill over into more explicit questioning of the euro’s suitability.

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TeamDepends's picture

The clothes have no emperor.

Motorhead's picture

When I think of Cyprus I also think of Garo Yepremian and his tie bidness.


Manthong's picture

Cyprus can also be considered “the exception that proves the rule”. “euro’s core founding principles, based on the Maastricht Treaty..”

Like the core principle that sovereign deficits of members shall not exceed 3 per cent?

It's a good thing that one wasn’t the single exception .

They might be in trouble if it was.

erg's picture

Seven deadly sins, seven ways to win, seven holy paths to hell and your trip begins.

Bicycle Repairman's picture

When I think of Garo "Ypremium", I think of his pass in the super bowl. It is an apt metaphor.

HardwoodAg's picture

Ain't often the goat of the game ends up in the winners' locker room.

The Big Ching-aso's picture

Shouldn't taking it in the ass be one of the taboos here? Oh, wait.

bank guy in Brussels's picture

No 'emperor' indeed

A couple of years back the EU Commission President and former student Maoist, José Manuel Barroso, even began to foolishly talk about how the EU was a new kind of 'empire'

That was around the time of 'peak EU' as the catastrophe that is the euro currency began to unravel

This damn euro has been the devil's curse and blight on the southern and peripheral European peoples

The day the first country leaves the euro, will be a great and good day for Europeans ... the 'empire' failure made manifest

toys for tits's picture

You'd think that of all Euro countries, Germany would have the longest memory of history and what happens when a country is abused in the manner that Cyprus has been.

Germany's Weinmar hyper-inflation was caused by being required to pay WWI war reparations.  This ushered in Hitler with all of his "loveliness" as an answer to the misery that was Germany at the time.

Without the Marshall Plan, Germany would still be paying back reparations from WWII. Instead it was rebuilt and allowed to flourish.

Hell, the UK only finished paying back the US a few years ago for what it borrowed under the Lend-Lease Program, and it was a victor in WWII.  No telling how useful those billions would have been to the UK if it didn't pay back what it owed.

Ghordius's picture

You are seriously comparing a Cyprus deal where Finnland, Germany, the Netherlands et al PAY IN 10bn in two Cypriot bank restructurations with the WWI war reparations?

Just to explain how far fetched: during 1919, the first year of reparation payments, more civilians died than in the whole war, in Germany

of hunger, mostly, I'm not counting the flu

this historic revisionism is starting to become silly: Cyprus ASKED FOR HELP - you might find it a bad deal, but Cyprus ACCEPTED the money

all the rest is financial war propaganda

tango's picture

Exactly.  All the hoopla over Cyprus sorta fades when the "island nation" (lol) aggressively fought for the deal and will do anything to stay in the EU - even commit financial suicide.   Let's agree - Cryprus is screwed.  BUT they fought for the screwing and proclaimed their willingness to accept the screwing.  So let's move on to the next subject, say, the reason Spain is perfectly OK at 5% rates but not 7%.  

Ricky Bobby's picture

Ghordius when you were a small child did you want to grow up to be a "career policy apparatchik"

Just Wondering

Ghordius's picture

I try to ignore ad homs, but this is particularly pitiful. did you ever have an argument against what I write?

Alexandre Stavisky's picture

And a cunning one with flattering words taketh them up into an exceeding high mountain, and sheweth them all the kingdoms of the world, and the glory of them;

 And saith unto them, Join Me!  For by consolidating our power and uniting, All these things will I give thee, but first thou must fall down and worship me.  And twenty-seven stars fell and bowed themselves down, binding themselves and all their countrymen.


Misery, oh misery to me,
That Cunning one at length should vanquish thee;

We hear a sound of voices: not the voice
Which gave itself forth;

 How canst thou hear
Who knowest not the language of the DEAD?

Thou art yet living spirit: speak as they.

You dare not speak like life, lest Heaven's fell King
Should hear, and link thee to some wheel of pain
More torturing than the one whereon ye roll.

But these poor stars look white,
  Thrall bled of wealth & life.
Now scene of their sad exile.

Begin living death more still to defile.

In an Orson Wellsian cadence

Wolferl's picture

Face it, the UK was one of the losers of WWII. WWII was won by the US and Russia only.

Winston Churchill's picture

Agree with Russia ,US not so much except for the supplies for the Russians delivered by

British convoys.Just look at the respective casualities lists both as whole numbers, and per capita.

Wolferl's picture

Russia and the US won WWII because the expanded their respectiv empire and became the two superpowers. Doesn´t matter how they did it.  So called victor states like GB or France lost their status and became tier 2 or 3 powers. True, the Russians did it by sacrificing 12 million soldiers and the US by using their overwellming economic power. But none of them would have won WWII without the other the way they did.

Diogenes's picture

WW1 reparations had nothing to do with the Weimar inflation. They were required to be paid in gold and hard currencies. The fact that the German money was inflated to 0, twice, did not get them off the hook. Last payment was only made a few years ago.

