Cyprus’ Stability Levy: Another sad euphemism (updated on 18th March)

They called it a ‘stability levy’, when they meant a tax on Cypriot depositors (including the savings of poor widows and small children) so that they spare holders of Cypriot government bonds (including hedge funds who are now having a party in Mayfair and New York) as well as minimise potential long-term losses by the European taxpayers. In effect, faced with the prospect of lending to Cyprus a sum equal to its GDP, so as to bail out its banks Ireland-style, the Eurozone balked. They realised, post-Greece and post-Ireland, that something has to give (beyond the minimum working conditions and social welfare provisions of common folk) in order to minimise the size of the aggregate loan. And they chose to hit depositors directly (at a rate of 9.9% if their deposits exceed 100 thousand euros and 6.75% for smaller deposits) before the oncoming austerity-driven plague eats into them instead (as it did in Greece, Ireland and Portugal were savings were used up by stressed household in the daily struggle to survive after jobs and benefits disappeared).

What was astonishing is that, while the peoples of Europe are sick and tired of the gross inequities and regressivity of austerity-fuelled bailouts, they did not set a threshold below which poorer depositors would be untouched. And that they left unaffected the banks’ bondholders (even though the sums involved in these bonds were small, it was utterly unprincipled to spare them). I have no doubt that this decision will haunt them/us for decades. 

What alternatives did the Eurogroup ministers have? Several, is the answer. In the context of their own accounting-like logic (i.e. of ‘hitting’ depositors) they could discriminate between bank accounts that are insured by Cypriot law and those which are not: So, any account by a citizen of an EU-member state with less than 100 thousand euros (the maximum account insured by the Cypriot state; the equivalent of the FDIC deposit insurance protection) should be left alone. All the other accounts could then be hit by a percentage that would deliver the sum of six to seven billions EU finance ministers wanted to reduce the bailout loan sum by. If Berlin was serious about its willingness to curtail Cyprus’ banks money laundering activities, while avoiding a tax on the hard earned savings of the poorer Cypriots (that a Lutheran German should see as an ally in restoring puritan ethics), that is what they would have done.  But, it is now clear, they were not serious about their own ethics (indeed, had they been serious about Russian money laundering, they would have raised questions about Latvia’s banks, which are awash with mafia funds).

Of course, while hitting uninsured deposits only (as suggested by the previous paragraph) would have been preferable, it would still not be a solution to the Cypriot drama. The Cypriot economy is in the familiar tail spin that we witnessed in Greece, Portugal, Spain, Ireland and now unfolding in Italy. Even if the bank levy, or bail in, were fairer, the recession would still be fuelled by large scale public expenditure cuts and substantial tax hikes which, taken together, will most certainly lead Cyprus to a dead end. But none of this is specific to Cyprus. In this sense, an alternative strategy for dealing with the island’s fall from grace must involve a Gestalt Shift that will allow Europe a different approach throughout the monetary union. Precisely the Shift that Europe seems unwilling to contemplate, thus resorting to ill-conceived decisions like the recent one on Cyprus.


The Cyprus deal, although marginally better than forcing (Greece/Ireland-style) all of the burden willy nilly on the taxpayers, is highly destabilising in the medium term. The notion that one sacrifices Cyprus depositors in order to save the depositors in, say, Spain, is of questionable purchase. Moreover, despite the reduction in Cyprus’ new debt (achieved by bailing in depositors), its debt-recessionary cycle will proceed with increasing ferocity as austerity strings (with which the bailout comes attached) begins to bite.

Europe seems to have only partly learnt its lessons from Greece and Ireland. Europe’s leaders at least understood that they cannot pile a gigantic loan on an insolvent entity (i.e. an insolvent state that is intertwined with an insolvent banking sector) and expect, through austerity, to stabilise its debt-deflationary spiral. Some haircuts are necessary (although never sufficient) ex ante. What they have not understood is that limiting the bailout loan’s size is insufficient to prevent the free-fall, even if it buys them some extra time in the short run especially when the ‘limiting’ is achieved through sacrificing what bonds of trust remain between the EU and its citizens. That they will have to learn the hard way in the months to come.

In short, the recent decision on Cyprus is a touch more realistic than that which was imposed upon Greece, Ireland and Portugal, in the sense that Europe took some (however unfair and inefficient) steps to reduce the loan’s size. However, by remaining in denial about the true causes of the Eurozone’s (and Cyprus’) instability, and by resorting to euphemisms involving the word ‘stability’, they are giving the Crisis another vicious spin.


Last time Europe invoked ‘stability’ in one of its summit decisions was when it created the European Stability Mechanism (ESM). It proved anything but stabilising (as without Mr Draghi’s ECB and its LTRO-OMT interventions, there would be no Eurozone today). Now we have a ‘stability’ levy in Cyprus. Its effect will prove equally destabilising in the medium term. It is high time we take another look at stability in the Eurozone and to do so in terms of a closer look at the ESM and how it should be reconfigured. My next post will address the ESM and how to put the S-for-genuine-stability into it for the first time!

113 thoughts on “Cyprus’ Stability Levy: Another sad euphemism (updated on 18th March)

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  6. If I may paraphrase Frances Coppola (… Unless you want to destroy your banking system, you don’t undermine deposit insurance.

  7. Just say NO. It is that simple. Congrats to Cyprus. I would have liked the first NO to this madness to not be on behalf of hedge funds and Russians, but you take what you can get in these times. It is very interesting that the ECB threat proved to be a joke as it obviously was. There is absolutely no legal backing to the ECB withdrawing liquidity and violating its own rules just so it can obey to political games on behalf of Germany and co. Also the Greek pro-bailout parties (You know who you are) where ridiculed tonight. They did not even have the strength to utter a single word in this affair even though it was obvious that they supported the eurogroup decision. We should not also forget that instead of NO they voted YES TO EVERYTHING every chance they got. My guess for what comes next? Germany and co will force the eurogroup to withdraw the bailout proposal completely and propose a euro-centric referendum instead thus exposing themselves for the real second rate blackmailers that they are. Hope Cyprus goes all in and accepts thus escalating the situation. This is the only way out of this mess: constantly upping the ante, until the stakes are ridiculously high.

