What to look for in the Cyprus deal

by on March 25, 2013 at 7:50 am in Current Affairs, Economics, Law, Uncategorized | Permalink

1. Output on the island could easily decline by 25% or more, and I don’t think that will involve much subsequent mean-reversion.  There will be a deflationary shock, an uncertainty shock, an “austerity shock,” a credit contraction shock, and a few other negative shocks as well.  The Cypriot government will not be fiscally well situated to support the safety net or automatic stabilizers.

2. It’s never a good sign when a deal is structured so that no one has to vote on it.  (Correction: various European legislatures may be voting on it, but no one in Cyprus.)

3. The deal itself still doesn’t cough up all the money, but rather relies on subsequent tax increases and privatizations to come up with at least another billion euros.  Believe it or not, the numbers don’t add up.

4. “This was not a good weekend for Russian billionaires.”

5. I wonder if the two main banks even have the money they claim they do.  Who tells the truth going into a deal like this?

6. Capital controls in Iceland are expected to remain in place at least through 2015, which would make seven years (and counting).  That is a better run country with lots of fish and aluminum smelting.  You can expect the same or longer from Cyprus, and that’s assuming this deal can last that long, which I doubt.

7. ELA assistance is now, all the more obviously, contingent rather than certain.  Who would keep their money in the “good bank” which is being folded into Bank of Cyprus?  Why would anyone do this?  Given a shrinking economy, surely this bank cannot afford to pay very much to retain deposits, since rates of return on domestic assets will be negative and capital controls will limit or prevent investments in foreign assets.

8. The capital controls will have to be strict.  What will the price of a Cypriot euro be, relative to a German euro?  50%?  I call this Cyprus leaving the euro but keeping the word “euro” to save face.  And yet they fail to reap most of the advantages of leaving the euro, such as having an independent monetary policy.

9. Given that the nation is uh…corrupt, and the account holders are very often money launderers (duh), how effectively will those capital controls be enforced?  Won’t the banks end up drained, one way or another?  Of course remittances will need to be sent abroad to purchase “essential services,” right?  Who picks up the tab for the total collapse of all the banks?  Won’t the euros that are left depart Cyprus altogether?

10. Next up may be Slovenia

Addendum: A summary of the deal is here.  And here are some very good comments.  Here are more details on capital controls.

Anon. March 25, 2013 at 8:24 am

The Cypriot Euro will be a very interesting trade, though it’ll be hard to do on scale.

Barry March 29, 2013 at 1:37 pm

(sorry if I’m skipping over previous replies)

Anon. March 25, 2013 at 8:24 am

“The Cypriot Euro will be a very interesting trade, though it’ll be hard to do on scale.”

Pretty easy, actuall. Party A gives control of a non-Cypriot Euro account to party B, who gives party A control of a Cypriout Euro account.

At a steep discount, of course.

Larry March 25, 2013 at 8:45 am

I’m sure somebody is trying to “sell” their large Cypriot bank account for ready cash. Wonder how much they’ll get?

Ray Lopez March 25, 2013 at 9:32 am

About 70%. Money launderers ask about 30% of the money being transport, and that’s considered a good deal. They don’t deal with small amounts BTW, so for less than $1M I’d say the going rate is half.

dead serious March 25, 2013 at 8:51 am

What exactly is a Cypriot euro? Are Cyprus’ euros ringfenced – either in principal or in practice?

Is this akin to an Alabama dollar?

JWatts March 25, 2013 at 2:06 pm

Alabama dollar’s aren’t subject to capital controls. So, they aren’t closely akin, assuming that capital controls are indeed enforced.

Therapsid March 25, 2013 at 9:19 am

It’s amusing the way that Tyler buys into Western propaganda that equates all Russian offshore banking with money laundering.

If the shoe were on the other foot, and Russia and the Eurasian Union were imposing such draconian levy’s on the deposits of Western businessmen seeking to evade taxes, it’d be characterized as evidence of the absence of the rule of law under Putin and a return to Stalinist command economics. What a joke.

