Cyprus surprise - Cypriot depositors to take a 'haircut'

Xiderpunk

This action is straight out of the middle ages, imposing a levy like this is something that I am sure the Sheriff of Nottingham would do. I sincerely hope that the Cypriots stand against this and remove their government immediately. It sets an extremely dangerous precedent that supposedly democratic governments can do this, when that happens it is time for the people to take away the government and replace it. Stealing from the responsible to bail out the irresponsible is plain wrong, no matter the consequences.

ILW

Xiderpunk wrote: »

This action is straight out of the middle ages, imposing a levy like this is something that I am sure the Sheriff of Nottingham would do. I sincerely hope that the Cypriots stand against this and remove their government immediately. It sets an extremely dangerous precedent that supposedly democratic governments can do this, when that happens it is time for the people to take away the government and replace it. Stealing from the responsible to bail out the irresponsible is plain wrong, no matter the consequences.

that sort of defines modern economic theory. Punish the responsible and reward the F eckless.

grizzly1911

An English Financial Advisor, based in Cyprus, interviewed on Sky News this morning, said he was warning his clients at least 2 months ago of risks in the banking system. he suggested thousands of expats would be affected.

He was surprised that they imposed it on sub EU100K saying it was hard on those with just basic accounts for day to day operating at c.EU5K.

He did say that interest rates were running at 5% pa, a number were locked in and people were torn by what to do.

HAMISH_MCTAVISH

Xiderpunk wrote: »

This action is straight out of the middle ages, imposing a levy like this is something that I am sure the Sheriff of Nottingham would do.

Italy did something similar in the 90's. The UK, USA, and Australia have all seized private assets within modern times.

I sincerely hope that the Cypriots stand against this and remove their government immediately.

And do what exactly?

The banks will now almost certainly be subject to a run and fail on Tuesday morning without a bailout.

Cypriots could lose everything.

It sets an extremely dangerous precedent that supposedly democratic governments can do this, when that happens it is time for the people to take away the government and replace it. Stealing from the responsible to bail out the irresponsible is plain wrong, no matter the consequences.

Actually, the consequences do matter. Losing everything is worse than paying a tax of 6% to 9%

Depositors to banks are not exempt from tax.

This is a tax.

It really is that simple.

grizzly1911

What is the root cause of the problem for Cyprus? Is it aligned to Greece, low tax recovery and bulbous public sector, is it cross contamination from the problems Greece have or something else?

Appreciate Cyprus is only a small part of the EU but is this something that could affect say Malta?

Why aren't we hearing about problems in the former eastern bloc countries?

antrobus

grizzly1911 wrote: »

What is the root cause of the problem for Cyprus? Is it aligned to Greece, low tax recovery and bulbous public sector, is it cross contamination from the problems Greece have or something else?....

Exposure to Greece. As, I believe one commentator put it a few months ago; Cypriot banks are insolvent on an 'intergalactic scale'.

The_White_Horse

absolutely disgraceful robbery from the people to save the EU. it really is getting beyond a joke now. there will be wars soon. the people won't put up with this much longer.

cepheus

But this guy looks after bonds, hardly impartial!

Mohamed El-Erian – CEO of PIMCO, the biggest bond fund in the world – is out with a reaction in the FT to this weekend's stunning Cyprus bailout deal. (The terms of the deal include an instant, 10-percent "tax" on deposits held in Cypriot banks before the banks re-open this week, which is being widely-panned as unfair by critics.)

According to El-Erian, the EU actually had four valid reasons to make such an unprecedented move.

First, El-Erian says, given the problem – which stems partly from the enormous size of the Cypriot banking system relative to GDP – depositors are partly to blame.

"In entrusting funds to Cypriot institutions, depositors (and especially foreign depositors) inadvertently funded the over-extension of the banking system, both domestically and abroad," writes El-Erian.

Second, much has been made about the "Russia angle" in the Cyprus deal. Because Cyprus is viewed as an off-shore tax haven for Russian oligarchs !!!!! types, many worry that the move could anger those depositors.

