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Cypriot Bailout Sends Shivers Throughout the Euro Zone

nytimes.com

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Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#31

Post by dageshi »

Atropos wrote: post #14
mixmax wrote: post #7

"After five years of bailouts financed largely by austerity-weary European taxpayers, wealthy nations like Germany and the Netherlands have decreed that from now on when a bank or country fails, it will be bond investors and perhaps even bank depositors who will be forced to pick up a big share of the bill. " This is so incredibly stupid that it would be funny if it wasn't so tragic. They're basically telling everyon…

Smug US/UK commentators have now been shouting for 3+ years about how incredibly stupid the EU is, how the Euro will break up in two weeks... But why is the Euro up 16% against the USD and 23.3% against the UK pound over the last 10 years? Why are German bond yields lower than the US bond yields, and why do some stable eurozone countries still possess a triple AAA rating by all credit agencies, in opposition to the U…

It's very simple, inside the eurozone you can transfer your euro's from dangerous Spanish/Greek/Portuguese bonds and put them into safe German bonds. Even if the euro were to collapse, the German bonds would be redenominated in the new German currency, chances are it would immediately begin to rise vs other currencies.

So you don't have to exit the eurozone area, you just transfer your money from the debtor states to the creditor states. That doesn't make the situation any better particularly it just drives up bond yields in the debtor countries and makes their situation even worse.

Essentially a decision has been made to save the currency and sacrifice the debtor countries which use it. This is just another example.

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#32

Post by Symmetry »

Atropos wrote: post #14
mixmax wrote: post #7

"After five years of bailouts financed largely by austerity-weary European taxpayers, wealthy nations like Germany and the Netherlands have decreed that from now on when a bank or country fails, it will be bond investors and perhaps even bank depositors who will be forced to pick up a big share of the bill. " This is so incredibly stupid that it would be funny if it wasn't so tragic. They're basically telling everyon…

Smug US/UK commentators have now been shouting for 3+ years about how incredibly stupid the EU is, how the Euro will break up in two weeks... But why is the Euro up 16% against the USD and 23.3% against the UK pound over the last 10 years? Why are German bond yields lower than the US bond yields, and why do some stable eurozone countries still possess a triple AAA rating by all credit agencies, in opposition to the U…

>But why is the Euro up 16% against the USD and 23.3% against the UK pound over the last 10 years?

Because the Euro is stupid. You don't want your money to be as valuable as possible! Deflation, when not accompanied by fast growth in real GDP, is bad! There's no excuse for the European Central Bank to be running such a tight policy when aggregate demand in the European periphery is so depressed.

But of course nobody trusts the banking system in the periphery, so all the money from there is rushing into the center causing deflation in the periphery and inflation in Germany. And then the ECB sets policy to accommodate Germany, and threatens to screw the peripheral countries even harder if they don't make the supply side changes it wants.

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#33

Post by Nux »

InclinedPlane wrote: post #8
mixmax wrote: post #7

"After five years of bailouts financed largely by austerity-weary European taxpayers, wealthy nations like Germany and the Netherlands have decreed that from now on when a bank or country fails, it will be bond investors and perhaps even bank depositors who will be forced to pick up a big share of the bill. " This is so incredibly stupid that it would be funny if it wasn't so tragic. They're basically telling everyon…

It's just another example of what's fundamentally wrong with the Euro. If you compare to the US, which is a continent sized country with a lot of diversity, you'll see some big differences. For one, the economic differences between regions in the US aren't nearly as large as in the eurozone. For another, the authority which regulates currency is also in control of taxation and government spending at a federal level,…

Well, Europe has different dynamics, rooted in ancient times... and a lot of inertia.

It's hard to steer all people in a certain direction, especially from quite different cultures.

We're not Europeans; we're Romanians, Greeks, French, Cypriots and so on. We have a sense of belonging, not to each other, but to our individual nations.

It is a "hodgepodge", but we must keep it together somehow. What happened last century must never happen again.

I'm really keeping my fingers crossed for the EU; not necessarily for my generation, but for my kids and grankids.

USA on the other hand is an "engineered" country, people got there relatively recently and said "Ok, that's it, let's do things this way". Of course you will see more homogeneity and agreement. And nationalism actually helps keep stuff together instead of dividing people.

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#34

Post by pavlov »

jpdoctor wrote: post #18
Atropos wrote: post #14

Earlier quoted context omitted.

Smug US/UK commentators have now been shouting for 3+ years about how incredibly stupid the EU is, how the Euro will break up in two weeks... But why is the Euro up 16% against the USD and 23.3% against the UK pound over the last 10 years? Why are German bond yields lower than the US bond yields, and why do some stable eurozone countries still possess a triple AAA rating by all credit agencies, in opposition to the U…

> But why is the Euro up 16% against the USD and 23.3% against the UK pound over the last 10 years? You think it is something other than supply and demand? The Fed and BoE can print; The ECB cannot. The result (which is related to printing) you failed to quote: Greek deflation. It's not complicated.

The ECB does effectively print money by buying commercial banks' bonds with newly created money.

Draghi said last year that the ECB is prepared to purchase "unlimited amounts", so if there is a bank run, the central bank will fill up the banks' balance sheets as necessary (in theory).

