Making It Up As They Go Along

Back to Cyprus, and ZeroHedge has a disturbing story:

From Reuters:

While ordinary Cypriots queued at ATM machines to withdraw a few hundred euros as credit card transactions stopped, other depositors used an array of techniques to access their money.

No one knows exactly how much money has left Cyprus’ banks, or where it has gone. The two banks at the centre of the crisis – Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus – have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia’s Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks’ largest depositors.

So while one could not withdraw from Bank of Cyprus or Laiki, one could withdraw without limitations from subsidiary and OpCo banks, and other affiliates?

Just brilliant.

I was wondering why Russia hadn’t kicked up a big fuss, and threatened to cut off gas supplies to Europe at the height of the current big freeze. Now I see why. They had other ways of pulling the money out of Cypriot banks.

Since insured depositors with less than €100,000 in Cypriot banks are now to be protected (which they weren’t a week ago), it would appear that the main losers will be wealthy Cypriots and any other depositors who had the misfortune of not living in Britain or Russia when the banks closed.

But are European depositors safe now? Yesterday the Telegraph reported:

The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, told the FT and Reuters that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.

“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?’,” he said.

“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.”

Ditching a three-year-old policy of protecting senior bondholders and large depositors, over €100,000, in banks, Mr Dijsselbloem argued that the lack of market contagion surrounding Cyprus showed that private investors could now be hit to pay for bad banking debts

However, having said that yesterday, he backtracked today and said that Cyprus was a “special case”.

And today the Portuguese finance minister said the same, only to also promptly retract his remarks.

They’re just making the rules up as they go along. And if you didn’t think they could do that, then stand corrected by Britain’s Chancellor:

Mr Osborne also said he didn’t question the legality of the capital controls, since Article 63 of Europe’s internal market rules can be bent in an emergency.

No wonder the EU enjoys having all these numerous emergencies: it gives them the opportunity to ‘bend the rules’. In fact, as far as I can see, they bend the rules any time they want to. In the circumstances, it’s not surprising that depositors are getting nervous:

16.01 There is anecdotal evidence that British ex-pats in the eurozone periphery are nervous about their deposits in Mediterranean banks. Financial advisory firm deVere Group say they’ve experienced a “surge” in inquiries on moving funds elsewhere. Nigel Green, chief executive, said:

Over the last week, since the messy deal to bailout Cypriot banks began, our financial advisers in these areas [Spain, Italy, Portugal and Greece] have reported a significant surge in enquiries from expats who are looking to safeguard their funds in other jurisdictions which are perceived to be safer.

Whether the institutions like it and accept it or not, there is a real risk of a major deposit flight from these countries as people feel their accounts could be plundered next.

ZeroHedge seemed to think the whole point of the Cyprus bank heist had been to loot the accounts of a few Russian oligarchs. But I think the EU is simply doing everything it can to hold the eurozone together, and keep member states inside the EU. It’s their political project, and they’ll do whatever they have to to keep it together, including robbing people’s bank accounts if necessary. And they definitely don’t want anyone doing what Paul Krugman advises:

Cyprus should leave the euro. Now.

The reason is straightforward: staying in the euro means an incredibly severe depression, which will last for many years while Cyprus tries to build a new export sector. Leaving the euro, and letting the new currency fall sharply, would greatly accelerate that rebuilding.

If you look at Cyprus’s trade profile, you see just how much damage the country is about to sustain. This is a highly open economy with just two major exports, banking services and tourism — and one of them just disappeared. This would lead to a severe slump on its own. On top of that, the troika is demanding major new austerity, even though the country supposedly has rough primary (non-interest) budget balance. I wouldn’t be surprised to see a 20 percent fall in real GDP.

It’s not just Cyprus, in my view. Everyone should get out of this utopian political pipedream. The longer they stay in, the worse the damage will be.

About Frank Davis

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24 Responses to Making It Up As They Go Along

  1. wobbler2012 says:

    We all know that the EU project was doomed to failure but many of these smaller countries shouldn’t even have joined the EU, most of the blame for this robbery should rightly lay with the EU but some blame has surely got to be attached to the Cypriot government at the time that they went into the Euro.