El-Erian thinks that is a good thing, though: "By killing once and for all the notion that Cyprus is a safe and lax offshore haven, the levy serves to limit such intermediation [of funds from dubious origins] in future."

The third valid reason for a deposit haircut, according to El-Erian, is that the alternatives seemed worse. Someone was going to lose out in this deal. For the two reasons outlined above, it might as well be the depositors.

Finally, this will serve as a "wake-up call" for investors who thought the ECB had fixed everything with its "whatever it takes to save the euro" speech back in July. This, too, is a good thing, says El-Erian

http://www.businessinsider.com/el-erian-four-good-reasons-for-the-cyprus-deposit-haircut-2013-3?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+businessinsider+%28Business+Insider%29

HAMISH_MCTAVISH

Statement by the President of the Republic Mr Nicos Anastasiades

16/03/2013

It is well known that the deep economic crisis and the state of emergency in which the country has found itself did not come about in the last fortnight since we have undertaken the administration of the country.

The state of emergency and critical nature of the times do not allow me, as they do not allow anyone, to embark on a blame game.

In the extraordinary meeting of the Eurogroup, we faced decisions that had already been taken and came across faits accomplis through which we were faced with the following dilemmas:

On Tuesday, March 19 we would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis, which would put a definitive end to the uncertainty and restart our economy.

A possible choice of the catastrophic scenario option would have the following consequences:

1. On Tuesday, March 19, immediately after the holiday weekend, one of the two banks in crisis would cease to operate, since the European Central Bank, following the decision already taken, would terminate the provision of liquidity. The second bank would suspend its work, and neither could avoid collapse. Such a phenomenon would instantly lead 8.000 families to unemployment.

2. The State would be obliged to compensate depositors in response to the obligation regarding guaranteed deposits. The capital required in such a case would amount to about 30 billion euros, which the State would be unable to pay.

3. A proportionate amount corresponding to the deposits of thousands of depositors for deposits over 100.000 Euro, would be led to a vicious cycle of asset liquidation, and these depositors would suffer losses of over 60%.

4. Such an uncontrolled situation would push the whole banking system into collapse with all the attendant consequences.

5. Thousands of small and medium enterprises, and other businesses would be driven to bankruptcy due to their inability to trade.

As a result of the above, the service sector would be led to a complete collapse with a possible exit from the euro. That, in addition to the national weakening of Cyprus, would lead to devaluation of the currency by at least 40%.

The second choice was the controlled management of the crisis, through the decisions taken and which can be summarized as follows:

1. Ensuring the liquidity of the banks and the rescue of the banking system through their recapitalization.

2. Rescuing 8.000 jobs in the banking sector and thousands of others which would be lost as a corollary of not maintaining the operations of banks.

3. Total rescuing of deposits, with just the exchange of a small percentage of savings with shares of the two banks. Currently, these shares do not have their full value, but with the economic recovery they will repay most it not all of the amount that will be cut.
4. This option results in a drastic reduction of public debt, makes it manageable and sustainable and relieves future generations from the burden of repayment.

5. It saves provident and pension funds and avoids taking other tough measures such as wage and pension cuts that were put on the negotiations table.

6. It avoids further recession and the risk of the vicious circle of a second memorandum.

We are not aiming to gloss over the situation. The solution chosen may be painful, but it was the only one that would allow us to continue our lives without adventures. It's a decision that leads to the historic and permanent rescue our economy.

In the next few hours we will all have to take responsibility. Tomorrow I will address the Cypriot people.

http://www.moi.gov.cy/moi/pio/pio.nsf/All/C7131DA40FCE0827C2257B30005411D5?OpenDocument

HAMISH_MCTAVISH

ScottWhiliams wrote: »

Where is the safest place to have your investments where the government can not just take 10% out when they like?

Such a place doesn't exist.

Governments have a long history of taxing or seizing assets when they feel it necessary to do so.