    • AS I have written elswhere. had Papandreou or Samaras been in power in the 1930s, Greece would be celebrating “Malista Day” every 28 October.

    • The stance of the Greek government and finmin Stournaras will prove very costly for them. This is the beggining of the end for the troika lackeys now that someone stood up. Their silence over the weekend and the clumsy atempts of the various media they control to lay blame on the cypriots will prove to be their undoing. It was a disgracefull sight.

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    • BERLIN (Reuters) – The European Central Bank said on Tuesday after Cypriot lawmakers overwhelmingly rejected a key element of a proposed bailout that it was in contact with its IMF and EU partners and remained committed to providing liquidity within certain limits.

      “The ECB takes note of the decision of the Cypriot parliament and is in contact with its troika partners,” the bank said in a statement. “The ECB reaffirms its commitment to provide liquidity as needed within the existing rules.

      “…to provide liquidity as needed within the existing rules.”

      ECB is the last resort lender in Europe, no?

      Yanis you were right.

    • (Reuters) – The European Central Bank will provide liquidity to banks in Cyprus when they reopen, ECB Governing Council member Ewald Nowotny was quoted as saying on Tuesday.

      “No decisions have been taken so far because we don’t know the final results of the discussions in Cyprus, but given the present legal background, the ECB will be prepared to fulfil this task of a lender of last resort,” Nowotny told news agency Dow Jones in an interview.

      Nowotny also said that there was “still an open perspective” on including bondholders of Cypriot banks in the financial rescue of the debt-ridden island, but added “the legal and technical problems are much higher” than in taxing depositors according to current plans. (Reporting by Sakari Suoninen and Michael Shields; Editing by Ruth Pitchford)

    • Guardian says it was one of Baldrick’s cunning plans in the Blackadder series.

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  11. Jail in – instead of bail in!

    This “Cyprus solution” with all its dangerous consequences is nothing but the beginning
    of a far bigger robbery. After having bailed in the Cypriot depositors, the Troika will come in and ask for a lot more money, because the so called help, i.e. the transfer of a 10bln Euros to save the banks, is not unconditionally. As there are more wage cuts, privatizations etc. Just have a look at Greece and you know what I mean. Cyprus is now on the agenda of Merkel&Friends, what means: bring them down to their knees, let us get the gas fields and all the rest.

    I’m a German and I know what I’m writing of, since I’m analyzing the raise and the fall of Europe for decades through the eyes of somebody who loved the European Idea, but never acepted the German approach to absulote power in Europe. And, wheather you believe it or not, there a lots of victims of that policiy in Germany too.

    I’m not as arrogant as to give you People of Greece, Cyprus, Portugal, Spain and Italy an advice. But if I cut I would advice you to quit the EU a.s.a.p. and get your own life and independance back. You’d better make a “jail in” of those who are resposible in your own countries and restart at zero, instead of allowing another “bail in” where ever it may happen in the south.

  12. Just a thought about the 9.9% (and 6.75% below 100’000) charge that’s planned for deposits in Cyprus.

    The maths is astonishing, just think about this:

    The expected amount that Cyprus is expected to raise with that measure is EUR 5.8. We’ve got so used to talking about Billions (hundreds of then, sometimes) that 5.8 billion EUR seems like a smallish amount.

    Given that the 5.8 billion represents a bit under 10% of the deposits, the overall deposits calculated for this exercise must be around 60 billion. Ok, why not.

    But considering that Cyprus population is only about 800’000, that’s actually a huge amount: It would translate into 6’000 billion if you used Germany as a comparison (with Germany having roughly 100 times the population of EU-Cyprus).
    Quite a bit.

    It means that in Cyprus, there are deposits of about 75’000 EUR per head – babies included. Without real estate, etc – just deposits.

    I am fairly sure that the median deposit of ordinary citizens in Cyprus must be a lot lower than that. I think it is harsh to charge the 6.75% also on the not-so-well-off.

    But I think that – if the 5.8 billion is based on correct calculations – there must be a lot of “fat cats” that would have to pay the 9.9% one-time-charge.

    So this time, the rich are actually paying their share – including very rich Cypriots and foreigners who’ve maybe used Cyprus to commit tax fraud.

    I like the mechanism and don’t quite understand everybody seems to be against it!

    • Everyone is against it because:
      (1) it breaches the legal principle of “legitimate expectations” for bank depositors
      (2) it is a refusal by Germany to allow the EU to use the policy mechanisms developed already in the case of Cyprus, as an exceptional case (remember that they used to say this about Greece, at the outset?)
      (3) it is an attack by Germany on the viability of the Cypriot economy, which relies on tourism and offshore banking
      (4) it is destabilising and unsettling for the eurozone many banks in the EU; it is therefore an irresponsible and reckless act, done for political reasons in Germany
      (5) it shows how disinterested Germany is in the EU, except as a selfish means to export with a low exchange rate. In other words, Germany is a parasite economy in the eurozone, not the backbone as some idiots assert.

    • Regardless of whether the deal is good or not (It makes sense from an economic standpoint but it is a disaster for the eurozone) your calculations are wrong because a significant amount of these deposits must belong to legal entities: corporates, funds etc, not actual persons. A great deal of these deposits also belong to foreign individuals not necessarily from Russia, British are also among these depositors. It must be a legal nightmare. The hit to the average Cypriot depositor is actually relatively small and considering the amount they would stand to lose through various tax hikes if the Greek/Irish/Portuguese model had been implemented it is probably preferable. Still, if it goes through they stand to lose a lot more through the inevitable decline of one of the main industries of the island so it is a lose-lose situation for them. By the way the fact that various politicians have cited the banking’s sector size as a problem is completely hypocritical. Take a look at Luxemburg for example, their banks handle close to 1 trillion of assets and have also been accused of money laundering practices, are they next in line for a banking sector downsizing?

