Cyprus, another Greece in the making?

[Suff]

So they have a deal. They wind up one bank instead of two and instead of raiding the deposits of all people in all banks in Cyprus, they just hammer everyone in One bank who has more than the EU deposit guarantee level.

I wonder if most of the Russian investors are in the other banks. Or are most of the Russian investors in this bank and this is punishment for Moscow not stepping up with a solution.

However it goes, it will fix nothing. Just delay and delay and delay the inevitable. Well at least until after September. The press reports that the Cypriot president told the Troika he'd step down if they didn't agree. Good on him, the last thing they want is an election. If anything is clear from the Greek and Italian debacles, is that the EU And ECB prefer to work though unelected appointees in the current administration rather than face the wrath of the people.

This will fix nothing in Cyprus. They still have the debt, they still have broken banks, all they gained was a little time.

The precedent set, yet again, though, is this. French and German EU institutional investors have been protected from default.

It's good to strip this kind of thing back down to basics and understand where the pressure is coming from. Every move, since this crisis began, has been to protect EU and Eurozone investors in sovereign debt. Everyone else, global investors in sovereign debt or other debt have had to take losses. But France and Germany and the ECB??? NO, that's not allowed to happen.

Eventually this house of cards will fall. It may not be for a few years but the short termism to get Merkel through her election will have consequences which will not go away. It will be interesting side viewing if nothing else.

[Workingman]

So let's see.

Some banking genius manages to persuade some stupid Cypriot politicians that, as Cyprus is an island, it might be a good idea to get into the offshore banking business. Funds are available from its closest ally, Greece, where people are afraid of what might be coming up, and Russia, where 'ahem' businessmen want to keep their money out of Putin's hands.

It goes well for a while and everyone is happy. The banking sector grows and grows and depositors get nice interest rates. Everyone is a winner. Then DISASTER! The Global economy goes TU.

So when things go wrong who to turn to? There are only a couple of places - the EU, the ECB and IMF.... and maybe Russia, trouble is that none of them want to play ball. Russia is not in the slightest interested and neither is the Eurozone tbh. The EU knows that the GDP of Cyprus is only 0.2% of the EU's... not even a pimple on a pimple on an Elephant's arse. That is the reason the EU has played hard ball with Cyprus.

Cyprus defaulting, or pulling out of the €, would be a PR disaster for a while, but structurally nondescript, better for it not to happen though, so a deal is struck.

The common ground here? Bankers and politicians fork things up in search of a quick buck, when it goes wrong the population pays.

[cromwell]

Yes, it's the ordinary Cypriot I feel sorry for, they did nothing to deserve this.
The two biggest Cypriot banks gave massive loans to the Greek government. So when the Greeks are allowed to write off 70% of their debt - pooft, the Cypriot banks are in the mire up to their necks.
The 10 billion euros is still only a loan, when are the Cypriots ever going to be able to pay that back on top of all the other debt they have?

[Suff]

In fact Cyprus is in exactly the same situation as Iceland was 3 years ago. Their banks have broken the economy of the country. The main difference? Cyprus is in the Euro and Greece can't be allowed to see Cyprus recovering by exiting. Cypriot government pudits don't want to go through the shellacking the Icelandic government went through so they are pleading for assistance.

However let's remember that Greece was allowed to renege on 70% of it's debt. The remainder of it's debt is to French banks, German Banks and the ECB. Now, were I Cypriot, I'd be saying "You made it so that the core of the EU didn't get hurt, now you can support the periphery".

I have a lot of sympathy for the ordinary Cypriots, they are in the same position as the Icelanders were. The people I have no sympathy for are the Cypriot government. They should have grasped the nettle, defaulted, exited the Euro and restructured. This would have hurt the Cypriots for 18 months and everyone else for decades. Doing it this way hurts very few people for 18 months and the Cypriots for decades. Were I a Cypriot national I know which way I would want it to go and I know which way I would be voting in the next election....

This can't keep going on. It was not just the Cypriot banks that lent Greek government debt. There are others and they will fall too.

All this is, is a stopgap to keep Merkel from being unpopular. God help the Euro and the ECB after the next election in Germany.

Btw let me be clear here. What the German Government are doing and what the German people want are not necessarily the same thing. But it will all come home to roost over the next 3-5 years. The Eurozone is just beginning to descend into it's double dip recession and all indications are that it won't be a shallow dip either.