The news from Cyprus remains sketchy, but as part of a €17bn bailout of the tiny east Mediterranean country, it seems that ordinary depositors in its banks are to lose part of their deposits whilst senior bondholders will walk away with 100% repayment. “Pari passu”, the infuriating Latin expression meaning “ranking the same” that has been used in the past to advertise that depositors would be treated the same as bondholders seems to have been “non gradus anus rodentum” or “not worth a rat’s ass”. Most of the Irish media seems mostly to have started St Patrick’s Day celebrations early and this is really just too heavy for them, so let’s see if we can fill the gap.
It seems the €17bn bailout of Cyprus is akin to the €85bn bailout of Ireland. In our case, we contributed €17.5bn of our own funds from our national rainy day fund, the National Pension Reserve Fund, to the bailout. The contribution from the IMF, EU and bilateral loans came to €67.5bn. In the case of Cyprus, the Cypriots are contributing €5.8bn from the burning of depositors in their banks. Yes, depositors! There is now word whatsoever about any other contribution to the bailout, for example, from bondholders.
So if you’re a Cypriot depositor, you’ll lose 6.75% of your deposits below €100,000 and 9.9% of your deposits over €100,000. Banks in Cyprus are closed until Tuesday – they have a holiday, Green Monday on 18th March 2013 – and the haircuts will be imposed then. There are bars on electronic transfers between now and then, and queues of depositors outside banks usually open on Saturdays have this morning been disappointed and angered to be met with closed branches. To sweeten the deal, depositors will be given shares in the banks equivalent to their losses – at least there are debt for equity swaps in some banks in Europe!
There will also be a €1.4bn privatization programme, and a condition of the bailout is that Cyprus raise its corporate tax rate from 10% to 12.5%, the same headline rate as pertains in Ireland. The €10bn international component of the €17bn bailout will be coming from Europe.
You’ll find the latest European Commission forecasts for Cyprus here. In short its economy is contracting, unemployment is reaching our levels, its debt to GDP is just 90% but is rising. Its GDP is about €18bn and it has a population of just 1m.
UPDATE: 16th March, 2013. A statement has been issued by the EuroGroup of 17 EuroZone finance ministers which welcomes the Cyprus bailout. It doesn’t give very much detail but refers to the “bail in of junior bondholders”. There is no mention whatsoever of senior bondholders. In Ireland, burned €14bn from the €26bn of junior bondholders that were repaid. However, apart from a tiny number of senior bondholders at IBRC who face a haircut after the liquidation, the others have been repaid 100%.
Reblogged this on Awaken Longford.
Theme Cyprus filling up the press pages online. Spiegel hasn’t posted it’s synopsis in English yet, but in this just out: http://www.spiegel.de/wirtschaft/soziales/gipfel-in-bruessel-so-muessen-die-bankkunden-zypern-retten-a-889230.html
it says that the figure is 10bn not 17bn as reported.
Govt ist drafting legislation over the weekend until banks open Tue, it must sign a Memorandum of Understanding to avail of the funds, a third of which is likely to be provided by the IMF. Strong arm-tactics to make Govt agree to the conditions, oh so familiar.
So it’s 1-0 to wealthy Russian bondholders, with ca. €26bn there.
German economist Hans-Werner-Sinn said in “Welt am Sonntag” that the only systematic relevance Cyprus had was in relation to Russian money-laundering.
OK, so that explains the 2.5bn€ ‘aid’ by Russia at low interest with an extended payment period.
Germany esp. FinMin Schäuble is adamant that bondholders do not take a hit…again. Why?
Well, in the same way that ‘bailout’ money in Ireland can be seen to ultimately fund bondholders, many of them German [eg. Harald Schumann’s recent docu:: Bankenrettung, Staatsgeheimnis, Bank Bailouts State Secret], here in Germany the ‘bailout’ will help local interests.For example: HSH Nordbank is in dificulties and has exposure of 1.6bn€ in Cyprus, mostly in shipping with registrations under Cyprus flag. NordLB has exposure 1.4bn€, possibly more, since that figure is from a stress test in 2011.And so on…….
@Dorothy, thanks!