Andrew' March 25, 2013 at 9:24 am

And we have TARP. But I wonder if you even have to get nationalistic. Maybe it’s just marketing to soften the idea of dinging depositors in general. If depositors are innocent knaves they get more sympathy.

JWatts March 25, 2013 at 2:07 pm

What percentage of the money over 100K euros is even Russian for that matter?

Seabisquit March 25, 2013 at 8:13 pm

Good point. Were they money laundering, evading taxes or just trying to get some assets out of Russia so it cannot be confiscated if they fell out of favor with the ruler there. If the latter we would surmise that Putin is laughing at this European government “tax” as it pushes his wayward russians back into his control

Rich Berger March 25, 2013 at 9:25 am

What would happen if nothing were done – no help, no penalties?

mulp March 25, 2013 at 11:04 am

On Wednesday, the Cypress banking system would be government run by bankruptcy court judges and their special masters because they would have no cash, just debt assets and deposit liabilities, plus some real estate. The real estate would be sold first to allow others to start new banks.

But basically, the government can not do nothing.

jonpez March 26, 2013 at 1:08 am

You’d think by now you’d have corrected your spelling. Cypress is a tree, man.

ptuomov March 25, 2013 at 9:32 am

I think this post was kind of confused.

I think it’s overconfident to the point of hubris to predict a 25% GDP contraction for any country based on economic theory. Rational forecasters will leave such forecasts to civil wars and the like. The survey of economic forecasters shows a slightly negative out of sample R2, and the author here thinks that he can used his understanding of economic theory to predict an extreme even like that?

It is always a good thing to organize a private entity default in a way that no politician has to vote on it. What was the author thinking when wroting the opposite? The two largest banks in Cyprus that are not subsidiaries or branches of large global banks made some bad investments and become insolvent. On of the insolvent companies is closed and the other is reorganized. The banks that didn’t invest in Greek bonds and the like, and their depositors, are not paying for those mistakes now. How is that inferior to a broad tax voted on by the politicians?

Putin was privy to the bank deposit tax plans in advance. Putin’s gang has moved their liquid assets out of Cyprus weeks ago. It’s only Putin’s opposition that has any deposits still in Cyprus. The recent protestations by Putin’s gang are either just a show, or an expression of disappointment that their enemies deposits only in two banks, instead of all banks, are tapped.

There will not be any meaningful long-term capital controls as long as the banks are open and Cyprus uses only euros. There’s no way to get it to work. The situation is in no way comparable to Iceland with their krona. The fact that people in Cyprus will still be using euros will mean that there will not be a flight of local money out of the country, instead there will just be a flight of local money from banks to mattresses. Those euro bills will be honored with as much certainty as there is about anything on this topic. The foreign money in local Cyprus banks will flee to either global bank subs and branches on the island or the country altogether.

ELA has always been contingent and has been used to create deadlines in the past, for example, in the case of Greece. No new things were learned here by people who pay attention.

There are interesting things happening in the Slovak banking system, but they don’t really resemble the Cyprus situation.

ptuomov March 25, 2013 at 10:46 am

Misread the country name there in the original post. The Slovakian banking system has some protectionism brewing, which I think is interesting but shares nothing with the case of Cyprus. The Slovenian banking system is a garden variety Mediterranean purely domestic bad loans story, and it also has little to do with Cyprus.

Ray Lopez March 25, 2013 at 9:35 am

You ask, I answer. I am an expert on the Balkans. If nothing else, see my points #7 and #8.

“1. Output on the island could easily decline by 25% or more” – true for any severe recession, see the business panics of the US 19th century. Stabilizers are not necessary in the Balkans since family provides income relief.

“2. It’s never a good sign when a deal is structured so that no one has to vote on it. (Correction: various European legislatures may be voting on it, but no one in Cyprus.)” – evidence that it’s for the good of Cyprus but would not be recognized by the ignorant masses.

“3. The deal itself still doesn’t cough up all the money, but rather relies on subsequent tax increases and privatizations to come up with at least another billion euros. Believe it or not, the numbers don’t add up.” – no biggie. Like the CBO in the US–they wear rose colored glasses.

