Next moves for Cyprus?

posted at 10:41 am on March 20, 2013 by Erika Johnsen

Unclear. I might have spoken too soon last night — Cyprus rejected the insidious ‘deposit haircut’ idea because of the wild public outcry — but a modified version along with other options are still on the table, ranging from full default to Russian takeover. They’re not out of the woods yet, from the WSJ:

What happens next isn’t clear. A senior European official said after the vote that the euro zone would continue to wait for a counterproposal from Nicosia, outlining how it would raise the €5.8 billion it needs in order to secure the €10 billion bailout it had agreed upon with the euro zone and the International Monetary Fund.

“The ball is now really in Cyprus’s court,” Eurogroup President Jeroen Dijsselbloem said on Dutch television after the vote, adding there would be no new money for Cyprus beyond the amount already set. …

“It’s anybody’s guess what the developments will be from this point on,” said Theodore Couloumbis, professor emeritus in international relations at the University of Athens. “My hope is that there will be a renegotiation. But it appears that a catastrophic scenario is not out of the question—and that is bankruptcy that could lead to a Cypriot exit from the euro zone.” …

As meetings among the country’s political leaders, lawmakers and bankers continued for a fourth day since the bailout deal was reached, central bank Governor Panicos Demetriades warned lawmakers that prolonged uncertainty for the country’s banks could lead to depositors withdrawing their money if confidence wasn’t restored soon.

As Ed outlined yesterday, Russia is offering to lend a helping hand to the tiny island nation (with some very serious strings attached — “Russian officials have said they would condition further aid on Cyprus disclosing ownership details on Russian accounts there”), and after rejecting the terms of the European deal, Cypriot officials are now actively seeking Russia’s assistance.

Cyprus pleaded for a new loan from Russia on Wednesday to avert a financial meltdown, after the island’s parliament rejected the terms of a bailout from the EU, raising the risk of default and a bank crash.

Cypriot Finance Minister Michael Sarris said he had not reached a deal at a first meeting with his Russian counterpart Anton Siluanov in Moscow, but talks there would continue.

Russia’s finance ministry said Nicosia had sought a further 5 billion euros, on top of a five-year extension and lower interest on an existing 2.5 billion euro loan.

Good grief. I’m pretty sure that there’s no real non-painful way to claw your way out after cornering yourself into a debt crisis — but Cyprus was the first national legislature to reject the conditions for an EU bailout, and the EU has rather a knack for getting the smaller bailout-seeking countries to eventually agree to their terms.


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I’d guess ‘piggy banks.’

locomotivebreath1901 on March 20, 2013 at 10:43 AM

Cyprus = another Squirrel.

Make that – moose and squirrel.

Wake me when it matters.

FlaMurph on March 20, 2013 at 10:52 AM

Next moves for Cyprus?

The bank run that was originally scheduled for Saturday will be rescheduled for this coming Thursday?

Gatsu on March 20, 2013 at 10:52 AM

Confiscating 20% of bank accounts?

MelonCollie on March 20, 2013 at 10:55 AM

Why don’t they tap those oil and gas reserves that Russia wants so badly?

LoganSix on March 20, 2013 at 10:59 AM

Why don’t they tap those oil and gas reserves that Russia wants so badly?

LoganSix on March 20, 2013 at 10:59 AM

Can’t. Environment. Socialism. Global warming. Regulations. Union work rules. Too many obstacles.

Fenris on March 20, 2013 at 11:00 AM

The Daily Telegraph has a great liveblog of all developments related to Cyprus. http://www.telegraph.co.uk/finance/debt-crisis-live/9941984/Cyprus-bailout-live.html

Additionally, Zero Hedge’s coverage has been great.

From what I’m hearing now a deal is (apparently) in the works to have Russia buy some or all of the distressed banks and bail them out. The Cypriot finance minister is in Moscow (amidst rumors that he tried to resign his position and had the resignation rejected by the Cypriot president).

The Germans are presently saying Cyprus’ banks “may never reopen.”

I’ve heard a second round of rumors (heard some yesterday too) that the Spanish are very interested in trying their own form of “deposit tax.”

Doomberg on March 20, 2013 at 11:03 AM

Confiscating 20% 100% of bank accounts?

Ya know that’s what they really want. Total control over everyone, everyone a slave to the state.

Well, that’s what you get when you get way too comfortable with having government provide for so many aspects of what you want in life. Eventually the government expects to control your entire life.

hawkeye54 on March 20, 2013 at 11:07 AM

…so instead of the Russians…we’ll have the Chinese?

KOOLAID2 on March 20, 2013 at 11:13 AM


Confiscating 20% 100% of bank accounts?

Ya know that’s what they really want. Total control over everyone, everyone a slave to the state.

