Don't mind us, whe're just gonna usurp control of your country for a few years.
Of course, the ECB isn't the only central bank that might lend a hand....

It's one of the reasons this mess is getting worse and worse.

Did nations really believe giving up control over their own money would be a good thing? Absolute power corrupts absolutely. Giving other nations control over your money is a set up for a system of corruption just ripe for the picking. If these countries like Greece and Spain could control their own currencies, they could print their way out of trouble, just like the US. Oh yea, it wouldn't be pretty but it would be better than this slow collapse and watching the less powerful countries be devoured by the more powerful.

This is like watching a slow motion domino collapse. Slowly each nation falls and hits the next which falls and hits the next.

-Laelth

for a bailout. Above that it was considered that default would become inevitable and they'd had quite enough issues with Greece to nt what that repeating. It was write downs of the Greek bonds which contributed to the current mess in Cyprus.

-Laelth

Greek Finance Minister Yiannis Stournaras claimed on Wednesday that Greece was “shielded” from any fallout from the banks crisis in Cyprus.

Also could banning foreign banks from opening branches in Russia have anything to do with this?

Sickening power politics.

it does not follow that individual countries could've printed money willy-nilly without rampant inflation. Market set interest rates on government bonds would've gone through the roof too further reducing sustainability.

At least any ECB loans are low interest rates.

The ability of the US to print money unabated without reducing the value of the dollar is propped up to a certain extent by the petro dollar recycling. That won't exist forever and the days of the US$ being the world reserve currency may be numbered too.

That does cause some inflation; but it has the advantage of encouraging people to but domestic products, and making their exports more competitive. It happened with Iceland, and I think it acted as a stabilising mechanism - it causes some pain, but it's a negative feedback loop, rather than a vicious circle.

The Cypriot government itself was in decent shape up to 2009 - debt just 48.9% of GDP in Jan 2009. Unlike Greece, there wasn't any structural problem. Like Iceland, it should have a chance to recover if it doesn't have to carry the banks with bad debts.

Last edited Fri Mar 22, 2013, 10:18 AM - Edit history (1)

Their main exports seem to be mining equipment , chemicals & minerals, fruit and food stuffs including olive oil and of course tourism. It may well be that in the event of them leaving the Euro, if they do in fact did so , would enhance their tourism industry sufficiently to offset their imports of which I assume to be most manufactured goods.

They did have a strong yacht building industry too ago but I'm not sure how strong that is now.

I read it differently.

"The European Central Bank, which has Cyprus's banks on a liquidity lifeline, said it had until Monday to get a deal in place..."

That seems to me to say "our offer" and our "liquidity lifeline" are only good until Monday, so you have until then to get a deal in place. While I imagine that the ECB or Europeans in general want to see the Russians bail out Cyprus, that statement does not preclude that option since that would be "a deal".

Krugman's take on Cyprus:

Round Trips to Cyprus

Still trying to wrap my head around the Cyprus situation; what makes it so interesting (as in “may you live in interesting times”) is the role of the island as a tax, regulation, and law enforcement haven.

It’s not just about the Russian connection, but that connection is really huge. Here’s another metric: Cyprus is, according to official figures, the largest single foreign direct investor in Russia — this from an economy roughly the same size as metropolitan Scranton PA. What’s that about? The FT explained it a while back:

The Central Bank of Russia classifies Cyprus as the largest single source of FDI in the Russian Federation, with a total of $41.7 billion in cumulative inbound FDI into Russia’s non-financial sector between 2007 and 2010 (over 2.7x German levels)… Cyprus is also counted among the top FDI investing nations in several Central Asian countries (likely Russian capital reinvested via Cyprus, a process known informally as “round-tripping”).

And a key aspect of the current mess is that the Cypriot government isn’t willing to give up this business. That’s why solutions like converting large deposits into CDs haven’t been on the table; once round-tripping Russians know that they can find their money trapped for long periods, they’ll go find another treasure island.

My guess is that in the end Cyprus can’t reclaim the round-tripping business — and once it decides that it can’t, a resolution will become much easier. But they’re not there yet.

http://krugman.blogs.nytimes.com/2013/03/20/round-trips-to-cyprus/

9.09am GMT

BIG NEWS: The European Central Bank has announced that it has agreed to continue supplying emergency funding to Cyprus's banks until next Monday.

But if the bailout hasn't been agreed by then, the ECB would step away. It's quite an ultimatum.

Here's the statement:

The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013

Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.

That sets Nicosia a clear deadline -- find €6bn by next week, in a way that satisfies the IMF and the European Union, or your banks collapse.

http://www.guardian.co.uk/business/2013/mar/21/eurozone-crisis-cyprus-bailout-plan-b#block-514ace5795cbaf64024f6499

"Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks." makes specific reference to an EU/IMF programme being in place.

Aside from that this may be even more serious :

9.44am

And the deposit guarantee scheme which is meant to protect depositors in the event of a bank collapse could quickly be proved worthless.

As Frances Coppola (a former banker) has blogged about here, deposit guarantee schemes are only as good as the national government who stands behind them. And Cyprus does not appear to have the assets to hand to cover the deposits in its banking sector:

same link as above.

The only way the government could raise sufficient funds to cover that liability would be to sell bonds to its own banks. Their banks have no funds to carry such transactions. This is a situation commonly known as Catch 22.

Insidious and onerous as it may be the fact remains that haircuts on bank deposits probably give their population the best result. Most of the burden on that would fall of the high Russian deposit accounts.

just came over.

http://www.cyprus-mail.com/anton-siluanov/sarris-nothing-concrete-moscow-visit/20130321

The Cypriot Finance Minister is still in Moscow, but it's starting to look like Russia is either not going to help, or the price they're insisting on for help is too high for the Cypriots to bear. Hard to say at this point.

