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NICOSIA, CYPRUS — Cyprus is expected to make a dramatic U-turn Saturday to avert the imminent threat of a financial meltdown, having signaled that it is willing to tax big savers in its stricken banks to clinch a bailout from the European Union.

The island’s partners in the 17-nation euro zone scheduled a meeting for Sunday in Brussels, in a strong sign that they believe a solution is near.

As hundreds of demonstrators faced off with riot police outside parliament late into Friday, lawmakers inside voted to nationalize pension funds, pool state assets for a bond issue and peel good assets from bad in stricken banks.

http://www.washingtonpost.com/...

In the end Cyprus has no choice.

Their credit is junk.  No one but the EU will loan to them.  The EU lifeline of some $13 billion now seems generous.

In the absence of the bank levy, Nicosia turned to Russia, whose citizens have billions of euros at stake in Cyprus’s outsize banking sector. But Finance Minister Michael Sarris returned from Moscow empty-handed. On Friday he said the bank levy was back “on the table.”
Even Russia won't help them now.

The last decision they have to make is how much to levy small vs large depositors.

Much of the banks’ capital was wiped out by investments in Greece.
Even the bankers are wiped out of capital.  

Originally posted to shrike on Fri Mar 22, 2013 at 07:30 PM PDT.

Also republished by ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement.

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Comment Preferences

  •  So they have the Friday night dump, too. (7+ / 0-)

    Any jackass can kick down a barn, but it takes a good carpenter to build one.--Sam Rayburn

    by Ice Blue on Fri Mar 22, 2013 at 07:38:03 PM PDT

  •  Seems the most sound solution (9+ / 0-)

    The EU was not interested in doing a haircut in the deposits under 100,000. The total needed was 17 billion euros. The Eu is putting down 10 billion and has asked the Cypriot government to come up with the other 7. The EU ministers wanted to punish the activities of Cyprus as tax shelter and the Cypriot gov. wanted to extend the damage to everyone so those  over 100,000 will suffer less impact.

    They still have another option, they can go out of the euro. Of course that would mean their banks are erased, the deposits are lost. The Russians will sue and pull any lever they can to assure the Kremlin and their oligarchs friends money is safe. There will be a bank run anyways so people try to pull out any euro they can because they all new whatever money they create will be worth less than dirt for at least to or three years. They will have to expend a huge amount in restructuring the economy to a new money. It would be a catastrophe hard to imagine

  •  Actually Gazprom will lend them the whole 13 (1+ / 0-)
    Recommended by:
    Eddie L

    billion and all they have to do is give them their offshore gas  deposits in the Med.  The bad thing is its probably a fairer deal than the EU is offering.

    One failed attempt at a shoe bomb and we all take off our shoes at the airport. Thirty-one school shootings since Columbine and no change in our regulation of guns. --- John Oliver

    by voroki on Fri Mar 22, 2013 at 07:43:03 PM PDT

    •  Fairer? (2+ / 0-)
      Recommended by:
      Ice Blue, johnny wurster

      They need 17 billions. I doubt gazprom is giving 13 or 17 billion in lieu of some unknown gas deposits. They can't pay back with their economy size 17 billion euros in ever. Not counting interests.Even if they could they'll be dependent  for a long long time on Russia  with all the consequences.

      •  You can doubt it all you want. Its what Gazprom (0+ / 0-)

        offered. Its a company that made over 170 billion euros last year.

        One failed attempt at a shoe bomb and we all take off our shoes at the airport. Thirty-one school shootings since Columbine and no change in our regulation of guns. --- John Oliver

        by voroki on Fri Mar 22, 2013 at 07:49:52 PM PDT

        [ Parent ]

        •  GAzprom (1+ / 0-)
          Recommended by:
          cynndara

          Wanted to cover the 7 million euros and then the EU to other 10 and they got the gas rights. No one stated the EU will dance with that. If you are the Cypriot gov. why would you that when you can tax the deposits of the Russians and keep the gas rights? You still be in the EU and you will not be under the thumb of the Kremlin with you only promising future source of income already sold.

    •  What the Russians really want (4+ / 0-)

      The gas fields are off the table for the simple reason that Cyprus has the problem of who owns them. The Turkish controlled northern part is still separate but is considered part of the whole for EU purposes. This crisis is in the ethnic Greek controlled southern part.

      There are considerable gas fields to the SE, just north of those already being exploited in the Israeli sector.

      What the Russian government is actually after is a "warm water" port in the Med as a backup in case the Syrian government falls and they lose their base there.

      "Who stood against President Obama in 2012?" - The trivia question nobody can answer.

      by Lib Dem FoP on Fri Mar 22, 2013 at 07:55:49 PM PDT

      [ Parent ]

  •  Asdf... (9+ / 0-)

    So the savers get to pay for the sins of the investors? Yeah this will go over real well.

