I don’t know if Germany still has guilds of criminals like those portrayed in the Fritz Lang movie “M” but Russia certainly has “thieves-in-law” – oftentimes tattooed with certain symbols including the crucifix to indicate the thieves crucified with Jesus Chris – so it was amusing this morning to hear an apoplectic Russian president, Dmitri Medvyedev describing the EU as just plain thieves. President Medvyedev was commenting on the latest bailout deal for Cyprus that was hammered out in Brussels last night and in addition to calling the bailout terms “theft” is reported to have said “the stealing of what has already been stolen continues”
You see, the Russian concept of “thieves in law” relies on thieves respecting a basic code of conduct.
In Germany’s case, it insisted in November 2010 as part of the €85bn Irish bailout, that Ireland repay the (widely perceived to be) substantial German bondholders in Irish banks, as part of that bailout. As a result, we’re all presently shouldering €70bn of bank bailout debt – equal to 43% of our GDP – including €6bn of state-aid premiums that NAMA paid when it acquired loans from the banks.
Now, Germany has insisted on a deal in Cyprus which will see both senior bondholders and large depositors at two Cypriot banks burned; in the case of Laika Bank, the burning might be 40% of deposit balances over €100,000. Russians are understood to have somewhere between €5-20bn in Cypriot deposits, so the Russians are set to heavily lose out. Germany benefits from the Cypriot deal because another pesky competitor in the EuroZone has been taken out of action, with depositors set to flee Cyprus as soon as they can get their hands on their cash. Germany itself was not exposed to losses in Cyprus. The alternative would have been the provision of additional funds from Germany, for which there would be risk.
So, you see, Germany has broken the thieves-in-law code by imposing two different deals which, in both cases, protected German interests.
Just common thieves so.
NAMA Wine Lake 
really weird post. So the bank has gone bust, the EU helps with the bailout with 10bn and you think they’re thieving. I expected this nonsense from the Sindo but et tu? Do you want the German or Cypriot tax payers to bail out the Russian and other depositors?
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you should check out the Cyprus Mail’s view on things.
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Our View: We’ve paid the ultimate price of avoiding responsibility – Cyprus Mail http://www.cyprus-mail.com/opinions/our-view-we-ve-paid-ultimate-price-avoiding-responsibility/20130324#.UVBNLdBKzvU.twitter
It’s not a bailout; it’s a bail-in. And the EU/ECB is the reason it’s happening at all. No other central bank in the world would take depositors money before winding up the bank and burning other creditors.
Yes; that’s the ECB’s job. It exists as the lender of last resort, to protect depositors across the eurozone. It has now not only refused to act in this role, but has indeed become the chief proponent of seizing depositors money as a first resort.
The Cypriots probably have themselves to blame for a lot of things. But breaking the taboo of raiding depositors is not one of them. The biggest thing the Cypriots should be kicking themselves over right now is ever trusting the ECB to run the eurozone properly in the first place.
Other Creditors? You mean the bondholders? It’s well established that the miniscule amount of liabilities attributable to bond holders means that there must be a deposit haircut. There simply isn’t enough to go around. As regards Bail-out vs bail in – you surely know there is 10bn coming from the Eurogroup? It’s truly dishonest to claim that winding up the bank first would benefit deposit-holders.
Your comment on the ECB being a lender of last resort is simply false or ignorant. The ECB was never meant to be a lender of last resort for sovereigns let alone commercial banks.
http://www.cfr.org/eu/role-european-central-bank/p28989#p4
As for “raiding” deposit holders – this is a perversion of the English language. Raiding implies the money was taken out and went somewhere else. The deposits are long gone, old boy; they went chasing yield that enabled the Cypriot banks to pay out interest far, far, far in excess of what a deposit holder would have earned in a normal, dare I say, prudent German bank.
I don’t think you really understand what a Central Bank is.
No one anywhere would ever suggest that the primary purpose of a central bank is to lend to sovereigns. However, almost everyone would agree that the primary purpose of Central Banks is to protect depositors funds, and to manage the banking system. Almost everyone except the Bundesbank of course, but that less a central bank that it is some kind of anti-inflationary cult, which is actually pretty bad at preventing inflation — but I digress.
Depositors deposits do not go “chasing yield”. They are placed in the bank in trust. I’m just going to refer you David McWilliams’ latest article on this.
http://www.davidmcwilliams.ie/2013/03/25/6075
It’s not the latest Frankfurt working paper, but whatever.
As for “prudent” German banks; You might want to consider any money you have on deposit/”chasing yield” in the likes of Deutschebank.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9726233/Ex-Deutsche-Bank-staff-say-bank-hid-12bn-losses.html
The member nations retained control of much of their banking systems; for example fulfilling the 100k guarantee was delegated.
http://en.wikipedia.org/wiki/Deposit_insurance#European_Union
I understand what a central bank is; unlike you I know that it is not some Omnipotent being that can descend to earth and resolve all issues. The ECB mandate was agreed by all who signed up to it, and this schoolchild child naivete about what it can do is rather cringe-worthy. David McWilliams is a populist cabaret economist and quoting his opinion rather than the ECB mandate is silly. Yes depositors placed their deposits in the bank in trust; in the Cypriot banks – not the ECB! That trust in the Cypriot was misplaced! You appear rather confused on the ECB’s moral obligation towards every single depositor in the Euro area.
Prudence is relevant; DB have had losses but so what!? Do you think that DB taking a hit somehow invalidates the claim that the Cypriot banks were extraordinarily cavalier? eh, no! DB have the buffers to withstand the hits as we can plainly see Look at the comparative interest rates
http://blogs.wsj.com/brussels/2013/03/19/cypriot-deposits-paid-well-but-loans-cost-a-lot-too/
MG, all I can say is that you seem to have forgotten what currency the Cypriot deposits are denominated in(for now at least). This issue does not stop at the cyprus shoreline. Decisions in Cyprus become eurozone wide policy by default.
I had assumed it given the bank’s steadfast, unqualified defence of every bondholder in the Euro area.
Speaking of which, do you think the Cyprus bank bondholders should at least be burned now; burned 100%? Don’t be shy now.
Just because the deposits are denominated in a currency doesn’t mean the CB is obligated to bail out every depositor. (Do you know how FDIC works for example ?)
“steadfast defense of every bondholder”? Are you taking the pi$$? Does Greece ring a bell?
Of course the Cypriot bondholders should be burned! Did you actually think would say otherwise? Grow up!
In a democracy the people benefit from/suffer from their leaders good/bad decisions. Is that really so hard?
The Irish government should ask for an immediate renegotiation
@Patrick
No offence, but God bless your innocence..
I wonder what age MG and OMF are? They sound like two children fighting in the playground.” My Daddy is bigger than yours” comes to mind