    • “[…] attack by Germany on the viability of the Cypriot economy, which relies on tourism and offshore banking”

      Besides the minor inconvenient fact for Germany-haters that the ‘attack’ ways designed by IMF, the EZB and the EU, not by Germany: Cyprus’ offshore banking bubble is the root cause of Cyprus’ problems, did this escape your attention?

      I hope Germany succeds in enforcing “its morality code on the rest of Europe” because a big chunk of this code is to live withon one’s means. Plus, the attempt to “actually finding proper legal and political mechanisms to get others to obey laws” is in vain, as history has proven beyond any doubt.

      So kindly accept reality instead of continuing to blame Germany for other nation’s very own faults, and for the decisions of the IMF, EZB and EU, it’s high on time for you to grow up.

    • Dear Xenos
      From what I understand, it was the Cypriot government that wanted to also charge small deposits. The discussions are still going on – and my guess is that this point will be changed. Maybe in the end, there’s no charge for, say, the first EUR 35’000 – and to still raise 5.8 billion EUR deposits above EUR 100’000 are charged 12.5% (instead of 9.9%).

      Fine by me!

      Please remember that somebody has to bear the cost – and since Germany and the other “parasites” don’t volunteer to simply hand over the mony, it’s either debt that Cyprus could not carry (with the usual consequences of tax raise, pension cuts and stagnation) or more moderate debt increase and have the fat cats pay for a part of the mess.

      I think it’s better to have a one-time charge that leaves 90% of the deposits untouched while giving Cyprus a chance to survive the crisis without Greece-style disaster.

      The fact that the dodgy money parked there is overrepresented in paying for the mess seems only fair.

    • In which world are you living. Look at the contract. No bailout etc.. The Problems in Cyprus are not Germany´s business. One should just let the FPIIGS del with their Problems themselves. Better for everybody and much more peaceful!

    • Some facts need to be clearly stated for our pro-German commentators here.
      (1) The EU is responsible for the integrity of the eurozone, and Germany as the largest contributor is calling the shots. This is clearly wrong, but that is the reality.
      (2) The EU (because of a refusal from Germany) decided that it would offer only 10b for the rescue of Cypriot banks that need 16b. This broke all the arrangements previously made, without warning and without legal or political authority. This was arbitrary and seems to be about published gossip in German newspapers concerning Cypriot banks — and the German elections later this year.
      (3) Therefore, the German politicians decided that they would make an example of Cypriot banks for allowing money from Russian sources. The 6b needed had to be found, and it seems that both the Germans and that woman Lagarde intended to force Cyprus to steal something like 30% of their foreign investors’ money
      (4) Since such a theft would amount to closing down Cyprus as a tax haven and offshore banking economy, the Cypriot politicians opted to steal it from their own citizens to minimise the political damage to the Russian investors.
      (5) There are also serious considerations here, about Russian loans and investment in Cypriot energy exploitation. These are now under threat, even with the lower tax of 9.9%
      (6) The Germans for the sake of 6b have endangered the eurozone, threatened the massive outside investment (approaching a trillion euros) in Spanish banks, and endangered the credibility of all banking institutions in the eurozone. It is the most stupid and incompetent piece of public policy in the history of the EU — and is primarily caused by German politicians who are interested only in themselves and their pathetic little morality tales. I see that Not Very Serious Sam spouts the same nonsense, about how other people should live, blah blah blah.
      (7) If Germany does not wish to participate in the eurozone, it is welcome to leave. At the moment, it acts as a parasite and is severely damaging the whole of the EU. Its hypocritical nonsense is not an asset to Europe, it is a serious hindrance and will result in the collapse of the eurozone, if not the EU.

    • Why is better to steal from German taxpayers than from Cypriots bank deposits?

    • “At the moment, it acts as a parasite and is severely damaging the whole of the EU. ”

      “Parasitism is a non-mutual relationship between organisms of different species where one organism, the parasite, benefits at the expense of the other.”

      Since the North pays and the South received, the ClubMed seems to be the parasite, if you want to use that kind of vocabulary.

  13. Interestingly enough, during the negotiations, Germany proposed explicitly to bail-in only depositors holding more than 100.000€. Of course, with more than the 9,9% currently discusssed, otherwise the targeted 5.8bn € wouldn’t have been achievable.

    However, the Government of Cyprus, the EU High Commission and the ECB overruled Germany. They insisted that not only deposits <100.000 are to be burdenend with a levy, they even refused to follow the German fallback proposal to then at least keep 25.000€ or 50.000€ unharmed.

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  16. yannis some questions for you.
    1) Any thoughts on the Gas issue of Cyprus?
    2) Would you agree with a tiny tax imposed to visitors of the countries in need of funds during summer as a simple and efficient measure?
    3) Is the bail in of Cyprus a De Facto change of the ECB’s role as the lender of last resort?
    4) Does this deal retrospectively supports your arguments on what the greek government could do during 2010 as the strength of the banks’ contagion amongst Eurozone would be greater? Because its now obvious that what Cyprus is given as a deal is a result of “you;re to small to worry about you”

  17. Damn it. I don’t know why my posting was cut off again when I tried to make the correction. Okay, I’ll try one more time. If it doesn’t work, I give up 😦

    “The insolvent Cypriot banks should have defaulted and the insured depositors made whole. If you’re a small depositor (>> 100k euros), you’re dancing the macarena.”

    You see? It’s the big depositors dancing the macarena, not yiayia and pappou 🙂

    • The reason is simple. The Cypriot government understood that if they levied a tax of more than 10% on their big (Russian) accountholders, that would be the end of Cyprus as an offshore banking economy.

      The cause of this problem is that Germany thinks it can enforce its morality code on the rest of Europe, instead of actually finding proper legal and political mechanisms to get others to obey laws. Banking in Luxembourg, Switzerland and all the offshore UK outfits is also involved in laundering money, and Germany does nothing about it. The USA exerts more pressure for reform than any EU country (and that’s not much, either).

