The Cyprus deposit scramble contagion spreads as Reuters reports that "Swiss banks would be required to "motivate" remaining U.S. clients to come clean to U.S. tax officials. If they failed to do so, confidential bank data would be forwarded to U.S. officials. The initial shipment of data from those banks would not include client names but, based on the data, U.S. officials would be able to submit a judicial aid requests to get the names of alleged tax evaders."
With Russia "Demanding Cyprus Out Of The Eurozone" Here Is A List Of Possible Russian Punitive ReprisalsSubmitted by Tyler Durden on 03/24/2013 12:06 -0400
As has been made abundantly clear on these pages since the breakout of the latest Cyprus crisis, the Russian policy vis-a-vis its now former Mediterranean offshore deposit haven-cum-soon to be naval base, has been a simple one: let the country implode on the heels of the Eurozone's latest humiliating policy faux pas, so that Putin can swoop in, pick up assets (including those of a gaseous nature, much to Turkey's chagrin) for free, while being welcome like the victorious Russian red army saving Cyprus from its slavedriving European overlords (a strategy whose culmination Merkel has very generously assisted with). Curiously there had been some confusion about Russia's "noble" motives in Cyprus (seemingly forgetting that in Realpolitik, as in love and war, all is fair). We hope all such confusion can now be put to rest following the clarification by Jorgo Hatzimarkakis, the German Euro deputy of Greek origin, who told Skai television on Sunday morning that Russia did not want Cyprus to stay in the eurozone.
The hallmark of human nature is adaptability. Faced with a changing environment, the human spirit and its social manifestations change in response. But once the human endeavor itself creates the environment, how can such adaptation be a simple exercise in instinct? Simply put, it cannot. Throughout all of this crisis, the global elites have displayed consistently worsening signs of decadence, psychopathic tendencies, and overall detachment from reality. And who can blame them? There has been no tap on the shoulder, no knock on the door, no raid on the office to indicate that anything is seriously wrong. Such is the contemporary reality we live in. People try to live their lives, to avert their eyes, to hide their children from the sight and effect of the monstrous cavorting of the elites. Perhaps a crazed fad for frugality will break out and suppress the urges of the elites. In the meantime, hide your valuables as well as you can, and treat your children with the sympathy they deserve. They are among the chief victims of our era’s unholy orgies of risk and corruption. Frugality or fragility? The choice is yours, as well as theirs.
A week of closed banks, depositor angst, and economic malaise is creating an increasingly vicious circle for Cyprus (and implicitly the European Union). As Die Welt notes, because the economic data of the tiny 'irrelevant' island could be considerably worse than previously thought (or forecast by Troika) thanks to the distortions created this week by bank closings, several people around the Troika said the exact amount of the bailout remains uncertain and could amount to EUR2bn more than expected. With the Troika capping their handout at EUR10bn of the current EUR17bn needed (and the deposit levy reportedly filling EUR6bn of that EUR7bn hole), the need for a bigger bailout - which seems increasingly likely - will fall on Cyprus banks' depositors (or taxpayers) leading to a hard-to-beat downward spiral. Simply put, the more deposits are pulled, the more deposits need to be confiscated; and with retailer stocks running low ("will last another 2-3 days") and cash-on-delivery demanded, the real economy will "have a problem if this is not resolved by next week."
The Cyprus 2013, like any other event, can be thought in political and economic terms. Politically, I can see two dimensions. The first dimension belongs to the geopolitical history of the region, with the addition of the recently discovered natural gas reserves - should Russia eventually obtain a bailout of Cyprus (as we write, this does not seem likely) against a pledge on the natural gas reserves or a naval base, a new balance of power will have been drafted in the region, with Israel as the biggest loser. The second political dimension relates exactly to Kreditanstalt and the imposition of direct political conditions upon which the 'bailout' is given. Economically, Cyprus 2013 is worse than the KreditAnstalt and Argentina 2001 crises because it has an element of confiscation and two broken promises that were absent in the latter. If you look at the case of Argentina 2001, you will realize that it was a pretty clean bet - earn 20% p.a. vs. the probability of losing 2/3rds of capital. If you thought that the probability of default of the Argentine government was beyond four years, you would play the bet with a chance of winning it. What are depositors of Euros faced with today? Anything but a clean bet! They don’t know what the expected loss on their capital will be, because it will be decided over a weekend by politicians who don’t even represent them. In light of all this, I can only conclude that anyone still having an unsecured deposit in a Euro zone bank should get his/her head examined!
What does it take for the Spanish "first amendment" journalistic override to kick in? Apparently, in the case of local media leader El Pais, putting up the following in print: "Merkel, como Hitler, ha declarado la guerra al resto del continente, ahora para garantizarse su espacio vital económico." For the Spanish-challeneged this translates as follows: "Merkel, like Hitler, has declared war on the rest of the continent now to secure their economic living space." Ah yes, the touchy verboten topic of German "Lebensraum" - its invocation, and ostensibly the unflattering Merkel comparison (seen so often in Greece) were enough to get the article by Juan Torres López in the Andalusia version of El Pais titled simply enough "Alemania contra Europa" taken down.
