Cyprus is a beta test for the EU

A Word Out Of Place Sends Europe Tumbling
Tyler Durden's picture
Submitted by Tyler Durden on 03/25/2013 11:07 -0400
http://www.zerohedge.com/news/2013-03-25/word-out-place-sends-europe-tumbling
Eurozone
International Monetary Fund
Reuters



Perhaps the best example of a "word out of place" comes from the new Eurogroup head, Dijsselbloem, also phonetically known as Diesel-BOOM, who just may have ushered in the next, next wave of the Eurozone crisis:

"Cyprus a Template For EU"

Er... wasn't it a special case, inside a unique case, wrapped in a one-time case? We will ignore the rather hilarious Freudian slip, and focus on what he was explicitly talking about with Reuters, which is the resolution model which was just put in place in Cyprus:

A rescue programme agreed for Cyprus on Monday represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors, the head of the region's finance ministers said.



"What we've done last night is what I call pushing back the risks," Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times hours after the Cyprus deal was struck.



"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?'. 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," he said.



After 12 hours of talks with the EU and IMF, Cyprus agreed to shut down its second largest bank, with insured deposits - those below 100,000 euros - moved to the Bank of Cyprus, the country's largest lender. Uninsured deposits, those accounts with more than 100,000 euros, face losses of 4.2 billion euros.



Uninsured depositors in the Bank of Cyprus will have their accounts frozen while the bank is restructured and recapitalised. Any capital that is needed to strengthen the bank will be drawn from accounts above 100,000 euros.



The agreement is what is known as a "bail-in", with shareholders and bondholders in banks forced to bear the costs of the restructuring first, followed by uninsured depositors. Under EU rules, deposits up to 100,000 euros are guaranteed.

The punchline:

The approach marks a radical departure for euro zone policy after three years of crisis in which taxpayers across the region have effectively been on the hook for resolving problem banks and indebted governments via multiple rescue programmes.



That process, with governments and taxpayers bearing the costs and providing the back stop, had to stop, Dijsselbloem said. Recent financial market calm meant now was the time to make the change, although he conceded there was some concern that it could unsettle markets again.



If adopted by the euro zone, Dijsselbloem's template could also sound a death knell for a plan hatched nine months ago when the euro zone debt crisis was threatening to blow the currency area apart.



Then, euro zone leaders agreed that the bloc's future rescue fund should be allowed to recapitalise banks directly, thereby breaking the debilitating link between teetering banks and weak governments forced to bail them out. That may now never happen.



Asked what the new approach meant for euro zone countries with highly leveraged banking sectors, such as Luxembourg and Malta, and for other countries with banking problems such as Slovenia, Dijsselbloem said they would have to shrink banks down.



"It means deal with it before you get in trouble. Strengthen your banks, fix your balance sheets and realise that if a bank gets in trouble, the response will no longer automatically be that we'll come and take away your problem. We're going to push them back. That's the first response we need. Push them back. You deal with them."

Translation: it now officially sucks to be an unsecured creditor in Europe. In other words: an uninsured depositor.

Why this ad hoc dramatic shift in the European approach to bank solvency, which if anything makes the link between bank and sovereign closer than ever, and crushes all that Draghi achieved in the summer of 2012?

Simple: because what Cyprus allowed was the effective usurpation of democracy - the only reason the Cypriot bailout "passed" (at least so far) is because it was structured as a bank restructuring, a financial system "resolution", not a tax, and thus not in need of a parliamentary, democratic vote. Because as Cyprus also showed, votes to deprive depositors of cash, whether insured or uninsured, simply won't fly.

Hence the shift.

However, there is a problem: it means that depositors are now fair game everywhere, and that the ESM or EFSF, with their unlimited scope but "democratic" impleention pathway, are on the backburner.

And now, the scramble to pull uninsured deposits out of banks everywhere begins. Thanks to the new Eurogroup head.

"You ask for miracles, Theo. I give you Diesel-BOOM"

And now, every European depositor is going to their local financial dictionary to look up the definition of General Unsecured Claims, only to see a picture of... themselves.
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http://www.telegraph.co.uk/finance/financialcrisis/9952979/Cyprus-bail-out-savers-will-be-raided-to-save-euro-in-future-crises-says-eurozone-chief.html

Quote :

Cyprus bail-out: savers will be raided to save euro in future crises, says eurozone chief
Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe's single currency by propping up failing banks, a senior eurozone official has announced.

The new policy will alarm hundreds of thousands of British expatriates who live and have transferred their savings, proceeds from house sales and other assets to eurozone bank accounts in countries such as France, Spain and Italy.

