Saturday, March 16, 2013

Germany, IMF Wanted 40% Haircut of Deposits in Cyprus, Settled for 9.9% Instead

(UPDATE) The vote is delayed till at least Monday March 18, as the government may not have enough votes to do the bidding of Euro overlords... The banks may remain closed on Tuesday.


It's an outright theft, but since it's official government entities doing this, it's not called theft but bailout. The Cypriot government even calls it "a new beginning". (1984, anyone?)

In exchange for the 10 billion euro bailout for the Cypriot banks and supposedly saving 8,000 jobs, the EU demanded that the Cypriot government confiscate 6.75 to 9.9% of deposits at the banks and exchange it with the bank "equity" (what kind of joke is this?), and that the interest on deposits be charged with 20 to 25% tax. These thefts are supposed to raise up to 7.5 billion euros.

They did it after the last financial markets in the world (US) closed for the weekend. People cannot withdraw money over the weekend, as ATMs have been stopped. (Zero Hedge has more information on the theft, including this post.)

According to reports, Germany and IMF initially wanted 40% of deposit money confiscated, not 9.9%.

I think it's a trial balloon to see if they can get away with the theft, and if they do then to replicate elsewhere in the EU periphery, for a start.

From (2/16/2013; emphasis is mine):

Shock in Cyprus as bailout brings bank account haircut

The Eurogroup reached on Friday night an unprecedented decision for bailing out Cyprus that dictates a haircut on all bank accounts on the island’s banks with immediate effect, while cash withdrawals are not allowed for the time being, generating unrest.

Along with loans adding up to 10 billion euros from the European Support Mechanism, Cyprus will have to find another 7-7.5 billion euros from privatizations and from a 6.75 percent one-off haircut on all bank accounts with a balance up to 100,000 euros, rising to 9.9 percent on accounts exceeding 100,000 euros.

Already bank customers are gathering outside major and cooperative banks, Skai television reported on Saturday morning, as angry depositors demand their money.

Depositors will get shares of the banks they are clients of in return for the capital lost, of the same value as the haircut their accounts have suffered.

This is estimated to fetch some 6 billion euros to the state, bridging most of the gap between the 10 billion euros the ESM is offering to Cyprus and Nicosia’s requirements of an estimated 17 billion.

This is the first time in the eurozone that a levy has been imposed not on the interest of bank accounts but on the capital itself. In addition to that there is a levy on interest, too, and an increase in the 10 percent corporate tax that has been one of the main driving forces behind Cyprus’s financial progress after the 1974 Turkish invasion, generating growth by attracting foreign direct investment.

Notably, the account haircut does not affect bank accounts in Cypriot bank branches based in Greece, according to sources from the Greek Finance Ministry.

Tax on interest will amount to between 20 and 25 percent.

Changes will have to be ratified by the House of Representatives, the republic’s parliament within the weekend, while an emergency cabinet meeting is taking place on Saturday morning in Nicosia to assess the situation.

Finance Minister Michalis Sarris has postponed his official visit by two days and will now go to Moscow on Wednesday.

Cyprus state broadcaster CyBC reported on Saturday that German Finance Minister actually entered the Eurogroup meeting on Friday proposing a 40 percent haircut on Cypriot bank accounts. Sarris stated on Saturday that this had also been the proposal of the International Monetary Fund.

Sarris stated in Brussels that in view of the threat from the European Central Bank for banks in Cyprus to shut down and chaos to ensue, the increase in interest taxation and the haircut to bank accounts became necessary. “A disorderly default, that was a genuine possibility, has been averted,” he said.

It allows our economy to proceed decisively to a new beginning.”

He also noted that after the dramatic meeting of the eurozone ministers a further slashing of salaries and pensions has been avoided and confidence in Cypriot economy is restored. He qualified the bailout funds loaned to Cyprus as sustainable and manageable and will not constitute an unbearable weight on the next generations. “It spreads the load on this and on the following generations,” he said.

IMF head Christine Lagarde said "the Fund has always said it would support a solution that is viable, and this agreement fulfills this condition, so my recommendation to our board will be for contributing in the funding of the package."

Opposition leader Antros Kyprianou, the General Secretary of leftist AKEL, accused the government of not consulting the other parties, saying that "the government bears full responsibility for developments in the economy as instead of choosing the road of consensus it has decided to go it alone."

Cyprus's parliament is set to vote on the measure on Sunday. The "threat" is the same old, same old, which was used by Ben Bernanke and Hank Paulson when they demanded $700 billion to save the US banks in fall 2008 (at that time, extraordinarily big amount of money): "It would be chaos and catastrophe otherwise."

The governments world over say the same thing, with slight variations. In case of the Japanese one, the line was "We didn't tell you about core melt, or extent of damage at Fukushima I Nuke Plant because if we had done so it would have been chaos and panic...blah blah blah..."

The banks in Cyprus won't open until Tuesday.


Anonymous said...

This is actually kinda funny. All the little old ladies who keep their money in their mattresses and their heirloom jewelry in a hole in the garden will be vindicated at last.

fffferu said...

This is plain crazy. People will not trust banks any more in most countries after that. Why should they ?

Anonymous said...

..Nothing to see here... move along...go back to your homes...what is left of your money is safe with us.

Fundamentally, gold and silver should pop up a bit there in Euro pricing and the Euro itself should gain some strength with the new found funding source.

It was never really your money, it was the bank's and they want it back.

Maju said...

All what is happening: Cyprus "haircut", Spanish investment funds, is clearly yelling: bank run! Where does all that money go? Qui bono? London, Frankfurt, Paris, Manhattan? Are even those financial centers safe at all? I'd say nope because Cyprus looks like the first (or should I say Nth?) piece of the classical domino effect. If a tax heaven like Cyprus is not safe, what is?

Anonymous said...

You Thought it was all over..... It is now..... No Chance the Madness has just started .....there will now be absolute chaos in the European Banking system.... That will result in a catastrophic losses that will dwarf any 10 Billion euro bailout to Cyprus.... Enoch Powell gave a stark warning in the 60's..... This sadly is mine for 2013.. What a stupid mistake for the European Dictat to make

Anonymous said...

Meh. Nothing will happen, people will just bend over and go along with it. "Oh how shocking!", everyone will say, yet do squat(while bent over) about it. Maybe have a nice sandwich while discussing it all with friends and family.

Anonymous said...

On July 11th 1992 the Italian goverment, under prime minister Giuliano Amato, decreed that bank accounts would be taxed 0.6% of their outstanding balance on July 9th (hence retroactively). Check out "Giuliano Amato" on Wikipedia (Italian version only...).

Anonymous said...

And they said this would never happen, never say never.

Anonymous said...

If rumours of another country trying this get out of hand, a run on banks in any European country is possible.

This is a retarded idea thought up by Retards.

Daljeet Kaur said...

Wow...its really an interesting stuff...I am really thankful to the author of this post for making this lovely and informative post here for us. Thanking you....Keep up the good work.
Salon in Mohali

Post a Comment