I understand the gross bailout is €17bn comprising
€5.8bn deposit “burnings”
€1.4bn privatisation
€10bn from Europe, probably EU, no mention of ECB and no mention of IMF save for monitoring
As for Russia, it reminds me of George Osborne, the UK Chancellor who referred to a “friend in need” when announcing the €4bn UK bilateral loans. No-one believed that the UK was doing anything other than protecting bondholders in City of London banks with the gesture.
https://namawinelake.wordpress.com/2011/07/06/“ireland-is-a-friend-in-need-and-we-are-here-to-help”-–-an-analysis-of-the-bilateral-bailout-agreement-between-the-uk-and-ireland/
@nwl Yes, whatever way you cut it, this seems surreal, article above in English now: http://www.spiegel.de/international/europe/savers-will-be-hit-as-part-of-deal-to-bail-out-cyprus-a-889252.html
Russian money only makes up 37% of the bank deposits. Hardly, a Russian deal. This is done to distract the populace. But, see link below. It might not be working. Coming to Ireland and the Club Med next. However, I do hope the Russians double the price of natural gas to Germany.
http://www.bbc.co.uk/news/world-europe-21814325
It’s known as theft.
Say “goodbye” to deposits in euroland.
Surely this could be the death nail for Europe. The start of a bank run. I’m starting on Monday. Nothing is safe now. Except bond holders of course!
Where’s the Swiss telephone directory?
This ought to calm everyone down. So, we have a few days?
“Jeroen Dijsselbloem, president of the Euro Group, declined to rule out that a similar tax scheme was being planned for depositors in other countries besides Cyprus, but he emphasized that such a plan was not being considered at the present time, the New York Times reported.”
You know, I personally am not against the idea of depositors in insolvent banks taking a hit. You cannot expect to keep your money risk free in the likes of Cypriot banks or AIB.
But the more I reflect on what just happened, the more I realise that who_shot_the_tiger is right: This was theft. If the bondholders are not forced to take a hit, then this amounts to simple theft from one bank creditor to pay another. I’m sure the Cypriot government will argue that it has a right to tax how it sees fit, but the idea of this 6.7% charge as an ordinary tax is risible at best. Ordinary depositors have has their money de-facto stolen to pay for investment losses of private bondholders.
This is the ultimate expression of the bankers coup that has taken place in Europe. There is no longer one safe euro in any deposit account on the continent. The moment incompetent bankers and government run into the slightest difficulty, they will dip into deposit accounts without hesitation. The brazenness of this is proof of just how confident decision makers feel in their ability to impose this.
And now FF are back as the most popular party in Ireland, with both banks in state hands and likely to need more recapitalisation of their mortgage books over the coming months. It’s not hard to see where they’re going to get it.
Cypriot President Nicos Anastasiades was elected just last month. One of the stalwarts of his campaign was that he told voters he was absolutely opposed to to exactly what he did this weekend. The EU has run out of runway.
Not surprisingly, Germany in the provocateur again. Funny how this seems to happen periodically. We can only hope that Russia triples the price of gas to Germany. Better dust off those old neutrality documents.
http://blogs.reuters.com/felix-salmon/2013/03/16/the-cyprus-precedent/?dlvrit=60132 link just tweeted and recommended by Karl Whelan: Felix Salmon, Reuters, on Cyprus.
Insightful but depressing read on an otherwise sunny St. Patrick’s Day morning
@Dorothy Jones
Good article by Felix Salmon.
The 9.9% is an interesting %. One wonders how it was decided.
Imho, it was Berlin / Moscow agreement. Anything over 10% and Russia would have sequestered EZ assets or turned off the gas for a few days.
A modern day Molotov/Ribbentrop standoff pact. Tough on the Cypriots, but don’t expect the Russians or Germans to lose any sleep over that.
Do you all remember when we were told that we couldn’t burn the senior bondholders in Irish banks without also burning depositors? Well, we now know that this link can be broken and depositors can be burnt without burning bondholders. Could this approach be extended to other EZ countries?