Well, that’s what you get when you get way too comfortable with having government provide for so many aspects of what you want in life. Eventually the government expects to control your entire life.

hawkeye54 on March 20, 2013 at 11:07 AM

If they can steal our money outright and use said property to buy loyalty of the majority, what peaceful options remain?

NMRN123 on March 20, 2013 at 11:16 AM

So basically the EU called for their debt security and Cyprus is refusing or unable to pony up. Who is backing the EU? The IMF. Who’s the back stop for the IMF? got a mirror…

DanMan on March 20, 2013 at 11:17 AM

Why don’t they tap those oil and gas reserves that Russia wants so badly?

LoganSix on March 20, 2013 at 10:59 AM
Can’t. Environment. Socialism. Global warming. Regulations. Union work rules. Too many obstacles.

Fenris on March 20, 2013 at 11:00 AM

Are we talking about Cypress, Russia, or THE UNITED STATES “obstacles”???

Rovin on March 20, 2013 at 11:21 AM

If they can steal our money outright and use said property to buy loyalty of the majority, what peaceful options remain?

NMRN123 on March 20, 2013 at 11:16 AM

I have come to think there is no political solution to our problems and that we will probably have no choice but to hunker down and suffer through bankruptcy and economic collapse. I think our last chance to really avert a crisis was 2012 and the Republicans just threw it away. By 2016, even if a Republican wins, the damage will be done with four more years of Obama and 30+ million new Democrats (and welfare recipients) added to the rolls.

At that point any kind of reduction in government will only be possible via an actual collapse.

Doomberg on March 20, 2013 at 11:37 AM

Rovin on March 20, 2013 at 11:21 AM

Obstacles in pretty much the entire developed world except for Russia.

Fenris on March 20, 2013 at 11:39 AM

At that point any kind of reduction in government will only be possible via an actual collapse.

An actual collapse would serve the Leftist vultures well, swooping in to pick up the pieces remaining and reform it into their utopia. That most will suffer, our ruling elites excluded, is the price that must be paid to achieve the desired result.

hawkeye54 on March 20, 2013 at 11:43 AM

If I wanted to be a central bank Governor, and my name was Panicos, I’d look into a name change.

halflight on March 20, 2013 at 11:43 AM

Fenris on March 20, 2013 at 11:39 AM

Pretty much understood this…but when you listed:

Environment. Socialism. Global warming. Regulations. Union work rules. Too many obstacles.

This fairly describes the illness of our current administration’s goals/obstacles.

Rovin on March 20, 2013 at 11:45 AM

Rovin on March 20, 2013 at 11:45 AM

Maybe if we make a little prop with a reset button on it, that’ll help. I hear the administration is fond of empty gestures.

Fenris on March 20, 2013 at 11:49 AM

Taking a cue from the U.S. Federal Government, the Cyprian government has reclassified the stealing of the citizen’s money from “Deposits Levy” to “Quantitative Easing and Fairness”.

Bishop on March 20, 2013 at 12:03 PM

I think our last chance to really avert a crisis was 2012 and the Republicans just threw it away.

the American public threw it away. It came down to two choices and on the economic issue it was the most stark in that regard. If the media is able to still throw an election while we’re paying for rural connections to alternatives then its the people’s fault all around

DanMan on March 20, 2013 at 12:09 PM

If I wanted to be a central bank Governor, and my name was Panicos, I’d look into a name change.

halflight on March 20, 2013 at 11:43 AM

At one point the Romanian defense minister was General Militaru.

Time Lord on March 20, 2013 at 12:44 PM

If I wanted to be a central bank Governor, and my name was Panicos, I’d look into a name change.

halflight on March 20, 2013 at 11:43 AM

BOOM!

SomeCallMeJohn on March 20, 2013 at 12:56 PM

the American public threw it away. It came down to two choices and on the economic issue it was the most stark in that regard. If the media is able to still throw an election while we’re paying for rural connections to alternatives then its the people’s fault all around

DanMan on March 20, 2013 at 12:09 PM

Ah, no. If we still couldn’t pick something besides Sucktastic McMoron and the grandfather of Obamacare, we fully deserved what’s coming.

It was like being given a choice between being kicked with a steel-toed boot and being kicked with a bare foot…apparently taking a 3rd option is just incomprehensible. And a great many people willingly voted for the boot because the kicker will hand them free money, which is a major problem in itself.

MelonCollie on March 20, 2013 at 1:05 PM

Here’s betting that Cyprus will soon have a new national anthem.

petefrt on March 20, 2013 at 1:10 PM

German or Russian invansion. /s

Oil Can on March 20, 2013 at 1:52 PM

Merkel is a dictator. She should be ashamed of herself in this entire saga, and all the free people should hate her innards.

Schadenfreude on March 20, 2013 at 2:21 PM

Merkel is a dictator. She should be ashamed of herself in this entire saga, and all the free people should hate her innards.

