Cyprus would seek EU bailout money 'if necessary


#181

It does not make sense for them to pull out. Because they are not willing to take a 6.75%-9.99% cut on their savings they are going to make a decision that will lead them to their banks collapsing and for a far higher loss on their savings, makes no sense to leave.


#182

They might threaten leaving as a bluff.
I predict a ‘shaving’ of smaller and more troublesome nations within the EU. Not necessarily via being forced to exit but by developing a two, or even a three tiered Europe…
How this happens I haven’t a bog…
But Germany sees their own future best off with Russia.


#183

Well, they’d keep the notional amount of the deposits.

Ok the CYP pound would devalue by more than 10%, but it’s the principle dammit


#184

I was wondering when people would cope there are no bond holders of consequence in Cyprus.


#185

very risky, Iceland could not afford to save their banks and no one would lend them money to save them so they had to bring out the printing press to cover deposits, I think their currency now is less the half the value it what was before the crises. Deposit holders might not suffer nominally that way but in real terms they will suffer.


#186

Why, do you know of one?


#187

The way the EZ works is this:

  • Country has banking crisis, banks insolvent
  • National government forced to assume debts of banks, making itself insolvent
  • Troika steps in and loads up the national government with fresh Euro-denominated debt which is superordinated over privately-held bonds.
  • Country can then only exit by defaulting on all privately-held bonds, since it won’t be able to service the total Euro debt and the bonds are subordinate to the Troika debts
  • Country enters slow debt spiral as GDP drops with austerity measures, making it impossible to achieve a balanced budget that would enable a debt reset
  • “Integrity” of EZ and (more importantly) French and German banks) is preserved with debt slave peripherals.
    …?

I can see why Cyprus is looking to Russia, but the Russians were only in because Cyprus was (and is, for now) in the EZ. I doubt they really want to buy a rouble-denominated holiday island.


#188

Well, yes and no.

From what I can make out the Cypriot situation is finally making John, Sean, Jean, Giovanni, Juan and Johann finally sit up and take notice of exactly wtf is happening. Typically, this crowd will only notice the symptoms not the actual problems.

We are in deep shit because of an aging population, over-dependence on imported energy and the catastrophic of decline of our manufacturing base.
All of these issues overlap or reinforce each other and thus we are in a debt spiral, unless…

Unless we drastically cut our costs (pensions, welfare, wages) and energy consumption.
Or to put it another way, we accept a huge decline in our standard of living.

This will happen there is no way around it. The numbers are irrefutable.
The question is whether we want to fight it and cause it to be permanent, or let it happen and regain some demographic control in a generation or two.

But try explaining this to your mother or the lads in work; they dont understand it because they dont want to understand it.


#189

In this context there are as you say no bondholders of serious consequence to bail in, but irrespective of the amount the precedent would have been set that bondlords are not equal to depositors (Lenihan’s pari passu line from 2008), but in fact are now potentially superior to them.
If I had any cash in a periphery bank now I’d be particularly wary of this possibility.


#190

It’s much easier to convince the future.


#191

Might the following statements be a reasonable conclusion of what current events divine or are both open to vast correction;

Only Bondholders get bailed out.
European deposit bank guarantee confirmed worthless.


#192

The bondholders have always been a diversion.

Take our own Anglo and the accompanying hullabaloo about bondholders. What was really going on there? - Pre the 2008 guarantee, there was over 50 billion in customer deposits, and only around 10 billion in senior unsecured bondholders. Link

But, there was about 78 billion lent out (in all likelihood) to these very same customers! Now, why were they allowed to get the money out and away from their accounts? Well that is another question.

They would have been alright on the first 100K anyway.

Personally, I’m convinced that what went on with Anglo was all about the customer deposits, and corresponding loans they had.

Anyway, what our financial system needs is for banks to be able to fail, without being bailed out by the state. I’m sure the ECB are well aware of this. (I also have a suspicion that the ‘systemic’ issues of 5 years ago, have by now been largely resolved)

The way this happens normally, is there is a certain progression ie. Shareholders, bondholders, DEPOSITORS, and another bank buys the assets including outstanding loan books etc. at a discount.

Depositors HAVE to be involved. Small depositors, ie. <100K are covered by their government. But larger depositors can not so easily lay claim to be an unsophisticated investor. By dint of the amount of money they have in that bank, they have a stake in that bank, and in the business of that bank, and the activities of that bank.

Banks have to be allowed to fail normally. The question in my mind is, are the ECB ready to try and let this happen - at some stage they have to set in train events that begin to do the work of unravelling states from their banks…


#193

Michael McGrath on plank this morning, condemned stealing of deposits, didn’t like it being pointed out that Irish taxpayers lost more on the guarantee, just not up front…


#194

+1 roc
At last we agree on something, it was bound to happen sometime :smiley:

Anglo and INBS should have been let go to the wall with a proper liquidation scheme put in place.


#195

Well I know the CB’s and governments have been working flat out with all of their resources on this issue for five years now. That paper you linked to is dated March 2008. My reading of it is as a component of the early effort to try and resolve the problem… I’m not sure the stereotyped ‘too big to fail banks’ accurately describes the issues either. Sure, that is an aspect of it. And many of the issues pointed out in that paper such as level of capitalisation and level of interbank deposits that banks should have to be able to weather the failure of another bank, have indeed been MUCH advanced and improved in Europe and the US since that paper was written. But also, a really significant problem encountered was instruments like complex derivatives whose structure made them opaque. This meant no one could work out how the chips would fall in cascade if a bank went down. That was the reason for Lehman’s causing such a financial tidal wave the size of which took the world largely by surprise. I believe this ‘opaqueness’ in these type of instruments has largely been eradicated, now. This was important since the size of some of these primary derivative markets meant that if problems spread uncontrollably and in a way difficult to observe, that these markets might be affected, and their size entail cataclysm. I suspect that Cyprus’ banks could indeed become the test-bed for the anti-Lehmans event that is badly needed to come out of this crisis.

EDITED


#196

Sometimes investors forget that legally deposits are nothing more than unsecured senior bonds. Especially when they are chasing that slightly higher interest rates.


#197

+1 also

Never thought I would be agreeing with you (roc). :slight_smile:


#198

What we need how is a plan to allow the eurozone to break up with as little disruption as possible.

However, judging by the quality of our politicians and eurocrats they will cause mayhem.


#199

Break up the second biggest currency on the planet … with as little disruption as possible. OK.


#200

It is going to happen, so we need a calm and rational plan in place.

Granted it will be painful but let’s try and minimize the pain, ok?