MeelionDollerBogus's picture

You are mistaken as is covered very well in “Currency Wars” (Jim Rickards). The inflation was meant to get repayment partially by covert taxation of the citizenry, partially by using Marks to repay which were accepted. Gold was demanded too  but there wasn’t enough & repayment would continue rather than be denied (not accepted) once the gold ran out (hence also the move to take over industries in Germany to cover repayment).

masterinchancery's picture

No reparations were in fact paid by Germany until 1922. Inflation started during the war.

Sudden Debt's picture

The Emperor bought his cloths with a visa that's maxed out which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa which he downpays with another maxed out visa and now he can't get another new visa anymore...

jon dough's picture

...doo dah...doo dah...
...all the doo dah day...

Translational Lift's picture

Euro meet $.....$ meet Euro...............

Kiss My Icelandic Ass's picture

[the euro's] "preservation now depends urgently upon economic recovery...."

Recovery. LMFAO. We'll be lucky if we avoid economic Armageddon.

Lore's picture

Let this be a lesson for all would-be regional amalgamationists. Bigger fiefdoms mean more government, more concentration of power, less accountability, ruined markets, destruction of wealth, and especially the harvesting of much more DEBT. 

Be particularly wary of this in the context of "green" Agenda 21. Sound bites like "carbon offset" and "revenue neutrality" are a red flag for capital misallocation, patronage, central planning and a grand pyramid scam.

Joebloinvestor's picture

They are all "exceptions" and there are no rules.

Winston Churchill's picture

Six months for the whole euro zone to live.

Trade will cease between the North,and South.Business has enough risks without throwing in

'the final Cyprus solution' into the mix..Any company  doing  new business with the PIIGS from  this point

is suicidal.The ripple effect from the bad commercial debts are going to be very unpredicatable,

and the capital flight eastwards enormous.

StarTedStackin''s picture

The O'Bowel Movement will backstop Europe

andrewp111's picture

Never underestimate those clowns ability to come up with some new ECB scheme to kick the can for a few more months. The only real end will be if a big State (Italy, Spain, France, or Germany) secedes from the Eurozone. If one of those 4 goes, they all go.

TraderTimm's picture

8. Bitcoin and precious metals will eat the bankers lunches for them.

The Cyprus theft, every single flawed monetary policy - they're just spurring adoption of stacking atoms and bits.

Whiner's picture

I feel sure, nay: certain, a splendid EU recovery will blosom this summer. All that is needed is a bit more Sov debt and negative bank capital. Yes, I can feel spring in the air. And a thousand flowers will bloom in Amerika as the last businessman moves east ala Jim Rogers.

Tombstone's picture

Sorry to break up the European socialist fantasy, but akin to the state of America, we are all way too far gone down the debt tunnel to hope that an economic recovery will bail us out.  Come on you idiot politicians, we ain't buying that crap anymore.

SKY85hawk's picture

Remember 1969 thru 1981?

Recall the politician's responses.

It was a time of Stagflation.

The 'Bob Hope" generation entered their 'spend less-save more' life stage.  YOUR Parents!

It should be clear that the baby-boom is now in the same life-stage.

Not one Politician will admit they are helpless to restart Economic Growth! 

They will wait this thing out, just like before.

q99x2's picture

Test Results: FAIL

Sudden Debt's picture









jldpc's picture

Bellyache, Bellyache....The Cypriots got the government they elected; and the shaft they so richly deserved. It is not praticularly moral, not high moral to bellyache that oneself has been screwed, blued, and tatooed by someone you put into office followed by your own moral degradation of praying in church for salvation for yourself and for them to change their ways instread of just assassinating them. Lampposts are a good way to deal with such scum. But the common folks there are mostly of Greek descent in the subject half, and that says it all. No moral code; dishonesty is a way of life. Tax evasion, smuggling, money laundering, counterfeiting, etc., etc. They actually like being subjugated by an elite class, which class believes that it is their right and destiny to "steal" because it is not really stealing in that part of the world. Humans are a curious lot; bellyaching for such low lifes is a waste of good breath and valuable emotions.

Diogenes's picture

The way you talk you would think elections make a difference. Show me one country that voted to be run into the ground by crook politicians. Now show me one that isn't.

awakening's picture

'got the government they elected'

Not true anywhere, and I'll give one simple example from a backwater country called Australia.

Last time we had an 'election' the formation of government ultimately left up to 3 independents to decide the fate for the rest of the country (I'd say that more or less shows that both major parties are clowns as far as the general public of Australia are concerned). I don't hold any hope for a better result from the upcoming Australian 'election' either.

Joe A's picture

Remember: "when it gets serious you need to lie" (Juncker et al.)

nofluer's picture

Exceptions do not "prove" the rule. Exceptions DISPROVE the rule.

MeelionDollerBogus's picture

“exceptions” disprove “the rule”

Exceptions (plural) prove the RULE (de facto)