4. “This was not a good weekend for Russian billionaires.” – Boris B. died, and Natasha doesn’t feel that well either.

5. “I wonder if the two main banks even have the money they claim they do. Who tells the truth going into a deal like this?” -who cares? Free money from Europe.

6. “Capital controls in Iceland are expected to remain in place at least through 2015, which would make seven years (and counting). That is a better run country with lots of fish and aluminum smelting. You can expect the same or longer from Cyprus, and that’s assuming this deal can last that long, which I doubt.” -good point, ergo this is a temporary deal to suck more money out of the Germans.

7. “ELA assistance is now, all the more obviously, contingent rather than certain. Who would keep their money in the “good bank” which is being folded into Bank of Cyprus? Why would anyone do this? ” – only those who cannot move their money outside of Cyprus. You realize that even Greece has de facto currency control today (and it’s been on the books for years)? You cannot move money out of Greece (and it’s been this way for years) unless you have a business license to export something, and can plausibly claim the money being moved relates to that business. Otherwise, you get hit with a large tax penalty, for failure to declare this income as taxable income (the burden is on you to prove it’s not, which is hard to do). In years past, this law was on the book but unenforced; but now it is. Hence capital controls are common in the Balkans.

8. “The capital controls will have to be strict. What will the price of a Cypriot euro be, relative to a German euro? 50%?” – probably zero percent difference. Like I said in point #7, capital controls have been on the books in Greece and Cyprus for years–even before Greece joined the euro as I recall.

9. “Given that the nation is uh…corrupt, and the account holders are very often money launderers (duh), how effectively will those capital controls be enforced? Won’t the banks end up drained, one way or another? Of course remittances will need to be sent abroad to purchase “essential services,” right? Who picks up the tab for the total collapse of all the banks? Won’t the euros that are left depart Cyprus altogether?” – Cyprus is no more corrupt than Thailand, and less corrupt than Africa. As for Russian mobsters, I knew a few and I hear they won’t bother you unless you owe them money, and even then they rarely kill you but break your bones. Not that I deal with them to know.

10. “Next up may be Slovenia” – who’s next? That’s the biggest future impediment of this crisis: the uncertainty.

An actual greek March 25, 2013 at 5:58 pm

this is pure crap, sorry. I am Greek, can transfer money at will. No tax penalties or such fantasies. It is true that Greece has had capital controls in the past but these were of course not consistent with even maastricht/eec participation, let alone eurozone.

I love how everyone is an expert on something these days…

dead serious March 26, 2013 at 8:42 am

This is why I asked what a “Cypriot euro” is and why its value would be discounted. Seems like complete bullshit unless Cyprus’ euros are magically ringfenced. Otherwise a Cypriot’s euros can be spent anywhere on the continent.

Bill March 25, 2013 at 9:43 am

The other news of the weekend: British banks need to be recapitalized, by a magnitude of 2 or 3.

Hmmm. Makes you wonder if austerity–cutting government spending and increasing taxes–is there to create the cushion for bank failures, or to provide capital to banks when they need it. http://www.hm-treasury.gov.uk/fin_stability_recapitalisation.htm

Is it a good development model to have outsized banks in a country with poor banking regulation?

Tony Thirlwall March 25, 2013 at 10:20 am

Tyler isn’t equating all Russian offshore banking with money laundering, just calling out the offshore banking that IS money laundering.

Richard Besserer March 25, 2013 at 10:27 am

You left out the scariest part—all this still has to be approved by European legislatures, though obviously not the Cypriot one. Even if all goes well that will take weeks—and it may not go well.

In the meantime, Bild is still screaming for Merkel to make the Cypriots “lie in their own muck” (that much of the muck is mainland Greek is irrelevant—tabloids are not noted for their nuance). There are vast segments of German society that won’t be satisfied by anything less than the spectacle of Cyprus burning to the ground with the Cypriots trapped inside, and reading in Bild words to the effect of: “See that? This is what happens to wogs who try to stab German pensioners in the back. Feeling lucky, Beppe Grillo?”

