Cyprus surprise - Cypriot depositors to take a 'haircut'

ILW

Mr_Mumble wrote: »

I was making a tongue-in-cheek reference to how the Dutch were disenfranchised over the EU Constitution vote where they said no (along with the French and Irish). Since I'm in an argumentative mood though ...There really was an alternative. Leave the Euro and stiff the Dutch et al on the ECB money. The "favourable terms" are through necessity and gave Cyprus leverage. The Eurogroup is lending an extra 10 billion Euros but for that they secure at least 9 billion Euros that would have been lost if Cyprus balked. The Eurogroup got the better end of this deal.


They aren't responsible for the 80% decapitation their banks took on Greek government debt.

The reason Cypriot banks took an 80% loss on Greek government debt was because the Greek government absorbed its bank debt and kept depositors whole. It's kinda perverse that Cypriot deposits are being taken to keep Greek deposits at 100%.

They did not have to lend to the Greek government.

socrates

ILW wrote: »

They did not have to lend to the Greek government.

He never said that

Mr_Mumble

ILW wrote: »

They did not have to lend to the Greek government.

The Cypriot people did not. It was Cypriot banks that lent this money.

Note the losses on Greek government debt for the private sector (notably Bank of Cyprus and Laiki/Popular bank) were so high because of subordination to allow Eurozone taxpayers to be kept whole.

N1AK

CLAPTON wrote: »

If it were really as easy as you say that the government would be putting that case to the people again... if you can see how amazing it is I'm sure the Cypriots would do so also.

...The government and people are in denial.

I can see that smoking 20 a day is a bad idea, therefore surely no one does that? I'm not an alcoholic therefore they do not exist? I'm sure you can see how nonsensical that view is.

The Cypriot people have been sold a completely false version of events by their elected officials and newspapers. The government would be eviscerated for now voting for exactly the measures they were decrying as 'blackmail' and worse a week ago. The Cypriot people can't simply have their view changed in a day, and the elected officials have obviously decided that following this disastrous plan is worthwhile in order to avoid doing the right thing which would lead to them ceasing to exist as a political entity.

I said in my post that the original proposal wasn't ideal; simply that it was vastly better than what they've finally ended up agreeing to do. At least we both agree that they are in denial though

Graham_Devon

Just one small question...


Considering the IMF is insisting on decamating Cyprus..... how on earth will Cyrpus ever pay this back?

Mr_Mumble

Hamish, you and Peston have drunk the Eurogroup kool-aid that somehow if 6.7% could have been taken from the masses that would be the end of the matter.

Nonsense! The trouble of the past week - capital controls, anticipated ban runs - would have happened if the Cypriot Parliament agreed to that deal! These events would have meant more bail-ins for Cyprus either way. The new deal sees a more realistic bail-in agreed rather than the Greek-style steps of needing 3 bail-ins to reach the same position.

There are no good solutions here and this solution is still sub-optimal but as the Economist states:

A better deal, but still painful

N1AK

Mr_Mumble wrote: »

They aren't responsible for the 80% decapitation their banks took on Greek government debt.

We evidently define responsibility differently. Cyprus is a 'genuine' democracy (by which I mean you won't get murdered for trying to vote freely). They select their leadership and therefore are responsible for the decisions that leadership takes.

The Cypriot people have allowed their banking sector to become massive, with no viable way of supporting it if things went wrong. They have ridden the boom by accepting dubious money and lending it to dubious people. They are responsible for letting their economy become so fragile; someone referred to their economy as a casino economy and that really was quite apt.

Cypriots were happy enough to enjoy the economic prosperity that this brought during the boom; but are in complete denial when it comes to taking accountability now.

ruggedtoast

Graham_Devon wrote: »

Just one small question...


Considering the IMF is insisting on decamating Cyprus..... how on earth will Cyrpus ever pay this back?

Not from bank deposits again I shouldn't think.

I guess yet more money will be flowing into London property now.

There will be no relief for the little people.

BlondeHeadOn

What I can't understand is that most Cypriots I've seen interviewed stil say they want to stay in the euro.

I will probably be shot down in flames for this, but I really can't see any advantage to them now in staying in?

At least if they had their own currency again they could devalue and set own interest rates etc., and boost tourism by having a cheap exchange rate etc.

I for one wouldn't fancy visiting Cyprus now if it stays in the
euro - it will remain expensive in euros, and lots of small businesses will have folded and the economy will be shot. And the local people will be well fed up.

Have they shot their other main industry - tourism - in the foot as well?

:cool:

CLAPTON

BlondeHeadOn wrote: »

What I can't understand is that most Cypriots I've seen interviewed stil say they want to stay in the euro.

I will probably be shot down in flames for this, but I really can't see any advantage to them now in staying in?

At least if they had their own currency again they could devalue and set own interest rates etc., and boost tourism by having a cheap exchange rate etc.

I for one wouldn't fancy visiting Cyprus now if it stays in the
euro - it will remain expensive in euros, and lots of small businesses will have folded and the economy will be shot. And the local people will be well fed up.

Have they shot their other main industry - tourism - in the foot as well?

:cool:

the same question could be put to Greece, Ireland, Spain, Portugal and Italy where all logic says they should leave but the preople seem to want to stay.

I guess it's a combination of a sense of security, the ability to borrrow from the EU and so delay the difficult decisions.