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Cypriot Bailout Sends Shivers Throughout the Euro Zone

nytimes.com

51–60 of 92 posts

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#51
post #50
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…

I believe the decision was based on German unwillingliness to bail out Russian "hot money" , which they believe is the majority of Cypriot bank cash deposits. They grossly miscalculated the public reaction however.

Is anyone of any importance seriously clueless enough that they can't predict the consequences of taking money out of everyones' bank accounts? And if so, what is wrong with the system that allows morons of that magnitude to gain power?

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#52
post #51
post #50

Earlier quoted context omitted.

I believe the decision was based on German unwillingliness to bail out Russian "hot money" , which they believe is the majority of Cypriot bank cash deposits. They grossly miscalculated the public reaction however.

Is anyone of any importance seriously clueless enough that they can't predict the consequences of taking money out of everyones' bank accounts? And if so, what is wrong with the system that allows morons of that magnitude to gain power?

It sounds unbelievable enough that I really can't help but wonder if they're doing it on purpose. But assuming that were true, what have they to gain from doing so?

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#53
post #49

Earlier quoted context omitted.

> 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...

The linked article is about ECB buying government bonds. But the ECB also buys bonds from Eurozone commercial banks, and this is where new money is being created. It does end up on the central bank's balance sheet, but there's no event that would force the bank to ever write it down. Those hundreds of billions in loans can stay unpaid for hundreds of years if necessary.

All the lending to commercial banks is secured lending, they have to provide collateral to the ECB. The less good quality stuff is lent by individual central banks, so governments underwrite it. There is no unsecured buying of bank debt (banks can use covered bonds as collateral but again that is secured). And the LTRO is only three years. So it is not like you suggest at all.

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#54
post #28

Earlier quoted context omitted.

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,…

" the economic differences between regions in the US aren't nearly as large as in the eurozone" I think the origin of this and other problems is the lack of a significant EU-wide tax system. The US federal tax system serves as a wealth distribution mechanism (some states like NY and CA pay much more than they receive, and other states like OK receive much more than they pay). A similar system in europe would help the…

This works in the US because there isn't actually that great a disparity between the wealthiest and poorest states in the US, whereas the disparity is much, much greater in the eurozone. More so, the "poor" states in the US are still pretty wealthy even compared to some of the wealthiest European countries, whereas the poor countries in the eurozone are quite poor on an absolute scale (Estonia and Slovakia have a per capita GDP of around 15k USD, much less than half the poorest US states). Also, the poorest eurozone countries are quite populous, there are tens of millions of people who are living at less than 3/4 of the mean per capita GDP of the eurozone, whereas in the US the same figure is around 2 million. It's a much, much harder situation to deal with and the eurozone has fewer options and tools to do so.

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#55
post #50
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…

I believe the decision was based on German unwillingliness to bail out Russian "hot money" , which they believe is the majority of Cypriot bank cash deposits. They grossly miscalculated the public reaction however.

Agreed. Cyprus is often used as a tax haven for money of dubious origin.

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#56
post #33

Earlier quoted context omitted.

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 centu…

The EU is one thing, the eurozone another. Overall I don't think either has advanced the cause of European brotherhood very much and I think now the eurozone may actually be setting that goal back quite a bit (ask the Greeks or the Cypriots how they feel about their French and German European brothers).

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#57
post #33

Earlier quoted context omitted.

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 centu…

>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.

Go study up on the American civil war. It was an extremely brutal conflict, and you see lingering resentment today, in the 'red states' and the 'blue states' - hell, I still make (offensive) jokes about how "we should have let them leave when we had the chance" - I mean, I don't know how it compares to the Germany vs. France thing, but even today, there is a pretty significant north/south divide in US politics (and urban/rural divide.) From my understanding of things, we (the northern, industrial states) conquered the southern, agricultural states through force of arms, (well, through force of superior production) - and we've kept them in the union since through a generous application of money. (It's seen as funny, that the "red states" generally speaking, consume more federal tax dollars than they give back, and yet those are the people who make a lot of noise about cutting the size of the federal government. The "blue states" are the opposite. The way I see it, we just figure it's cheaper to buy them bread and circuses than to fight 'em again, while they are frustrated by their powerless position. From what I read, (and culturally, I think) we think of the south as producing brave, but poorly equipped soldiers. (and often we think of the southern leadership as having more guts than brains, that, or just having generally less concern for the lives of their soldiers. The south, at least by Northerners, is perceived as having a lot more respect for it's aristocrats, and less respect for it's peasants, vs "the only color that matters is green" north, which tends to style itself as a meritocracy.) The turning point of the war is often considered to be 'Pickett's charge' - A very brave, but arguably, considering the weapons the union had in the area, the space they needed to cross, and the range and effectiveness of the Minié ball, very stupid military action.)

My point here is that being more homogeneous (and we are... there are big cultural differences, but we all mostly speak the same language) does not save you from war. Civil war can be just as bloody and brutal as wars of conquest between different countries. When you get down to it, brothers will slaughter oneanother just as readily as strangers who don't speak the same language.

Perhaps the more powerful EU countries should get used to giving handouts to the poor EU countries in order to keep things quiet; that is how I think things work here

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#58

Earlier quoted context omitted.

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

Actually there's a third option: wire all your savings immediately to London.

The banks are closed and electronic transactions disabled.

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#59

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.

> No. Is it possible? Maybe.

This eerily reminds me of the bank run on Northern Rock, in August 2007. I was working for a mortgage broker at the other side of Europe at that time, and I was saying to myself: "hey, that's bad for those poor fellows, but it cannot have that big of an impact on the rest of us, it's just a bank in some god-forsaken corner of the UK". One year later Lehman went bust.

Re: Cypriot Bailout Sends Shivers Throughout the Euro Zone

#60
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…

They're basically asking for a bankrun

you've nailed the key outcome. I mentioned this on another thread, but this has to raise the risk of a European bankrun.

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