    • @ Xenos

      “Banking in Luxembourg, Switzerland and all the offshore UK outfits is also involved in laundering money, and Germany does nothing about it”

      Besides the undeniable fact that Germany can’t do anything about it outside her very own borders, kindly note, that neither Switzerland nor offshore UK outfits are in the Eurozone and are not getting Eurozone taxpayer’s money under any bail-out programm. Neither does Luxembourg. So, your point was what exactly?

    • @Not very serious sam: my point is that if Germany objects to money-laundering, then this should be a policy priority in the EU framework. Luxembourg actually chaired (Juncker) the Finance Committee for some time, and was lecturing Greece about how to run its banks. Germans said and did nothing.

      No, this is was just a knee-jerk response to populist crap in the German media in an election year. It indicates that Germans are unfit to make decisions for the eurozone, because they are interested only in themselves. Either the eurozone is properly managed, and Germany cannot veto its policies (despite being the largest payer) or the euro has to go.

      As far as Switzerland et al not being in the eurozone is concerned, there is nothing stopping Germany from campaigning for international measures to deal with criminal money-laundering and offshore accounts. Germany shows no interest in doing so.

      Incidentally, Pissarides claims that there is no evidence of money laundering in the Cypriot banks and that the banking rules are very strictly enforced in accordance with European law. He is basically saying that Germans are talking out of their asses. I suspect that he is right. It is just newspaper gossip that is the source of your information on money-laundering in Cyprus.

    • Dear Xenos
      You wrote: “As far as Switzerland et al not being in the eurozone is concerned, there is nothing stopping Germany from campaigning for international measures to deal with criminal money-laundering and offshore accounts. Germany shows no interest in doing so.”

      That is simply not true. I believe the big misunderstanding in this blog and beyond is that

      1. Germany is almighty
      2. Therefore, our reality has to be exactly what Germany wants

      That is obviously not correct. There is a lot of things Germany would like to see that are not implemented, mostly because it is very difficult to get them implemented. For example, more harsh regulation of the financial markets, pushing back money laundering, etc.

      The fact that these issues have not been sorted out yet does not mean that Germany does not want to sort them out.

      Maybe you’ve heard that is is very difficult to force e.g. the UK, Luxemburg and Cyprus to really do something about money-laundering. Because part of their economy is based on it!

    • @Martin: when I see Germany making serious efforts to push a policy agenda of that sort, I will retract my comments. In fact, Germany has concluded a deal with Switzerland for reporting on German depositors in Swiss banks, and extracting taxes to be paid through the Swiss banking system directly to Germany. They did not push for transparency, they did not demand the end of criminals banking with Switzerland. They just demanded money for Germany.

      To my mind, this implies that Germany is no less corrupt than any other country, it merely puts on a facade for its stupid voters. I presume that you are one of those stupid voters.

  18. My apologies — part of my previous post (below) was cut off. The first two sentences should have read …

    “The insolvent Cypriot banks should have defaulted and the insured depositors ( 100k euros or 100k euros), you’re probably dancing the macarena. So what …”

  19. The insolvent Cyrpiot banks should have defaulted and the insured depositors ( 100k euros), you’re probably dancing the macarena. So what you lost 10% of your money. What’s a 10% whack when a few weeks ago you risked losing it all! And these big depositors (from Russia or wherever the hell they’re from), first chance they get, as others have already stated here, will take the(ir?) money (ill-gotten or not) to other safe havens. They are not sticking around. As I write this, these lucky big depositors are on the phone right now talking to a JPM representive, maybe even Jamie “Papademetriou” Dimon himself 😉

    P.S. Why doesn’t the Bearded One (Bernanke) just bail out the damn eurozone? All of it. Sovereigns and all. The guy’s got $trillions to spare. Hell, he even bailed out Harley Davidson (no joke). What is a few $trillions more … or less 🙂

  20. Two maybe contradicting comments:

    1.The Cyprus solution is much better than the Greek solution of taxing everything. Property taxes, road taxes, fuel taxes, job taxes, children taxes… that Greece tried and partly unsuccessful as they tried to take money even from people who had none and at the same time ensured many businesses went down as collateral damage.
    The Cypriot solution will guarantee funds within hours in an (apparently) one-off solution instead of years of a vicious circle spiral.

    2.If I had money in Cyprus, (or any other Southern European state) I would withdraw it first thing Monday morning and move them to US Dollars. I am sure many people who do the same. I wouldn’t even think of moving money to Germany.
    When South Europe collapses they will go down too.

  21. Until this weekend I had never heard of the term “bail in.” I am familiar with the term “sleep in.” 😉

    Yani, as silly as “stability levy” sounds, why do you call it a “tax” when it is nothing more than a confiscation (for those accounts < 100K euro) — a theft? Moreover, is there not some sort of quid pro quo where the penalized account holders in exchange for the "stability levy" get some (illiquid/bs) bank shares?

    Europeans when they deposit their money in banks do so with the knowledge that each account is insured up to 100k euro. Now, I am not just thinking of a bank run on Cyrpiot banks when their bank holidays are over. No, I am thinking about bank runs across the eurozone (especially in the PIIGS). Why? Because the lesson I take from this (aside from the obvious that governments lie all the time, as did the Cypriot government going back on its wordon this) is that money in the hand is worth more than money in the bank. So much for the expression "as good as money in the bank," eh? 🙂

    I have a soft spot for Cyprus. Then again, I have a soft spot for all countries (and lands) under illegal, military occupation — you know, like Palestine. Cyprus is like a mini Switzerland — they export mainly financial services. What else can they do? 40% of the island of Aphrodite, the most beautiful and richest part, is under Turkish occupation.

    • My point is that black money deposited somewhere cannot be “white” elsewhere.

      Additionally in the scale of money laundering Germany stands higher than Cyprus.

      You bypass it and instead argue that Latvia banks are not German but Scandinavian. Which is not the point, you can make some research but I think none of us can conclude about who owns what.

      So bullshit and off topic.

