The Good
Unlike the Eurogroup’s original decision, deposit insurance for accounts up to €100 thousand will be respected. The reversal of the decision to ‘tax’ insured depositors constitutes a last minute restoration of common sense. Marfin-Laiki Bank’s bond and shareholders will be wiped out – as they ought to. The original Eurogroup decision to let them off the hook (especially the bond holders) while haircutting depositors (including those whose deposits were guaranteed by the state) would have been an indefensible re-ordering of a failed banking system’s creditors. The new deal treats different banks differently, as it ought to. The earlier Eurogroup decision imposed blanket haircuts on all accounts irrespectively of the bank’s bottom line. At least now uninsured deposits will be haircut in proportion to the size of the bank’s black hole, thus restoring a degree of private responsibility on the part of depositors viz. their choice of banker. By forcing losses on uninsured depositors and the banks’ bondholders, taxpayers have to bear a smaller burden of the bailout loans; and this is, ceteris paribus, a good thing.
The bad
The Memorandum of Understanding has not been written up yet and, thus, the deal is utterly incomplete. In particular, we have no idea what degree and type of austerity will be imposed upon a collapsing social economy. Given the troika’s track record, it is almost certain that yet again they will elect an austerian package bound to crush the weaker Cypriots with ever-increasing verve. The effect of the complete wipe out of the foreign depositors will have a devastating effect not just on the banking sector but also on the hotel and tourist industry. As a Russian commentator noted: “Now that the Russians’ deposits have been all but confiscated, who will stay in the €500 per night five star hotel rooms on the island? Mrs Merkel?” It is highly doubtful that the troika will factor in the deflationary effects of this aspect in their fiscal consolidation and debt sustainability plans. The transfer of €9 billion of ELA money from winding down of Marfin-Laiki to the Bank of Cyprus – it flies in the face of basic banking resolution principles, reflecting the ECB’s Taliban-like defence of what it considers to be its ‘realm’. Capital controls have been touted, even though it is not clear how they will be implemented, creating a second-tier euro: Cypriot euros that are no longer exportable (nb. Imagine Vermont dollars that cannot be taken out of Vermont: a logical travesty within a currency union)
On Mon, Mar 25, 2013 at 1:50 PM, <123hop at comcast.net> wrote:
> It hits the banking system, mostly small and medium size businesses.
>
> It moves liabilities from Laiki to Bank of Cyprus!?!?!?!
>
> It's not over yet either. I have read accts of losses much greater than 40%.
>
> I saw figures quoted that only 25% of depositors are "oligarchs."
>
> Naked Capitalism has pretty good info on all of this.
>
> Joanna
>
> ----- Original Message -----
> The percentages to be raised from uninsured deposits of more than
> 100,000 euros in Laiki bank and in Bank of Cyprus have not yet been
> announced.
>
> Mr Stylianides said the figure could be "around 30%" for uninsured
> Bank of Cyprus deposits. Other estimates have put the figure at about
> 40%.
>
> http://www.bbc.co.uk/news/world-europe-21928277
>
> [WS:] It is my understanding that it will hit mostly Russian and UK
> oligarchs. Not such a bad thing, no?
>
> --
> Wojtek
>
> "An anarchist is a neoliberal without money."
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-- Wojtek
"An anarchist is a neoliberal without money."