    It was like a large bring a bottle party and Cyprus turned up with a Tesco’s value lager 4-pack.

  2. jaxthefirst says:

    I remain totally baffled as to why UK politicians aren’t (apparently) panicking more than they seem to be, given that although we aren’t in the Euro, our association with the EU and the Eurozone must surely be an enormous risk to our own financial services industry – one, if not the, most profitable of our exports. With everyone associated with this mess, as you rightly point out, quite clearly now rushing about like chickens with their heads cut off, desperate to keep the EU together but with clearly a fast-diminishing number of measures to do so, the EU reminds me now of a very, very, very fragile house of cards, which would need just the slightest movement of one of the bottom cards for the whole thing to come tumbling down in one fell swoop. We should make that move, and we should make it now, if only to protect that one vital sector of our economy which is still worth something (just). For sure, there’d be utter chaos and the Eurocrats would be furious but ultimately we’d be doing all of the countries in Europe a favour by giving them a chance to re-build economies which have either been ruined by the machinations of the EU (like ours) or falsely shored up by it, like the Eastern European members who, like Ireland, are simply going to suffer a major fall when the funding is inevitably withdrawn when the next group of even poorer countries joins the EU club (Africa, anyone?).

    It would even work personally to the benefit of the likes of Cameron and Clegg and Co (bearing in mind that their own personal careers are pretty much all that they care about these days) because the disintegration of the EU edifice would automatically give them back the power to run their own country as they see fit – to actually be the Prime Minister and the Deputy Prime Minister – rather than simply doing the bidding of their EU masters at every turn. I’m staggered, to be honest, that they aren’t jumping at this opportunity, now that the EU looks pretty much doomed as a political experiment (and thus, as an ex-politican’s gravy train) one way or the other. When collapse is imminent, isn’t a controlled demolition usually regarded as a better alternative than waiting for time and a strong wind to blow an unstable structure over at random??

    • DrDan H. says:

      Cyprus was in the business of being a Eurozone tax haven, first and foremost. Germany hates tax havens, because they screw up the maths of running an economy; the Germanic economies run best if the proles cannot escape being taxed. Cyprus threw a spanner in the works of that assumption, so under the blinkered Germanic world-view, it had to go. Diddling the Russians was never really the game plan, indeed since the Russian mafia and government are pretty much indistinguishable and have a shared interest in discouraging theft of their money, and disrespect of the Russian image (see also: Litvinenko), such a widespread diddling would have been extremely unhealthy for the EU’s officials.

      So, the Russians were allowed their little loophole for the better-connected to get wind of the heist by and rescue their money through, but the rest of the tax haven users got scalped and the haven shut down. To the Germanic EU thinkers, this is a win.

      To everyone else with a functioning brain, this was a fail writ large. Legalised theft makes investors nervous, even when it seems just to have been a housekeeping exercise to remove a nasty little tax haven. The Cyprus theft will certainly come back to haunt the EU.

  3. melinoerealm says:

    “Worringly for the European Union, almost three in ten Swedes think that their country should consider leaving the EU if the ban goes ahead.
    …In December of last year, EU Health Commissioner Tonio Borg told a Brussels press conference, “We are not banning smoking, we are making it less attractive.”

    Responding to the broader points of the EU directives involved in banning snus and making cigarettes “less attrative, Patrik Hildingsson of tobacco giant Swedish Match said, “We regret that the current ban on snus exports is going to remain in place.

    “The Commission is picking winners and losers in the market,” he said, calling the extension of the snus export ban a “one-sided trade ban”.
    “Other snus manufacturers in Europe are able to export to Sweden, but we can’t export to the rest of Europe,” said Hildingsson.