With its banks indefinitely closed, and capital controls already in place making it virtually impossible any material cash will leave the local bank branches or certainly the island (especially in direction Moscow), gas stations about to shut down due to lack of cash, next it was the turn of the ATMs. Sure enough, as CNBC's Michelle Caruso-Cabrera reports on the ground from Nicosia, moments ago the nation's second largest, and second most insolvent bank, Laiki Bank, announced that withdrawals are now limited to €100. The picture below from MCC shows as an employee takes down old sign that said previous €260 limit. At this pace, in lieu of some grand bargain, we expect it is only hours before the final limit is imposed: withdrawals now limited to €0.
Based on the most recent data, JPMorgan notes that the share of large or uninsured deposits is likely to be close to half of total deposits in the European Union. With deposits already flowing out of some of the peripheral EU nations (as we warned here), we thought it appropriate to point out just which nations have the largest share of uninsured deposits (and are not yet under the ECB's 'standard of living' capital controls). It seems - among many others - that despite France throwing in the towel on the 75% income tax, there is another good reason for the wealthy to leave...
A few moments ago, no bailout proposal in hand, no parliamentary discussion having taken place, and certainly no votes having been cast, the Eurogroup sat down with Cyprus' president Anastasiades, in order to preserve the "democratic" theatrical facade of European decisionmaking. Here, to keep up appearances that Cyprus' opinion is even remotely relevant, Europea's unelected leaders will do what they does best - make a closed door decision affecting the lives of millions of people, which ultimately have one purpose: to preserve the crumbling edifice of the Eurozone project (so carefully preserved in the past few months with superglue, scotch tape and empty promises) and of course the jobs and livelihoods of a few unelected EUrocrats. A preview of this elaborate song and dance ritual is below from Kathimerini. It will be next followed by an even more elaborate song and dance from the Eurozone finance ministers, which will then finally go back to Cyprus, where a decision will likely have to be reached ahead of the Asian FX market open, or all that late Friday "Cyprus is saved" enthusiasm will evaporate in a GETCO millisecond.
Some late news indicates that the 'deal' is further away than many hoped (or rumored) earlier in the day. Welt am Sonntag reports that German FinMin Schaeuble exclaimed "I won't allow myself to be blackmailed," adding his responsibility to the stability of the Euro. Simply put, he adds Cyprus must respect the rules, insistent that, "Cyprus is a hard road to go either way; but that is not the result of European stubbornness, but a business model that no longer works." With that as background, Cyprus President Anastasiades will be meeting with the IMF's Christine Lagarde tomorrow morning with talks at a "delicate point," with his spokesperson admitting the situation is "very difficult." The disinformation-to-total-confusion train pushes on forward; beggars can be choosers and 'demanders' won't be blackmailed.
As we recently discussed, many euroskeptics are pushing Cypriot lawmakers to default, devalue, and decouple from the Euro - understanding that the short-term pain of such a move will lead to much more sustainable gains afterwards. But BofAML raises the question of what damage (and required response) would occur in the remainder of the European Union should Cyprus leave (or be pushed ). Unlike some EU leaders suggestions, BofAML suggests the contagion and growth impacts could last a decade; but it is the policy reaction of the ECB that is most crucial to understand and how it may rapidly lead to a German decision on debt mutualization (or not) that should be most concerning.
Many have asked why the bondholders have not been tagged in the Cyprus fiasco. That answer is simple. Most of Cyprus's bonds are pledged as collateral at the ECB or in the Target2 financing program. Then one may also ask why the bonds of the two large Cypriot banks are not being hit. The answer is the same; most are held as collateral at the ECB or Target2. In both cases, remember uncounted liabilities, the government of Cyprus has guaranteed the debt. Consequently if the two Cyprus banks default it is of small matter as the sovereign has guaranteed the debt. However if the country defaults and leaves the European Union then it will matter and matter significantly as the tiny country of Cyprus would wipe out the entire equity capital of the European Central Bank. While it is not a matter of public record it is estimated that Cyprus has guaranteed about $11.6 billion of collateral at the ECB.
The situation in Europe remains fluid. 'Rumors' circulate from 'anonymous' sources but seemingly confirming what 'news' we do have from Olli Rehn that there is no deal; Xinhua reports that the Cypriot Parliament has cancelled the debate over the deposit levy for today (following daylong negotiations with the Troika). Further to the 'no deal' meme, ekathimerini is reporting, via another senior Cypriot official,
- *CYPRUS, TROIKA NOT CLOSE TO DEAL, CYPRUS NEWS AGENCY REPORTS
“We are not in touching distance of an agreement,” the official, who preferred to remain anonymous, commented adding that the impasse was a result of the “inflexible” stance of the IMF - "Every half hour, new demands are made." Further comments indicate the 'low levy' on the rest of Cyprus-based bank deposits has been abandoned - implying a potential 25% haircut for Bank of Cyprus deposits.
There are no regulated financial markets open today; no BIS-buffered FX market, no Fed-spoon-fed US equity market, no BoJ-jawboned Nikkei 225, and no ECB-sponsored Spanish bond market to judge today's news and rumors. But there is one 'market' open - a market that prices in the belief (or lack thereof) in the status quo to a lesser or greater extent. Illiquid as it may be, today's Bitcoin prices (and volume) says a lot about the headlines of the day...