Schadenfreude on March 20, 2013 at 2:21 PM

Merkel isn’t a dictator. She has to walk a fine line, Schad. Germans don’t want to bailout any more countries. Can you blame them?

From Über Alles After All:

In the barrooms and TV talk shows of Germany, however, impatience with Europe and the euro is at a boiling point. The opinion pollster Renate Köcher of the Allensbach Institute found recently that in the course of 2011, the percentage of Germans uneasy about the eurozone rose from 38 percent to 55 percent. Whereas at the turn of last year voters opposed kicking any country out of the eurozone by a margin of 40 percent to 36 percent, by September they favored kicking out the biggest debtors by 46 percent to 29 percent.

The almost universal reaction of European leaders has been that the German people don’t know what they’re talking about, and many German politicians have paid lip service to the same idea. For Bosbach, this is a danger to democracy. “It may well be that people don’t understand every last detail about the Greek budget and the situation on the financial markets,” he says. “But they have a keen grasp of how successful the rescue measures are likely to be. And up till now, at any rate, the skeptics have been vindicated.”

I spoke about this democratic disconnect with Michael Fuchs, the deputy chair of Merkel’s party in the Bundes-tag, who is responsible for economics and the euro. He was sitting in his office near the Brandenburg Gate, preparing for a trip back to his constituency the following day, and he admitted his voters were getting restive. “We are growing far apart from our people,” he says. “I tell you, the questions I get are not really .  .  . convenient. Somebody will say to me, ‘Michael you’re a nice guy, but can you explain to me why I have to work until 67 and I get [as a pension] 46 percent of my final salary, while a Greek guy is retiring at 57 with 94 percent of his last salary?’ ” In the past two years, German journalists have coined the word Wutbürger—a rough translation might be “rageniks”—to describe such people.

Jörg Krämer believes the tensions between voters and politicians may now be affecting the financial rescue efforts themselves, because markets believe popular discontent constrains governments and undermines their credibility. “Sooner or later, politicians will pick up this ‘anti’ sentiment,” says Krämer. “A new government may step away from the guarantees the last one gave. This, in the end, explains why the bailout policy doesn’t work. Because on paper it looks perfect.”

Like Sarkozy, Merkel has been dealt a difficult hand. She would not be paranoid to worry that, sooner or later, some eloquent member of her party will topple her by rallying the nation’s natural majority against the bailouts. Germany’s Supreme Court ruled last fall that all further efforts to aid struggling eurozone countries must be approved by a vote in the Bundestag, not by ministerial sleight-of-hand. So her binding undertakings on solving Europe’s debt crisis must be public ones, not backroom deals. To complicate matters further, her Christian Democrats rule as part of a coalition with the Free Democrats (FDP), traditionally Germany’s pro-market party, and the FDP is a zombie party.

The FDP’s problem is that its leadership insists tax cuts are the answer to every policy question. German voters apparently believe that tax cuts are the wrong answer, at least when the questions involve debt. The FDP’s national popularity has lately fallen to 2 percent—below the threshold at which parties can enter the Bundestag. And the country, more generally, is moving left. A year ago, antigrowth protesters in Stuttgart, furious at plans to demolish the city’s beloved train station to make way for a $6 billion commercial complex called Stuttgart 21, gathered by the thousands for weekly demonstrations. Last spring those protesters played a role in booting Christian Democrats from the governorship of Baden-Württemberg, which they had held since 1953.

Read the whole thing.

Resist We Much on March 20, 2013 at 2:48 PM

Was Margaret Thacher a genius or what? She was the original ‘Euro-skeptic’, and got thrown out by her own party as a result. She saw this coming from 10 miles (16 km) away, and knew the Germans, with their fantastic new (relatively so) industrial base and built-in productivity advantage would come out on top.

So here we have it – a European currency dominated by Germany. How’d it work out last time Germany dominated Europe?

The Brits should be making a mass pilgrimage to Lady Thacher’s grave, with tons of flowers, to thank her for being the original ‘Euro-skeptic’ (it was meant to be perjorative by her opponents) and keeping the British pound sterling out of this fracas.

Where are ya, Brits? On your way yet?

jclittlep on March 20, 2013 at 4:35 PM

The Brits should be making a mass pilgrimage to Lady Thacher’s grave, with tons of flowers, to thank her for being the original ‘Euro-skeptic’

That would be a bit premature…..as she is still alive.

hawkeye54 on March 20, 2013 at 5:31 PM

Was Margaret Thacher a genius or what? She was the original ‘Euro-skeptic’, and got thrown out by her own party as a result.

jclittlep on March 20, 2013 at 4:35 PM

I’m constantly astonished at the amount of vitriol thrown by every D-grade statist and leftist slug at Thatcher and what she did. She’s been their Sarah Palin for decades, and she had a much more professional bearing to begin with. And perhaps needless to say, they are about to run out of other people’s money.

MelonCollie on March 20, 2013 at 7:21 PM