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

http://www.zerohedge.com/news/2013-03-26/cyprus-last-remaining-big-bank-set-unexpected-liquidation
Is Cyprus' Last Remaining Big Bank Set For An Unexpected Liquidation?
Submitted by Tyler Durden on 03/26/2013 - 09:10

As part of the weekend's Cyprus parliamentary vote-bypassing "bank resolution", we learned that the second largest Cyprus bank, Laiki, will be liquidated, with the bulk of its good assets rolled into what would remain of the first and only remaining major bank in the island: Bank of Cyprus (whose uninsured depositors would also suffer a haircut, but supposedly a smaller one, less than 30%). Then, in a very surprising move overnight, news hit that the Chairman of this last standing bank, Andreas Artemis, has tendered his resignation. Why now, when everything is supposedly fixed and when the impression of stability is paramount? Perhaps the reason is that as CNBC's Michelle Caruso-Cabrera reports from Cyprus, there is now an rumor that the "other" bank - Bank of Cyprus - may also be on the verge of liquidation.

SOMEONE KNEW ABOUT CYPRUS-- ONE WEEK BEFORE CRISIS, 4.5 BILLION EUROS LEFT THE ISLAND

http://www.rumormillnews.com/cgi-bin/forum.cgi?read=272634

Posted By: Maryhrt [Send E-Mail]
Date: Monday, 25-Mar-2013 21:38:32

Cypriot president Nikos Anastasiades 'warned' close friends of the financial crisis about to engulf his country so they could move their money abroad, it was claimed on Friday.

The respected Cypriot newspaper Filelftheros made the allegation which was picked up eagerly by German media.

Germans are angry at the way their country has been linked to the Nazis and Hitler by Cypriots angry at the defunct rescue deal which called for a levy on all savings.

The Cyprus newspaper did not say how much money was moved abroad but quoted sources saying the president 'knew about the possible closure of the banks' and tipped off close friends who were able to move vast sums abroad.

Italian media said the 4.5 billion euros left the island in the week before the crisis.

Meanwhile sources close to the 'troika' – the IMF, ECB and EU Commission responsible for trying to create a viable rescue deal before Monday – said that attempts to put together a 'plan B' rescue package had failed.

'The coming hours will determine the country's future,' a government spokesman in Nicosia said.

Nearly a full week after the European Union agreed to a €10 billion rescue for the island country of one million people the Cypriot parliament still hasn't approved any new deal.

Nicosia hoped to raise its €5.8 billion share of the bailout through a fund based on a portfolio of government assets. Early Friday afternoon, Greek TV station Skai-TV and the newspaper Ta Nea reported the troika has rejected the proposal following a meeting with president Anastasiades.

Troika officials reportedly told the leader it was unlikely the country could raise the funding shortfull with the plan.

They are reportedly sticking to the demand that Cyprus impose a deposit tax, but only on accounts holding sums above €100,000.

German government patience is said to be 'wearing very thin,' with Chancellor Merkel reportedly seething at seeing herself caricatured as Hitler on demonstrators' placards in Cyprus.

At a special meeting of her party group in parliament on today Mrs Merkel warned that Cyprus' partners may soon 'lose ' and that the country should 'not try to test the troika.'

News magazine Der Spiegel said participants in the meeting quoted Merkel as saying that Cyprus appears not to have recognized that the business model it has used up until now has ended.

At the same time, she added: 'We want Cyprus to remain in the euro zone.' She also said that she hopes the situation in Cyprus doesn't lead to a 'crash'.

Angry crowds demonstrated in Cyprus today as leaders battled to prevent total economic collapse in four days time.

Cyprus's government urged lawmakers this afternoon to 'take the big decisions' – MPs are due to start voting on a series of bills that aim to raise the funds the country needs to secure an international bailout before their emergency funding runs out on Monday, triggering a possible exit from the Euro.

'The next few hours will determine the future of the country,' government spokesman Christos Stylianides said in a televised statement before parliament was due to debate.

Outraged protestors gathered outside parliament – Despo Pambaka, 28, a customer services manager at Laiki Bank told The Telegraph: 'I never expected this would happen. They are trying to take our lives, our money. Even in 1974 in the war (with Turkey) they didn't rob us of our deposits. This is not the Europe that we went into. Germany showed her real face. We will not accept it.'

This morning it emerged that British savers with Laiki Bank could get the same deal as their Cypriot counterparts.

Laiki Bank, which has three UK branches is not covered by the FSA compensation scheme, unlike Bank of Cyprus, meaning their customers could be hit by the bank restructures.

Meanwhile Greek Finance Minister Yannis Stournaras announced that a Greek banking group had begun acquiring the Greek units of Cypriot banks – this would safeguard all the deposits of Greek citizens in Cypriot banks.

Last night an emergency Bill submitted to parliament gave the finance minister or central bank governor the right to impose capital controls on banks – a ban on moving cash outside the country, which would be a serious blow to the single market.

The European Central Bank warned it may halt funding on Monday if Cyprus fails to come up with a viable rescue plan.

http://lewrockwell.com/spl5/cyprus-president-warned-cronies.html