    • Dear Lastgreek
      There’s a parallel between Cyprus and Switzerland in that they both have Tourism and Financial Services a major factors in the economy.
      But the overall picture is different: Switzerland, apart from the financial services sector, is a very sound, well-diversified economy. They also export pharmaceuticals, chemicals, machinery, watches and high-tech stuff.
      For a small country it is amazing what they produce – pretty much everything from coffee machines via trains to power stations.

      Plus: Switzerland has both a current account surplus and they export more than they import.

      This is not true for Cyprus.
      By the way: It is tragic that Cyprus is a divided country. But that does not mean that they absolutely had to concentrate on a huge banking sector – just because the northen part of the island is occupied by Turkey. One thing has not got too much to do with the other.
      Tourism would probably benefit – but even only the now EU-part of Cyprus is a large island with enough space for tourism to employ a significant part of the workforce.

      Your analogy with Palestine seems a bit odd to me. Cyprus is a way is what Palestine / Israel should hopefully achieve one day – a “two state solution”. Because – for whatever reasons – the Greek and the Turks could not live together, each side now has their part or the island. Regrettable in my eyes, and involved a lot of hardship when they lost their houses and had to move to the other side.
      But from what I understand, the EU-part of Cyprus is not a good anology for Palestine (or Israel). The situation is quite different. And no need to blow up the finance sector just because Turkey invaded.

    • @Martin:

      But the overall picture is different: Switzerland, apart from the financial services sector, is a very sound, well-diversified economy.

      So … what are you saying here — that you are the proud owner of a Swiss watch? Btw, Cyprus has the 3rd largest merchant navy in the Eurozone.

      Tourism would probably benefit – but even only the now EU-part of Cyprus is a large island with enough space for tourism to employ a significant part of the workforce.

      You need to refresh your geography. And pay close attention to that Green Line that rips Cyprus nearly in two.

      Cyprus i[n] a way is what Palestine / Israel should hopefully achieve one day – a “two state solution”.

      I don’t know if you did this intentionally, but you just paraphrased the Israeli fascist Avigdor Lieberman. Oy vey!

      Martin, you need to get your head around the principles of the rule of law. And once you have, try adopting some.

    • @Lastgreek

      I don’t know why you believe you have to try and ridicule my argument of Switzerland being a diversified economy with an export and a current account surplus (while Cyprus is not, falsifying your analogy between the two) with speculations about me having a Swiss watch. Learn a bit about Switzerland and compare it to Cyprus, maybe you can spot the difference yourself.

      Concerning your claim that Cyprus has the 3rd largest merchant navy in the Eurozone: I am impressed!

      I have heard about the green line and can see that it is an unfortunate situation. So what? Does that mean Cyprus can do what it wants and blow up a huge banking sector – just because the island is divided?
      By the way: The green line rips the island exactly in two (not “nearly in two”) just that the Greek part is a bit bigger than the Turkish part.

      You obviously did not like my statement: “Cyprus is a way is what Palestine / Israel should hopefully achieve one day – a “two state solution”.

      But to be honest, I don’t quite understand why. Hinting some similarities with what Mr. Lieberman says isn’t good enough. It may have escaped your attention but what the Israeli governments have been trying (or at least tolerating) was that through settlements on the west bank (which are illegal under international law) a “two state solution” becomes very difficult if not impossible.
      How do you see that as parallel to the situation in Cyprus. Maybe you did not take in what I wrote.

      Whatever the situation in Israel, I found your analogy wrong and it remains wrong.

    • @Martin:

      By the way: The green line rips the island exactly in two (not “nearly in two”) just that the Greek part is a bit bigger than the Turkish part.

      Look at the map of Cyprus. Pay particular attention to the British base Dhekelia (ESBA) which breaks the Green Line. You see? “Nearly” in two.

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  23. What is this bullshit about black money in Cyprus?

    The other place in Europe With loads of Russian money is Latvia.

    You can deposit 500.000 euros per day without justification.

    But the money there is “white” because the banks are mainly German.

    So Germany decides who is in trouble, then blames them of accepting black money or being corrupted or… or…, then gives them two choices, the first being total disaster and the second being what Germany wants.


    The Milian dialogue 2500 years after…

    (Just hears the Cypriot president’s speech… just hears19 days after his election… 19 days after the big promises… really sad that we have this kind of leaders)

    • Cyprus had/has an option: The could ditch the currency experiment and get their national currency back.

    • If you have ever been in Riga you would know most banks in Latvia are Swedish (+ some Finnish).

    • How profitable would the big banks — JPM, HSBC, Deutsche Bank, et al — be without their drug laudering operations?

      The only reason a bankster such as Jamie “Papademitriou” Dimon can say “That is why I am richer than you” is courtesy of the drug cartels.

      I don’t know about the legality of the Russian funds in Cyprus. But I do know that the drug cartels have a preference for American and western European banks.

    • Russian press says the bank in Latvia are mainly German and Swedish.

      I tent to believe them because they are are the ones that have their money there.
      By the way just because 2 banks exist in two countries with the same name doesn’t mean that the same people have the shares

      I also don’t give a shirt about Russian black money.

      Also I’m not accusing Latvia on anything. They are doing the best they can for they country as they should.

    • Dear Waves
      Concerning “bullshit” as you charmingly call it in your post from 0:20h:
      In the article I posted the link for plus in the article you posted YOURSELF it says: “Nordic lenders such as Swedbank AB (SWEDA), SEB AB (SEBA) and Nordea AB (NDA), which control about 40 percent of Latvia’s banking assets, have scaled back credit in the Baltic region”.

      So who is talking “bullshit” here?

      By the way: if you think that the Russian press is more reliable than anything else then I am truly stunned.

      I don’t understand what your point is and for sure, you got your factual basis wrong: Latvian banks are to a significant part owned by Scandinavia, not Germany.
      Never mind …

    • My point is that black money deposited somewhere cannot be “white” elsewhere.
      Additionally in the scale of money laundering Germany stands higher than Cyprus.
      You bypass it and instead argue that Latvia banks are not German but Scandinavian. Which is not the point, you can make some research but I think none of us can conclude about who owns what.
      So bullshit and off topic.