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#35

Post by JumpCrisscross »

samstave wrote: post #4
uvdiv wrote: post #2

The government also extended a bank holiday that was put in place to try to stop a run on the banks. The holiday was supposed to end Monday night. Now, banks will not be opening their doors Tuesday, as planned. There was talk that they might not open Wednesday, either. [...] “As soon as banks in Cyprus reopen, people will rush to take all their money out, because they don’t believe this is a one-off deal,” he said. “…

There was a comment that a lot of russian mob money is held in Cyprus banks. I wonder if this is actually an attack on them in an effort to take the money from the russian mob. I also predict acts of vandalism on the banks. Where the goal is to cost the banks money to repair their facilities given the situation.

10% is in the neighbourhood of cost-of-doing-business for a CIS corporate shell. The fact that there was so much pain inflicted on small accounts means someone has an eye out for the island's future as an offshore financial centre (read: Russian tax haven).

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#36

Post by alexmic »

adestefan wrote: post #11
codesuela wrote: post #10

It would be pretty ironic if the Cyprus bailout of 2013 will noted in history books as the event that lead to the collapse of 21st century banking (next up bank runs). Is it probable? No. Is it possible? Maybe.

Here are your options: lose all of your money or lose 10% of your money. What do you choose?

- lose 10% of your money

Allowing the haircut will lead to bank runs which will cause the banks to go bust anyway. There's a high change that it will also cause bank runs in other countries like Spain, Italy and Portugal. Spanish people are already in the streets protesting. "Trust" will be gone. Cyprus is systemic, whether they want to accept that or not.

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#37

Post by pcrh »

Lazare wrote: post #15
mixmax wrote: post #7

"After five years of bailouts financed largely by austerity-weary European taxpayers, wealthy nations like Germany and the Netherlands have decreed that from now on when a bank or country fails, it will be bond investors and perhaps even bank depositors who will be forced to pick up a big share of the bill. " This is so incredibly stupid that it would be funny if it wasn't so tragic. They're basically telling everyon…

You know what's even better? In the Cyprus example, bond investors in the banks (who don't have government insurance) are being completely protected from losses). Small depositors (who do have government insurance) are having 6.75% of their savings calculated. That's entirely contrary to the policy you quoted. It's hard to really get your head around how wrong headed this decision is.

The real problem here is not that depositors are getting a "haircut", which they should if they invest in non-profitable bank, but that the insurance on deposits under Euro 100,000 is no longer good.

In a theoretical free market, depositors would lose all their money if a bank goes bust, just as stock holders lose their money if a company goes bust.

Banks, however, hold a particular role in a modern economy that regular companies don't. As such, deposit insurance is a necessity for overall financial stability. In the case at hand, the decision by the Cypriot gov't to effectively cancel deposit insurance for smaller depositors is their biggest mistake, since it decreases confidence in both the banks and the gov't.

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#38

Post by jpdoctor »

Atropos wrote: post #23
jpdoctor wrote: post #18

Earlier quoted context omitted.

> But why is the Euro up 16% against the USD and 23.3% against the UK pound over the last 10 years? You think it is something other than supply and demand? The Fed and BoE can print; The ECB cannot. The result (which is related to printing) you failed to quote: Greek deflation. It's not complicated.

What exactly is your point? If we see market prices as reasonably efficient, the current Euro price shows that the typical "Stupid Eurocrats idiotic mismanagement of the flawed Euro project will lead to European collapse in 2 weeks" simply doesn't have a base in reality. Individual (small) countries may fail, the system will be fine, and misinformed doomsayers will - as always - end up making fools of themselves.

> What exactly is your point?

The euro is up 16% because there are more dollars in circulation chasing the same number of euros. Same for the pound.

A deflationary environment in Europe (what are prices doing in Greece? What is the Spanish unemployment rate?) is exactly what you would expect, and the Euro up 16% against the USD and 23.3% against the UK pound is evidence of that.

Or to put it another way: You quote evidence that supports the point you are trying to refute.

(Perhaps you are being confused by the term "up" in currency exchanges? It makes exports more expensive, which makes the deflation worse since fewer employees will be needed.)

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#40

Post by jpdoctor »

pavlov wrote: post #34
jpdoctor wrote: post #18

Earlier quoted context omitted.

> But why is the Euro up 16% against the USD and 23.3% against the UK pound over the last 10 years? You think it is something other than supply and demand? The Fed and BoE can print; The ECB cannot. The result (which is related to printing) you failed to quote: Greek deflation. It's not complicated.

The ECB does effectively print money by buying commercial banks' bonds with newly created money. Draghi said last year that the ECB is prepared to purchase "unlimited amounts", so if there is a bank run, the central bank will fill up the banks' balance sheets as necessary (in theory).

> with newly created money.

No. This is exactly the problem: The echoes of the German hyperinflation of the 1930s are still being heard, so Merkel and crowd have repeatedly stood against printing.

As for the ECB purchases, those were "sterilized" as opposed to "quantitative easing", which is what the Fed does. http://blogs.wsj.com/eurocrisis/2012/09/06/the-ecb-steriliza...

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