    "Patients are not consumers" - Paul Krugman

    by assyrian64 on Fri Mar 22, 2013 at 07:44:32 PM PDT

    •  Saving money is a bad idea. Money is made to (3+ / 0-)
      Recommended by:
      Nattiq, ichibon, assyrian64

      be spent. It's souls that are supposed to be saved. :)

      We organize governments to deliver services and prevent abuse.

      by hannah on Sat Mar 23, 2013 at 04:22:01 AM PDT

      [ Parent ]

      •  savings (1+ / 0-)
        Recommended by:
        nchristine

        have been the goal of the middle class in the usa, including the working class, i.e. to put away enough to have security when one stops working,

        as there's no way to continue to have "nice" things, like trips south in the winter, or fixing one's car, or having a car, if all one has is social security income

        now most have their little bit in stocks and bonds, because of the almost nil interest money earns in a bank, and are aware of the risk, it not being in the least insured not to disappear

        i suppose that's why many support letting the banksters/wallst evade punishment, believing that could negatively affect their little nest egg

        •  People saving money is good for the (3+ / 0-)
          Recommended by:
          cynndara, ichibon, BusyinCA

          middlemen, who promise to invest it and give it back when needed. Stocks were supposed to collect capital for major physical expansion of plant and for industrial innovations. But, what the stock market is doing now is just churning paper, much as the financial class churned raw land and then residential developments and then commercial development in the boondocks. The result was that more and more Americans spent more and more time driving around in circles in their cages on wheels, under the delusion that they were going somewhere. Then, forty years later they discovered that they were worse off than their parents in the fifties.
          Wall Street has been allowed to create a virtual economy with our money. Wall Street churning dollars is a kind of hoarding. Taxing transactions would send some back to Washington, but it won't make the playboys get back to work.

          We organize governments to deliver services and prevent abuse.

          by hannah on Sat Mar 23, 2013 at 06:58:37 AM PDT

          [ Parent ]

  •  They Got an Offer They Couldn't Refuse. (4+ / 0-)

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Fri Mar 22, 2013 at 07:45:10 PM PDT

  •  Isn't that just so predictable. (6+ / 0-)

    The banks must be saved, but the Russians using Cypriot banks as a tax shelter mustn't be inconvenienced.

    Never mind the little people. They're just collateral damage.

    'Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.' -John Steinbeck

    by Eddie L on Fri Mar 22, 2013 at 07:46:32 PM PDT

  •  Leaked footage of the decision... (2+ / 0-)
    Recommended by:
    corvo, BusyinCA

    Ahhh... well, actually I think this is EVERY country in the world now...

    I don't blame Christians. I blame Stupid. Which sadly is a much more popular religion these days.

    by detroitmechworks on Fri Mar 22, 2013 at 08:00:45 PM PDT

  •  Like I said before -- (5+ / 0-)

    giving the savings accounts a haircut is likely to destabilize the system more than any sort of deal would save it.  Never underestimate the financial power of a good mattress.

    "Always in motion is the future." -Yoda

    by Cassiodorus on Fri Mar 22, 2013 at 08:01:21 PM PDT

    •  From Naked Capitalism: (6+ / 0-)
      I wonder how this will work. Capital controls are being implemented, since news reports from Cyprus indicated that residents intended (understandably) to drain accounts once banks reopened. In addition, I can’t see how the current government survives. Indeed, the President and key members of Parliament are likely at physical risk and it’s not hard to imagine that some will find it necessary to leave the country.
      http://www.nakedcapitalism.com/...

      "Always in motion is the future." -Yoda

      by Cassiodorus on Fri Mar 22, 2013 at 08:07:02 PM PDT

      [ Parent ]

      •  From Nigel Farage: (5+ / 0-)
        Recommended by:
        kurious, Losty, isabelle hayes, corvo, ichibon
        So, they are prepared now to do literally anything to try to keep the Euro afloat. And that is why they have now resorted to what can only be described as theft.

        Now they’ve done it in one country, they are quite capable of doing it in Italy, Spain, Portugal, or anywhere else.

        And the message that sends to people who have got savings in banks in those countries – certainly if I was them is “get your money out while you can.”  

        http://rt.com/...

        "Always in motion is the future." -Yoda

        by Cassiodorus on Fri Mar 22, 2013 at 08:19:48 PM PDT

        [ Parent ]

      •  Maybe They Move the Government Itself Out of (6+ / 0-)

        the country.

        We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

        by Gooserock on Fri Mar 22, 2013 at 08:24:36 PM PDT

        [ Parent ]

        •  Bert Brecht, writing privately (2+ / 0-)
          Recommended by:
          ichibon, BusyinCA

          about the aftermath of the East German revolution on 17 June 1953:

          Wäre es da
          Nicht doch einfacher, die Regierung
          Löste das Volk auf und
          Wählte ein anderes?
          Wouldn't it be simpler, though, if
          The Government
          Dissolved the people and
          Elected another?