    • Dear waves
      Well, with you building your argument based on the statement that Latvian banks are owned by Germany and that’s got to do with the treatment of Cyprus (when actually they are owned by Scandinavia) it does matter and is not “off topic” to clarify that your statement regarding Germany owning Latvian banks is wrong, don’t you think?

      It’s news to me that Germany is really high on the list of money laundering safe havens (and more so than Cyprus). Any sources for that? I mean for Germany offering a base for such activities and making some sort of business model out of it? No doubt there are German passport holders involved in such activities (as there are French, UK and others) but I am referring to the country.

    • Dear Martin

      My argument is that black money cannot be white elsewhere.

      That is what is going on right now. That is what my argument is build on

      We dont have the data on the ownership of banks, you say one thing, I say another.
      (For exapmle we here in Greece have foreign banks with the same name here and abroad, that have of course different shareholders)

      If German money laundring is news to you, then you shouldnt have made half a dozen comments on issues you dont really know.

      Gremany and Cyprus are both described as medium risk for money laundering, with Cyprus being lower risk that Germany.

      State department places Germany and Cyprus in about the same place but without being more specific. You can google that.

    • Dear Waves
      Ok, I give up: Latvian banks are owned not by Scandinavia but by Germany and Cyprus and Germany both are huge, well known centers of money-laundering.
      One more parallel would be fun: If Germany asked for a EUR 1’600’000’000’000 (1’600 billion EUR) bailout, that would be the same scale to what Cyprus asked for (16 billion for 800’000 people / 1’600 billion for 82 million people). I would be curious to see what Germany would get as an answer.
      Probably everybody would be very happy to throw in the required, with no strings attached.

    • Dear Martin

      Dont give up.

      If Germany had done that, then Germany would have imposed on the rest of Europe something similar to or excactly like Modest proposal 🙂

      … and then the continent would return to sanity…

  24. Pingback: Cyprus’ Stability Levy: Another sad euphemism | Fifth Estate

  25. there is no such thing as “proper tax” and there is nothing wrong either with money laundering or with people not paying taxes to fund wars of aggression or schemes launched by alien governments from which they do not benefit and which they do not support. This is fairly obvious.

    The so called “Russian money” came to Cyprus solely because it was promised, guaranteed in fact, that Cyprus will remain a money heaven. If that were not the case, the money would have gone elsewhere – to Belize and Singapore, there are quite many places this money could have been parked.

    Common people in Russia do not want to bail out Cyprus and are rejoicing at the news of upcoming confiscation because as they see this is money stolen by politicians and Soviet management classes that usurped power in the country and is stealing its natural wealth. Also the ruling junta in Moscow is only motivated by personal enrichment of its members, not by strategic considerations, otherwise bailing out or perhaps buying Cyprus makes a great deal of sense.

    If the tax is imposed, the owners of large offshore accounts would probably move to other jurisdictions, which in turn means that Cyprus would lose probably its entire banking system (would lose 50 billion to get 10). One option would be to tax at 90% rate all accounts over say 200 000 euros. This would spare most Cypriots any pain and would confiscate the money that is going to leave Cyprus anyway.

    What is astonishing (or is it any longer?) about this case of obvious theft is something that I wrote a month ago in one of my half dead blog ( the incredible, breathtaking degree of contempt the Nazis have for the public opinion or for mere notion of any, any pluralist participation or consent, never mind the bizarre concept of some democracy. Even under Stalin in the USSR this sort of stunt would be quite unimaginable. Just brute force, administered Nazi style, when people are told to just to shove, today we’ll take 5 or 10% of your money, just like that, though you never agreed to it, tomorrow your lives or those of your children. Just like that. I don’t think it happened everywhere.

    What people of the civilized part of Europe (from Greece to France) should do, I think they should boycott goodies and services from the Reich or its close allies like Finland (history is repeating itself). Don’t buy German cars, buy French or Italian ones (I do, for close to 20 years now, nothing Teutonic on wheels in my possession), avoid German airlines, banks with German ownership, just a coordinated campaign to boycott everything German/allied to Germany first and then of course to try to be more self-sufficient or at least redirect spending to friendly economies. The Reich cannot be supported by 5 million allied Finno-Ugrians in places like Finland or ethnonazi statelet of Estonia, it demands continuous sacrifice from tens of millions of people, the sort of sacrifice Finno-Ugrians can’t provide just numerically, and I think it is important that the sacrifice, the blood the Reich nourishes itself with, is denied to it.

    One cannot have a united and equitable Europe based on notions of a centralized empire, unelected and unaccountable governance, taxation of the poor and arbitrary confiscation.

    And once again I think faced with the Nazi ultimatum the Cypriots should have just confiscated 90% of the contents of Russian accounts and should not have touched local account holders or at least did not touch anyone local with less than 100 000 or 200 000 in the account.

    • You should be a little bit more careful when you use the word “Nazi” all the time. Taking 9.9% of bank deposits in cases of EUR 100’000 and more or 6.75% for those below 100’000 is no doubt painful for those who are being charged.
      But it is ridiculous to put that on one level with what Nazis did.
      Also, read a book and learn about Stalin. You probably don’t believe yourself what you write – but still have a look. Stalin did not only kill a part of people’s wealth (9.9% of 100’000 and more, for istance) – he killed PEOPLE. Millions of them.
      Are you joking or do you really have no idea what you are talking about?

    • @Martin – how did you know that Stalin kill millions? Stalin based his power on broad support – as did Hitler in Germany, so Hitler treated German subjects fairly well, according to Speer’s memoirs, but subjected the conquered Untermenschen to arbitrary rule without a hint of consent, from confiscations – as the war had to pay for itself – to extermination for the least desirable. Obviously no one in the USSR would just preposterously confiscate entire population’s savings because of orders of some German Gauleiter. Fortunately, the Cypriot Parliament has rejected das Reich’s blackmail. Mind you I suggest that Cyprus would bankrupt the bank, leave those with 100 000 unaffected and rob the rest, take everything because banks are bankrupt. I would also think that existing the eurozone might be a good idea, though dismantling the eurozone is a better one.