As things stand right now, I'm thinking Cyprus is left with little alternative but to bite the EU bullet.

Because the troika offer is dependent upon NO NEW LOANS.

So the only way they can get help from Russia that would continue the ECB liquidity is if Russia gave it to them.

Cyprus is being deliberately taken down.

That's what I was trying to say in my post 12 above.

I suppose that means that a Russian bailout is still possible, but the Russians would have to also provide the 'emergency liquidity' that Cyprus needs to give time for the bailout to take place. The EU will not provide the 'emergency liquidity' for a Russian bailout.

And Russia is not going to provide emergency liquidity for an EU bailout of Cyprus. Who ever bails them out is also going to have to provide the liquidity to allow the bailout to take effect.

"Cyprus is being deliberately taken down."

It seems to me that the Cypriot banking sector is being taken down, as were the Icelandic and Irish banking sectors in years past, not the whole country. Krugman has said that their banking sector is 8 times bigger than the whole rest of their economy and cannot survive as a haven for rich foreigners' money, just as happened in Iceland and Ireland.

Things are definitely going to be tough in Cyprus but they have essentially allowed the banking sector to take over the whole economy there. Unwinding that control is going to be painful as it was in other countries. What we should strive for is for the pain to be short-lived and for the recovery to come quickly as happened in Iceland.

> The EU will not provide the 'emergency liquidity' for a Russian bailout.

> Russia is not going to provide emergency liquidity for an EU bailout of Cyprus.

> (The Cyprus) banking sector is 8 times bigger than the whole rest of their
> economy and cannot survive as a haven for rich foreigners' money,

Neither the EU nor Russia want to (or, reasonably, can) take over the entirety
of the Cyprus bailout and trying to do a "split bailout" means that both parties
(EU & Russia) will be taking the full risk whilst the Cypriot bankers and the
"rich foreigners" pocket the cash rather than providing any themselves (by means
of the "haircut&quot .

Maybe some people *did* learn from the US financial FU after all ...?

It appears, based on government officials, that things are going a little critical in Cyprus. Following rumors of the closure (restructuring) of Laiki Bank and its merger of good/bad bank assets with Cyprus Popular Bank, we get this news:

*CYPRUS'S NEOFYTOU SAYS NEW FACTS RELATED TO CYPRUS POPULAR BANK
*CYPRUS HASN'T HAD ANY FURTHER NEWS FROM RUSSIA: OFFICIAL
*CYPRUS POPULAR BANK HAS "FEW HOURS OF LIQUIDITY LEFT": OFFICIAL'

http://www.zerohedge.com/news/2013-03-21/cyprus-popular-bank-only-few-hours-liquidity-left

has imposed a maximum daily withdrawal limit at ATM's of €260: that's down from €400.

Sounds like the situation is nearing the endgame.

Edit: Loved your graphic. If it's ok with you, I'll use that when appropriate. Such as this situation.

just breakin now on Guardian update.

10 minutes ago that Euro-area finance ministers have begun their conference call on Cyprus.

that capital controls are to be imposed.

http://www.guardian.co.uk/business/2013/mar/21/eurozone-crisis-cyprus-bailout-plan-b

IMF ---> get out of Cyprus

from http://www.guardian.co.uk/business/2013/mar/22/eurozone-crisis-cyprus-bailout-russia-vote

GD is down so I'd stuck it in Good Reads.

Talk about belt and braces. I've never seen a set of control that airtight before especially current account becoming deposit accounts.

And if they aren't enough, there's always the 'I wish for three more wishes' final clause.

If this were just about the average "cypriot on the street" this would be no big deal. The issue is that these banks got in trouble because they're effectively running a state sponsored money laundering scheme for Russia's elite. The bulk of these restrictions aren't going to adversely impact the average cypriot. They're a message from the ECM that says we aren't going to bail out the Russian oligarchy.

They sound onerous but just take the first one. Restrictions in daily withdrawals. What is means is that you can only draw the equivalent of $335/day from your account. That's different from paying bills - that's cash over the counter. There's nothing about how you spend your money to live your life.

I don't know about you guys but I don't know many people that would consider being "limited" to only cashing out $335/day to be a hardship. In fact, the average American could only last about 12 days before running out of money in their account.

All of this is revolves around the fact that Cyprus has been the banking system of choice to launder money and these measures are designed to limit the risk to Cypriots that come from how their bankers have allowed their system to be invaded and compromised.

Explains why Russia has "not ruled out" stepping in to provide the liquidity requirements should the ECB decide against it.

Guys - this is what 21st century warfare really looks like. This is Russia versus the ECB and the battlefield is Cyprus. It will be interesting to see who blinks first.

11.49am GMT

Cyprus insiders have confirmed to the Guardian that the original plan to tax bank deposits is back on the agenda today.

But it's likely that small savers with less than €100,000 in the bank would be spared (but that's not official)

The move comes growing criticism of the way Cypriot politicians have handled the crisis.

From Nicosia, Helena Smith reports:

Insiders are telling me that the tax levy may well be included in legislation MPs will be called to vote on later today.

http://www.guardian.co.uk/business/2013/mar/22/eurozone-crisis-cyprus-bailout-russia-vote

The figure they're looking at is 15% on a/cs greater than €100,000. Russian deposits are c. €60 billion. I they used 15% it would raise €9 billion ! Exactly what Russia may do about that is a different matter. It was mentioned days back that Russia is so pissed off with Germany they threatened to cut off / reduce the gas supply.