Merkel, a more practical woman, may have what she wants at this stage—Cyprus put out of business as a Russian tax haven, the euro saved once more, at least on paper, and contagion and cost to German taxpayers minimized—but does the German electorate? She may just face a revolt from her own caucus on this if there’s a risk they’ll pay for it at the ballot box. A CDU backbencher, his career under threat from anti-euro parties, may well be tempted to conclude that if nothing but blood will satisfy the base, why not? He’s far more likely to know a Turk than a Greek Cypriot anyway—and schadenfreude in the Turkish German community (up to 5 percent of Germany’s population, depending on how it’s defined) wouldn’t hurt a party at the ballot box that had visibly turned on Greek Cyprus.

This is not over yet, and it could get even uglier really fast.

prior_approval March 25, 2013 at 10:41 am

Interesting analysis, except for this little detail – ‘his career under threat from anti-euro parties’ The reality being that currently, in Germany, there are no anti-euro parties. And a CDU backbencher might be encouraged by the CSU’s apparently full support of the current Cyprus deal.

Richard Besserer March 25, 2013 at 12:02 pm

Not any more. Alternative for Germany, a euroskeptic organization, has just converted itself into a full-fledged party and plans to contest the September election. We’ll know for sure in April if they’ll be allowed to.

A Deutsche Welle report on Alternative for Germany (downplaying the risk, perhaps slightly too much) is here: http://dw.de/p/17uBO

Steven Kopits March 25, 2013 at 11:32 am

+1 I’m with Richard on this.

By the way, I think Tyler’s summary is the best I’ve seen. Zero Hedge is also well worth tracking right now.

prior_approval March 25, 2013 at 11:36 am

Kind in mind the niggling reality there is no anti-euro party in Germany when agreeing with an analysis of German political reaction to the Cyprus deal.

But that is the sort of bravura that makes this comment section so special.

DocMerlin March 25, 2013 at 2:27 pm

There is now!

Arturo March 25, 2013 at 1:29 pm

Has anyone performed an attribution analysis on either Tyler’s (Cowen or “Durden”) cogitations during this 5+ year crisis, based on actual outcomes and not just on what some readers like to think and hear? I’d wager their accuracy is not all that impressive.

JWatts March 25, 2013 at 2:14 pm

Feel free to do the work, I’d be interested in seeing the results

F. Lynx Pardinus March 25, 2013 at 10:58 pm

A trick I’ve used in other fields to skim articles on a blog from 12 months ago. With the benefit of hindsight, you get a decent feel for whether an author knows what they’re talking about. Here’s the relevant ZH page: http://www.zerohedge.com/archive/all/2012/3/26

prior_approval March 25, 2013 at 10:29 am

‘Won’t the banks end up drained, one way or another?’

Hasn’t it occurred to you that the banks have already been drained? – a fact that possesses the virtue that it also explains why they are bankrupt.

ptuomov March 25, 2013 at 11:10 am

Amen. The momey was not lost today, it was lost back in the day when the asset side of the bank balance sheet went pear shaped.

DocMerlin March 25, 2013 at 2:26 pm

BINGO!

Mark Thorson March 25, 2013 at 10:34 am

Is there any reason not to confiscate 100% of assets above 100,000 rather than some smaller fraction? It won’t make any difference to the future of the Cypriot banking industry, but the additional funds may come in handy for the Cypriot government in the near future.

ptuomov March 25, 2013 at 11:18 am

Might private property rights be such a reason? I understand that the American intellectual circles have by this point completely forgotten the concept, but may I just for a second dust off the cobwebs it.

A bank is a private enterprise, usually a corporation. It has assets, and those assets belong to the enterprise and not everyone or anyone who wants to grab them. The decision rights in the enterprise are held by the equity holders as long as the enterprise is liquid and solvent. The cash flow rights in the enterprise have a class based priority order, the central bank collateralized lending first, senior secured bonds second, depositors third, other unsecured creditors fourth, and equity holders the last. If the enterprise is no longer solvent and liquid, then some sort of reorganization is needed, either voluntary or thru the court system. If the reorganization works well, the assets are distributed to claimants in the order of priority until a class is made whole while domestic or foreign tax payers are not tapped. An insurance company may be tapped for those deposits that were insured by paying insurance premiums.