  26. Maybe another bailout that’s not been handled perfectly.
    But I like the idea that deposit holders (all of them – including foreigners with sometimes having “tax efficiency” in mind when choosing Cyprus as place to transfer wealth to) are bailed in.

    With the 9.9% due on larger amounts e.g. somebody having 500’000 EUR in the account will pay approximately 50’000 EUR as a one time amount.

    Somebody with e.g. 30’000 EUR in the account will be charged 2’025 EUR.

    Seems quite fair to me. You could argue the holder of smaller assets shouldn’t be charged at all – but the money has to come from somewhere. And by charging deposit holders, the government is less under pressure to cut pension and social security and raise taxes. So probably overall, it’s in the interest of the not-so-wealthy to handle it like this.

    Also a nice precedent for Italy: A similar step could be one of the measures to keep the Italian government afloat if they are unable to implement reforms to kick-start growth quickly.

    Or, given that due to the elections and the chaos that now prevails a year or so will be wasted getting Italy in a more desperate situation, it may be a necessary measure whatever happen. At least as long as Italy wants to remain in the Eurozone.

    Another austerity orgy while doing very little to reform like in Greece wouldn’t be a great way to handle it.
    Apart from emergency assistance from the ECB (which will be necessary in any case but could continued to be made dependent on reforms) this could do the trick.
    No reforms and more debt just leads to disaster, see Greece. In the end that’s in nobody’s interest: not the middle classes – and certainly not the unemployed youth.

    Also not in the interest of Germany, Austria, the Netherlands and Finland, by the way.

    Better to charge the deposit holders to carry a part of the burden, too.

    After all, the size of the deposits are linked to the government having been unwilling or unable to collect adequate taxes.

  27. Thanks for the Interesting article Yanis! What I see unfair in this deal is that deposits of less than 100K are taxed. I would not be very surprised if, as I read, the Cypriot president was indeed given the choice to protect the below 100K deposits and tax the rest with a higher rate and turned it down. At any rate, 6.75% is just 2 year’s worth of interest and I doubt there will be a bank run. The missing money has to come from somewhere and it is better to take it from the deposits than to cut salaries. There has to be a price for living in bankrupt countries. This price has to be distributed fairly though and in this case they could have done better.

  28. “It is time for plain words. The ultimate source of Europe’s financial malaise is Germany. The German financial establishment was complicit from the beginning in the inflating of some of the bubbles in the afflicted nations. Now it is not only disowning its role in causation but, by forcing austerity on national governments and refusing to allow more than token inflation of the euro, it is turning the knife in those nations’ wounds.”

  29. I can tell you one ting, that this news, was very low in italian newspapers. Really in tiny letters, a little text, people don’t realize it. Probably because goverment does’t want people to understand what happens in Cipro, because Italians can also go to bank and save the deposits. I thought that there is european garancy on bank deposits, i don’t understand how they took the money like that.

    The UE was a mistake. Getting in, was easy. Now how do you get out? People want out, but are afraid to lose money going back to lira. Germany is hitting the tempo, the others dance. This is a german lander union, not european union.

    Forgive my english please.

  30. to Hari Politopoulos

    Ok, να βάλουμε ομως φόρο και σε όσες Ελλ .επιχειρήσεις επένδυσαν κέρδη και χρήματα στο εξωτερικό, και στις θυγατρικές τους εκεί.

  31. “…Rather than using the European Stability Mechanism to recapitalise banks, and thereby weaken the link between banks and their governments, the euro zone continues to equate bank bail-outs with sovereign bail-outs. As for debt mutualisation, after imposing losses on local depositors, the price of support from the rest of Europe is arguably costlier now than it ever has been.

    It is also hard to square this outcome with the ongoing overhaul of finance. The direction of efforts to improve banks’ liquidity position is to encourage them to hold more deposits; the aim of bail-in legislation planned to come into force by 2018 is to make senior debt absorb losses in the event of a bank failure. The logic behind both of these reform initiatives is that bank deposits have two, contradictory properties. They are both sticky, because they are insured; and they are flighty, because they can be pulled instantly. So deposits are a good source of funding provided they never run. The Cyprus bail-out makes this confidence trick harder to pull off.”

  32. They must be joking. This is the last step, the confidence failure that couldn’t happen. Now, dear banks of the federation Germany, dear world of bier, Luther and lack of son, with swedes, austrians and the like, bye, bye! We won’t pay for your retirement funds – why should we, with no hope of such a luxury in the near future, neither your rotten bad banks. We will be poor, but the world is with us, the 16 century helping a lot. We have sun, wine, and an incredible world mixture running in our veins; We are the south! (from Portugal)

  33. It is extremely funny that the Greek and Cypriot media are running wild with the news since yesterday crying bloody murder. I can understand the cypriot media, but the Greek are a mystery considering that obviosuly the Greek government supported the final propoistion.

    Obviously from an economic standpoint this decision makes sense and the burden on cypriot citizens in the long run could be lighter than the one if they had an Irish-style bailout. Bank bondholders should have been included though and deposits lower than 100.000 excluded. We should not forget that a significant part of cypriot deposits comes from non cypriot citizens and companies. Politicaly this is a disaster of course, which is also funny because I think this path was decided on political reasons and not economic ones. It primarily serves as a demonstration of brute force that sends a clear message to Italy to get in line, hence the repport of the ECB that circulated in Germany about Italian private assets. With this action Germany-Holland-Finland and the ECB put a gun on the table. Hope it backfires on them.

    • Yeah, good luck with that. Tell me how that will work out in a couple of months or so. Italy or Spain will not be blackmailed like that.

    • The blackmail came from the IMF, the ECB and the unelected European Commission. They wanted a participation of bank deposits. The DM Zone suggested another solution.

  34. On a 2nd thought, probably this new approach is a result of the (so far kept confidential) findings of the EZB about the median and average wealth distribution in Europe. Since it is, understandably so, hard to accept for, say, the people of Malta to pay for, say, Cypriots who are wealthier. Same applies for Germans vs. italians or French, for instance. If so, this bail-in of Cypriot depositors is a blueprint for the next rounds of Eurozone rescue-insanity.