    The news comes as industries and campaigners continue to express concerns over the EU’s indiscriminate approach to tobacco or nicotine-based products. Recently it was reported that the EU is considering a ban of sorts on electronic cigarettes, a move that campaigners have called, “madness” given the products’ ability to ween people off actual cigarettes. ”

    http://www.thecommentator.com/article/3050/swedes_ponder_eu_exit_as_snus_ban_plan_continues

    • melinoerealm says:

      PS: Swedish manufacturers are able to export liquor in the rest of Europe, but no one can sell liquor in Sweden, which is holding a state monopoly on liquor.
      And same goes for Finland…

  4. legiron says:

    It was amusing to watch the Eu-crats crow that they could now rob any EU bank account whenever they felt like it, only to retract their words hours later.

    Bank transfers can be done in two hours now. I wonder how many occurred between their crowing, and their eating crow? It’s unlikely to ever be reported.

    Foreign (non-EU) investment in the Eurozone is over. The EU have stated they will steal it and made a law to allow them to do it. You might as well put all your savings into Banco Mafioso and expect to get a penny back.

  5. Henry Crun says:

    I don’t know much, but I know enough to not steal money off Russian “businessmen”

    If I was a Eurocrat, I’d be afraid right now. Very afraid.

  6. jaxthefirst says:

    “If I was a Eurocrat, I’d be afraid right now. Very afraid.”

    Amazingly, Henry, they never are. I think that they honestly now believe that they are untouchable, which is why they behave as they do, and why they come up with daft ideas like stealing people’s own money and then have the gall to trumpet the fact that that’s what they intend to do to all and sundry. Maybe a few private visits by some Russian businessmens’ “representatives” might change their attitudes …

    Crumbs, it’s like WWII all over again – looking to the Russians at the last knockings to put the once-and-for-all final nail in the coffin of a fast-failing regime. Who’d have thought it??

    • Frank Davis says:

      Well, they’ve all got immunity from prosecution, to the best of my knowledge. It seems to be part of the package deal you get when you join the Eurocracy. Although I did notice that French police were searching the flat of the IMF’s Christine Lagarde last week in connection with past dodgy dealings of hers – so maybe she’s only partially immune.

  7. harleyrider1978 says:

    When you can openly and legally steal depositors money it is indeed over. I havent heard any mention of EURO confidence levels in the currency of late. Anyone who leaves money in any bank now is more than likely a fool. If they can do it there,they can do it ANYWHERE.

  8. Frank Davis says:

    ZeroHedge

    A Furious Cyprus Begins Investigating Who Breached The Capital Controls
    Submitted by Tyler Durden on 03/27/2013 – 08:20
    On Monday we reported the very disturbing news that despite the ongoing liquidity blockade, capital controls and (somewhat) closed Cyprus banks, one particular group of people – the very same group targeted to prompt this whole ludicrous collapse of the island nation – Russian Oligrachs had found ways to bypass the ringfence and pull their money out quickly and quietly. We said that, if confirmed, “If we were Cypriots at this point we would be angry. Very, very angry.” Turns out the Cypriots did become angry, and the questions are finally starting. As Spiegel reports, the Cypriot Parliament, which may or may not last too long once the banks reopen tomorrow and the people realize that in a fractional reserve banking system, those deposits you thought were there… they are gone, poof, has begun investigating the capital flight that may means the destruction of Cyprus has been for nothing. Sadly, it is now too little, too late.

    • Frank Davis says:

      The Slog says:

      Then this morning the 20%-40% seizure of the depositor’s money, which was the range that had been discussed, was revealed by the Finance Minister Michael Sarris in Cyprus to be more like an 80% expropriation and a timeline to get any money back of six to eight years. For which read, “100% and never”.

      His commenters don’t seem disagree.

  9. harleyrider1978 says:

    Tobacco Control training course where anyone can be made a NAZI

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  10. harleyrider1978 says:

    (Reuters) – Cyprus is expected to stop people taking their money out of the country but will not restrict dealings at home as it tries to avert a run on its banks after agreeing a tough rescue package with international lenders.

    http://www.reuters.com/article/2013/03/27/us-cyprus-parliament-idUSBRE92G03I20130327

  11. harleyrider1978 says:

    Bankrupt Jersey Casino To Lift Smoking Ban

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    • harleyrider1978 says:

      Not a word of it thru official channels at all! They snuck it in under part of its bankruptcy turn around to profitability plan!!!!!! ROFLMAO

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