A blast from the past, for sure…

Necessary Proper March 25, 2013 at 5:01 pm

Yes, the fact that a business of any size would typically have working capital in excess of 100,000 euros. A supermarket chain, an auto or truck dealership, a fuel distributor, any business that generates a few million per annum in sales would need a cash balance in excess of 100,000 euros. A municipal government would as well. So to confiscate the excess would destroy pretty much every organization of any size in daily life.

Mark Thorson March 25, 2013 at 10:46 pm

If some locals need the money to do business, the government through the banks can loan it back to them. After the money has been safely transferred to the government, of course.

Marian Kechlibar March 26, 2013 at 2:26 am

What precisely is the difference between the government that you describe and a normal highway robber? This kind of approach to private property was previously the domain of communists and old-style tyrants a la Mughal navabs.

Also, could possibly The People revolt (as in “with guns and guillotines”) against a government that simply seizes whatever it wishes? This is a variable that is missing from your constructions.

Mark Thorson March 26, 2013 at 10:46 am

A government and a highway robber are nothing alike, except perhaps morally. I don’t know how well prepared the Cyprus government is to resist the worst that Russian oligarchs can do, but if they can grab 40% and survive, why not grab 100%? The consequences are the same, except with the latter the government gets much more money. If they have more money, they are in a better position to pacify any locals that might threaten the government — whether that’s by force, bribery, or some combination of incentives.

Alan Gunn March 25, 2013 at 10:38 am

According to the Chicago Tribune, the European Commission has said that capital controls in Cyprus have to be very short term, as in days. That’ll work just peachy.

mulp March 25, 2013 at 11:11 am

Why shouldn’t Cypress production of bad debt fall by 100% instead of 25%?

If you don’t consider debt, good or bad, to be production, then why has Cypress so favored the banks that 7 times the GDP has been on deposit in the Cypriot banks requiring the banks to invest in bad debt to put the excess cash someplace other than on account drawing zero interest at the ECB?

Barry March 25, 2013 at 12:02 pm

“If you don’t consider debt, good or bad, to be production, then why has Cypress so favored the banks that 7 times the GDP has been on deposit in the Cypriot banks requiring the banks to invest in bad debt to put the excess cash someplace other than on account drawing zero interest at the ECB?”

People should consider that it probably doesn’t take a 7 to 1 ratio of banking to GDP to cause trouble. This probably means that any highly financialized economy is really not insured.

nycbd March 25, 2013 at 1:38 pm

it all makes sense now – Tyler Cowen IS Tyler Durden!

abdussamad March 25, 2013 at 1:39 pm

About 4, Felix Salmon blogs about Russian oligarchs having money in Cyprus and most other articles on Reuters state the same thing except for the one article that actually looked into this:

” the bulk of the billions of euros of Russian money in Cyprus comes from smaller firms and middle-class savers.”
http://www.reuters.com/article/2013/03/22/us-cyprus-russia-money-idUSBRE92L0PI20130322

You don’t become an oligarch if you can’t see a crisis like this coming.

DocMerlin March 25, 2013 at 2:25 pm

If the Russian oligarchs had their money in cyprus, they would have gotten far better terms. The russian oligarchs are very politically powerful in Germany.

Mark A. Sadowski March 25, 2013 at 4:49 pm

“You don’t become an oligarch if you can’t see a crisis like this coming.”

Moreover the bulk of the remaining Russian deposits are with the Cypriot subsidiary of VTB, which under this deal are left completely alone.

Necessary Proper March 25, 2013 at 5:04 pm

In fact, the reason so much Russian money goes to Cyprus is that Cyprus has many more tax treaties with other countries than Russia. Bilateral dealings between legitimate Russian businesses and the outside world are in large part routed thru third countries like Cyprus for perfectly legitimate reasons.

DocMerlin March 25, 2013 at 2:16 pm

“You can expect the same or longer from Cyprus, and that’s assuming this deal can last that long, which I doubt.”