[…] Depositors burned, bondholders saved, a modern European bailout by […]
The interesting part of this theft, for those unfortunates with $100,000 deposits and under there is no other word, is the role of the IMF. Well known in the past for their thuggery in Third World, jumping into the EU with both feet is a new low. The depositors had a legal document backing their deposits with the “full faith and credit” of the government. Now, the ECB(Germany) and the IMF are forcing Cyprus authorities to breach this deposit insurance provision. Very strange twist, Ms. Lagarde has blackmailed a sovereign country to violate its own banking laws. I think it deserves reiteration that one would have to be batshit crazy to keep money in an EU bank.
A few years ago there was a gentleman who posted on the EU crisis who used the moniker, John the Optimist. I sure hope John did not retire in Cyprus and open an account in The Bank of Cyprus with those solid Euros.
“The IMF managing director, Christine Lagarde, who attended the meeting, said she backed the deal and would ask her board in Washington to contribute to the bailout.” from the Guardian Oh yes, thank you so much for your “contribution” to the bailout.
I never cease to be amazed at the stupidity of those who “govern” – whether it’s the “Sir Henry’s of the EU or the politicians.
Does nobody see what this will do to the deposit base of the euro next week?
Apologies, that should have read “euro banks” – especially in the Med countries and even in Ireland. People look for a “safe haven” for their nest eggs. That’s no longer available in Europe.
Emotion is a hard thing to gauge. If the media can be relied upon to spin things the right way, a euro-wide bank run might be averted among ordinary depositors at least. However, I don’t think anything can save periphery corporate deposits now.
I thought a tax or levy could only be placed on the productive part of an asset such as interest earned in a deposit account.So why is it being described as anything other than theft?.
It’s known as spin or propaganda. The Germans were always very good at it.
Euro down 1.5 cents at opening in Australia……… and falling
[…] they might have to cut deeper. There are already talks of shifting more of the burden to bigger depositors, and sparing the smaller […]
[…] However, the holiday was extended through Tuesday to allow the Cypriot government more time to pass a vote on the <a href="http://blogs.ft.com/brusselsblog/2013/03/cypriot-bank-deposits-hit-in-e10bn-bailout-deal/”>bailout deal, which includes a controversial haircut on depositors. […]
How the German flag is not waving in Cyprus.
Cyprus on brink of default and collapse as parliament prepares to reject deposit tax http://www.reuters.com/article/2013/03/19/us-cyprus-parliament-idUSBRE92G03I20130319
Megan Green etc-worth a watch.
http://www.bloomberg.com/video/orphanides-on-cyprus-bailout-europe-s-banks-Aw79nWd1QH~jz5tVDF7cRA.html
There is a very easy solution to the Cyprus debacle. Have Cyprus leave the EU and join the RU. If Ms. Merkel likes playing games, I think Mr. Putin has a much better hand. Limassol could become the modern day Subic Bay for the Russian Navy for around 20 billion in bailout money. And, to compensate the Russian generosity, Mr. Putin would only have to raise the price of gas sold to Germany enough to cover the outlay.
below 20 not getting bailed in/out,probably agreed at 50 should be 100-above that congrats you are proud owners of a bank….
I may be incorrect but only Irish politician to take their head out off the sand…
“Ms Childers said that the Troika deal, which Commissioner Rehn was centrally responsible for, to impose losses on small Cypriot depositors with less than EUR100,000 was a terrible mistake and that such harsh measures are simply unfair, undemocratic and could lead to a bank run in other parts of Europe.”
http://www.nessachilders.ie/news/2013/03/19/commissioner-rehn-should-lose-job-over-cypriot-bai/#.UUhDLHZe3H0.twitter
Good list of resources for “cyprus” fans!
http://blogs.marketwatch.com/thetell/2013/03/18/best-tweeps-to-follow-the-cyprus-bank-bailout/
http://www.spiegel.de/wirtschaft/unternehmen/ezb-setzt-zypern-frist-bis-montag-a-890120.html ….so this morning 130321 the ECB is giving Cyprus 5 days until Mon 130326 to accept a Bailout deal or it will turn off the ELA funding tap.
FYI, my letter in today’s IT:
http://www.irishtimes.com/debate/letters/controversal-cypriot-bailout-plan-1.1332623
My blood boils when I look back at the limp, incompetent performances of the FF and FG/L governments right from the time of the run on Northern Rock in 2007 and compare these with the reactions of the Cypriot parliment and people.