          Dogs from the street can have all the desirable qualities that one could want from pet dogs. Most adopted stray dogs are usually humble and exceptionally faithful to their owners as if they are grateful for this kindness. -- H.M. Bhumibol Adulyadej

          by corvo on Sat Mar 23, 2013 at 06:42:15 AM PDT

          [ Parent ]

      •  Nobody will cry over their spilled blood (0+ / 0-)

        if it comes to that.

        Dogs from the street can have all the desirable qualities that one could want from pet dogs. Most adopted stray dogs are usually humble and exceptionally faithful to their owners as if they are grateful for this kindness. -- H.M. Bhumibol Adulyadej

        by corvo on Sat Mar 23, 2013 at 06:39:47 AM PDT

        [ Parent ]

  •  Their existing proposal will fail anyway (5+ / 0-)

    A large part of the Cypriot contribution to the bail out is a "solidarity fund" in which they propose to link things (in US terms) like the social security trust funds and other assets and then issue bonds against them. Unfortunately this would have a zero effect on their debt as any bond income is also a debt.

    It is also hard to see how protection of small savers could be achieved without the bailout. The EU mandates that member governments should guarantee bank deposits in their country up to €100,000 however at least two banks were due to go under. The Cypriot government does not have the money to provide the guarantee so would have to borrow to provide the compensation. And of course it does not at the moment have the ability to borrow anything.

    "Who stood against President Obama in 2012?" - The trivia question nobody can answer.

    by Lib Dem FoP on Fri Mar 22, 2013 at 08:05:19 PM PDT

    •  Every bit of currency is nothing but a certified (3+ / 0-)
      Recommended by:
      isabelle hayes, ichibon, BusyinCA

      IOU -- i.e. a guaranteed record of a debt. Every debt is owed to someone. Whether one records the amount as a credit or a debit is arbitrary. The accountants invented the double-entry accounting system in the belief that, if they counted everything twice, the sums would more likely be accurate.

      Modern accountants had the bright idea that, when it comes to commercial enterprise, if the sides don't add up, they'd just incorporate the difference by writing in numbers in a category such as "good faith." In other words, they'd put a monetary value on their reputation for trustworthiness. Ha!

      We organize governments to deliver services and prevent abuse.

      by hannah on Sat Mar 23, 2013 at 04:18:17 AM PDT

      [ Parent ]

  •  FRom the article the money quote (3+ / 0-)
    Recommended by:
    pat bunny, shrike, BusyinCA
    The tottering banks hold $88 billion in deposits, including $49 billion in accounts of more than 100,000 euros — enormous sums for an island of 1.1 million people. Much of the banks’ capital was wiped out by investments in Greece.
    Remember they are in for 17  billion, some places I've seen now more like 20.
  •  The other bad news (1+ / 0-)
    Recommended by:
    Losty

    is that their national economy is weighted toward their financial sector, with all of the international transactions run through their banks.  However this plays out, it's hard to see any desire by foreigners to use Cypriot banks anytime soon.

  •  Welp, this won't end well... (1+ / 0-)
    Recommended by:
    corvo

    Seems like a bank run is on the way.

    "Small Businesses Don't Build Levees" - Melissa Harris Perry

    by justmy2 on Fri Mar 22, 2013 at 10:58:43 PM PDT

  •  So, in the 21st Century it's not "Greeks bearing (2+ / 0-)
    Recommended by:
    isabelle hayes, BusyinCA

    gifts," but Greeks taking loans.

    "Neither a lender, not a borrower be, for a loan oft loses both itself and friend."

    So, the lesson would be that, if you've got extra money lying around, you should just give it away.
    That was the principle of the potlatch.

    We organize governments to deliver services and prevent abuse.

    by hannah on Sat Mar 23, 2013 at 04:09:18 AM PDT

  •  the people in cyprus impressed me as the (2+ / 0-)
    Recommended by:
    shrike, nchristine

    friendliest, of all the many places i've traveled

    it's been twenty years since my visit, but i just wanted to say it, even though it's a bit off-topic

    Howard Fineman needs to have a chat with Chris Cilizza about Grecian Formula and its effects on punditry

    by memofromturner on Sat Mar 23, 2013 at 06:35:18 AM PDT

  •  What I'd want to know (1+ / 0-)
    Recommended by:
    ichibon

    if I were a Cypriot right now, is why they had to nationalize the pensions if they are "taxing" the big depositors anyway.  The depositors are getting more back than they would if the banks went under entirely, because we're talking about the uninsured high-level deposits which could be wiped out.  The ECB is getting its money.  So why did the pensions have to be grabbed?  Sounds like Shock Doctrine in action to me.  Isn't Athanasiades a "Conservative"?

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