Bitcoin ATMs are already cropping up in Cyprus.
http://dollarvigilante.com/blog/2013/3/25/worlds-first-bitcoin-atm-is-announced-first-location-cyprus.html

David Wright March 25, 2013 at 2:21 pm

“It’s never a good sign when a deal is structured so that no one has to vote on it.”

On the contrary, it’s an excellent sign. It’s a sign of the rule of law: events are being allowed to unfold according to the rules already in place. Deposit insurance is being honored. Unsecured creditors are taking losses. This is the way a market economy is supposed to work.

ptuomov March 25, 2013 at 3:30 pm

That’s right.

Richard Besserer March 25, 2013 at 4:57 pm

Oh, someone has still to vote on it all right. Just not the Cypriot parliament. Keep in mind too that the first instinct of the troika was to categorically NOT honour deposit insurance rules, so Angela Merkel would have less to worry about in September from Bild readers who care less about how free markets ought to work than in settling scores with the smelly, lazy, thieving wogs who (Bild has convinced them) are fiddling Oma out of her pension so they can spend their days at the beach. All here know that letting this spiral out of control could have just as easily done for Oma’s pension. Good luck explaining that to Angela’s base. Lord knows people have tried.

As it is the Bundestag still has to approve this (along with the rest of Europe’s parliaments). CDU backbenchers who vote for the bailout are still taking the risk of being punished at the polls by the Bild Party if they stay home or vote for fringe parties (of which Alternative is just the newest). If they blink, we’re lucky if we’re back to square one.

Rule of law? That’s a nice thought, I confess.

Jack March 25, 2013 at 2:29 pm

Amazing… really bad effects on confidence in banks throughout the Eurozone must be almost certain. A nice piece of
financial engineering. A bank is declared “bad” and allowed to fail, stripping all but small depositors of the bulk of their
capital. A “good” bank is created, to allow the system to limp along. The rhetoric genuflects in the direction of an
“unsustainable” economy. This is really a defacto capital seizure. Undoubtedly all within the law.
Too bad most Europeans can read. They will draw the likely conclusions re: bank stability. Are Luxbanks next?

prior_approval March 26, 2013 at 2:24 am

‘This is really a defacto capital seizure.’

Or, in reality, it is a bankruptcy – that is, the money is no longer there.

What makes the Cyprus deal interesting is that the bankrupt Laiki bank is being wiped out (to the tune of 4.2 billion €) without anyone jumping in to save anyone but those with 100,00 € or less in their account.

What I find most interesting about the coverage at this point is just how that little detail is not being widely proclaimed in the English language press.

Laiki is (and was) bankrupt – there is no money there. Interestingly, the German press (Die Welt, for example) has published things along the lines of ‘finally, those who deserve to pay are paying’ – in other words, the banks equity and bond holders and major depositors are the ones who should take the loss, and not be made good by someone else.

Besides, it is all just ‘peanuts’ from a German perspective.

I understand why a certain broad swath of the American financial system do not want anyone to take seriously the idea of having to actually suffer losses due to a financial institution actually being bankrupt.

In contrast, the Germans were happy to liquidate Hypo Real with essentailly complete losses for its shareholders (and replace the management of Commerzbank as a condition for aid, too).

As a guess, it would be reasonable to expect a more German style approach to financial institution bankruptcy in the ECB’s future – the pearl clutching on the part of countries with truly shaky financial systems should be interesting to observe.

K March 25, 2013 at 3:54 pm

“It’s never a good sign when a deal is structured so that no one has to vote on it.”

On the contrary, if a legislature has to vote, it probably means that somebody’s rights are getting trampled. If nobody has to vote, that is actually a VERY GOOD SIGN that current law, i.e. the rules everyone agreed to, is being applied.

“I wonder if the two main banks even have the money they claim they do.”

What do you mean “money?” They are banks. They don’t “have” any money. They have assets which are largely illiquid loans. The question is how much are their assets worth? But nobody, including the banks themselves, have any idea of that because it all depends on the macroeconomic outcome.

The Anti-Gnostic March 25, 2013 at 5:22 pm

You are making a good argument for keeping your money in a home vault instead of a bank. Banks pay little or no interest on demand deposits any way, and if they go bankrupt, they just blame it on “macroeconomic outcomes” and hit up their customers for speculative losses.

Why would any Greek Cypriot trust their banking system going forward? It’s a pretty small, homogenous place and their GDP is about to plummet. It’s not like everybody will be screaming for some place to keep all those piles of cash they’ll have lying around. They’ll just carry their several thousand euro balance under the floorboards at home and just take out what they need when they go to buy their canned beans and get the holes patched in their clothes.

Europe keeps this up, they will probably have some military coups.

ChrisA March 25, 2013 at 10:04 pm

I don’t think the real economy of Cyprus will fall by 25% because of this. The main industry there is tourism, which will continue much the same as it ientirely comes from foreigners. Construction of new tourism facilities (hotels and the like) is largely funded by overseas investors, who do no need to go through Cyprus banks and would have had minimal funds in them anyway. Foreign pensioners might be slightly less willing to retire to Cyprus but I would guess that the lesson they learned was to not trust Cyprus banks, you don’t have to use Cyprus banks much even if you love there. It’s not an outrageous comparison to say that this is similar to a couple of large banks failing in Texas, it’s bad, but not really going to destroy the economy of Texas.

Of course measured GDP might fall by a large amount as a lot of financial business might go away from Cyprus but that was never anything to do with the real economy.

Only one real question left, where did the money go that these banks lost? Somebody must have taken the other side of all these trades? Who?

The Anti-Gnostic March 26, 2013 at 11:07 am

I misplaced my reply:

Greece government bonds, as I have read. My question is, what did the Greek government do with it, and the Greek government employees? Rims for their rides? Coke and hookers?

ThomasH March 25, 2013 at 11:23 pm

Cyprus, like Greece should leave the Euro, but it was a good move to get this dollop of aid before doing so

The Anti-Gnostic March 26, 2013 at 6:49 am

Greece government bonds, as I have read. My question is, what did the Greek government do with it, and the Greek government employees? Rims for their rides? Coke and hookers?

ThomasH March 25, 2013 at 11:42 pm

A Euro held in a Cypriot bank was NEVER the equivalent of a Euro in a German Bank because there was not European wide deposit insurnce backed by all the Eurozone Governments, just as a Euro of debt of the Greek government or firm was not the same as a Euro of debt of the German government or firm. The absense of exchange rate risk does not equal the absense of country risk. In fact the lack of an independent monetary policy increases country risk.

Bill Harrison March 26, 2013 at 4:36 am

Liked your comments, but are your U.S. readers aware of how the European Commission operates.
1/ The 27 e.c. is unelected, they are answerable to no one but themselves.
2/Last year only $115Bn dollars were unaccounted for, fraud is endemic.
3/The auditors have refused to sign off on the accounts for the 18th. year in succession.
4/ Most of them have never had a real job, and most are socialists/marxists, their ‘president’,Barroso is proud of being a former Maoist. They are corrupt, undemocratic, arrogant, and dangerous.
5/No to a referendum is never adccepted, go back and think again is their dictum, see Holland, France, Ireland, (twice)
6/ They refuse to acknowledge that their driven aim to protect the stupid one size fits all Euro is what is causing the problem., in their blind attempt to create the new EUSSR.

7/ They ignore all national ,diverse,historically and culturally varied peoples in their pathological aim to create the new EUSSR.
8/ The so called ‘mother of parliaments’ the UK is irrelevant, since over 70% of their laws are made by this corrupt body located in a foreign country.

Jordan March 27, 2013 at 4:13 am

If a euro in Cyprus is worth some fraction of what a euro is elsewhere (owing to these capital controls, which restrict the ability of individuals to spend it), to what extent is it still a common currency?

Jordan March 27, 2013 at 4:14 am

I guess someone else has already connected the dots here:

“Tyler Cowen: Cyprus Has Basically Just Left The Euro”
http://au.businessinsider.com/tyler-cowen-cyprus-has-basically-just-left-the-euro-2013-3

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