    A chart here:

    • Enough with this “confidential” report. It was leaked on purpose by the ECB for obvious political reasons. They are not fooling anyone you know. By the way, how do the people from Germany feel that 5% of the people control 50% of the assets in their country according to the same report? Happy about it? Because this great gap cannot be any good for German society, hope they wake up and do something about it.

  35. The “true causes of the Eurozone’s (and Cyprus’) instability” are, besides the incredibly faulty design of the common currency, the unsustainable (based on much to cheap debt) business models of the countries which are now in trouble.

    As long as the structures there are not drastically improved, there will be more and more instability.

    As for the bail-in of Cyprus depositors: what I don’t get is that -again- not the bondholders, owners, employees of the banks are the 1st who get a haircut.

    Bail in depositors is not per se bad, but they should have been 2nd in line.

  36. Μ’ αρέσει η Κυπριακή ιδέα να πληρώσουν κάτι όσοι έχουν λεφτά στην Τράπεζα. Έχω όμως μια καλύτερη ιδέα για μας τους Ελλαδίτες : Να πληρώσουν αυτοί που βγάλανε τα λεφτά τους στο εξωτερικό. Αν συμφωνήσουν Ουάσιγκτον, Λονδίνο, Παρίσι, Βερολίνο και Ελβετία μπορούμε να φορολογήσουμε τις καταθέσεις Ελλήνων εκτός Ελλάδος. Αν μαζέψουμε 50 δις μπορούμε να δώσουμε τα μισά για να μειώσουμε το χρέος και τα άλλα μισά για να συνεφέρουμε τη λιπόθυμη οικονομία μας, να αναστήσουμε τη ζήτηση και να αυξήσουμε τις επενδύσεις! Και το μέτρο θα πρέπει να έχει κάποια διάρκεια. Ας πούμε 5% τον πρώτο χρόνο και από 2% το χρόνο για τρία ακόμα χρόνια. Οι Λαγκαρντινοί ή θα πρέπει να πληρώσουν ή να φέρουν τα λεφτά τους πίσω!

  37. This will certainly cause serious instability in the remaining deposit base. The Russian & Serbian money will either race or leak to other centers while the legitimate Cypriot depositors will have every reason to lose all faith in their authorities. Banks all over the region will be effected, or should be. Bondholders and hedgies will have another ill-deserved party, and the owners of the banks? Untouched? Yet the most depressingly familiar aspect of all of this, is that for many years, every since the rise of the oligarchs and the Serbian wars, everyone over the age of 10 knew that Russian and Serbian (and other) black money was pouring into Cyprus at Niagara sized rates of flow, that international money laundering laws and systems were being completely flouted, and yet no one at the ECB, the EU or any others of our so called governing bodies did a damned thing about it, not even glance by it in a speech. The instability of the Cypriot banks – their openness to risk, must be attributed to the pan European banking authorities to a very large degree, as well of course, to the Cypriots who thought they were on to good thing….washing someone else’s dirty money with cheaply made Mediterranean soap, and either round tripping it back to Russia under the cloak of anonymity, or investing it in high yielding Greek bonds for an easy turn even as Greece was going down the drain.

  38. I like the idea that those with money in the bank pay something for the crisis. Only 65 euro if they have 1000 euro, 6 500 if they have 100 000, 16 500 if they have 200 000. There is however a much braver idea that could be applied to mainland Greece : tax those who took their deposits abroad! If London and Washington, Paris, Berlin and the Swiss cooperate we could tax deposits of Greeks held outside Greece. If we collect 50 billion euro we could use half to reduce our debt and the other half to restart the economy, to both increase demand and raise investment back to 25% of GDP or more. We should talk a lot about such an idea to encourage people to bring their money back…

  39. “Go steal the money, give it to us, and well loan it to you.” Ha ha ha.

    Now that’s money laundering right there.

  40. A famous bank robber was asked why he robbed banks. His answer was, that is where the money is.

    When these organizations are asked why they robbed the bank could this be the answer?

    “That is where money isn’t.”
    “That is where the credits are.” (Depositors’ accounts are on the credit side of the bank’s books.)

    So, in order to get credit for a loan, they were told to rob the bank (depositors)? That would put them in good standing to get a loan! Ha haha hahahaha.

    “Go steal the money, give it to us, and well loan it to you.” Ha ha ha. Who is making this stuff up?!

  41. I don’t know too much about Russia Cypress thing. But, it could be that Russia has really high money growth (monetary inflation) and people are changing to Euros to protect from the depreciation of the Ruble and putting Euros in European banks. In that case there was some how an exchange to get the Euros.

    Are the thieves blaming the foreigners or wanting people to turn against each other?

  42. This is just plain nutty! Cyprus depositors are the risk takers not the bondholders. The Euro crisis gets nuttier as it worsens.

    • As usual, the banks are fine. It’s only people who are going bankrupt. Thanks for that, Merkel and Lagarde: you’re clear evidence that women in politics are no better at it.

  43. My impression from the English language reporting of this event is that (as with the original reaction to the Greek fiscal crisis) the Germans have imposed their own Protestant morality yet again. Their take on the situation is that there are too many dubious Russian accountholders in Cypriot banks — in other words, the money is laundered — and that it is not politically acceptable to the German people to subsidise non-European account-holders, especially if there is doubt about the provenance of the money.

    If this is true, then what is most remarkable is that yet again the German politicians show how disinterested they are in economic and financial issues, and far more concerned with domestic German politics. What is also worrying are reports that Lagarde was pushing for this same policy. There is every chance that this could precipitate a run on banks across southern Europe — which would make the eurozone unviable very quickly. Let’s see how ordinary people react next week: possibly everyone is now so sick of the mess that Europe’s politicians are making of the eurozone, that people will consciously act to assist its destruction.

    • My instinctive reaction is exactly the same; that we will very quickly see a full on bank run. They have not factored into their thinking, the reaction of an individual that has worked all their lives to build up a nest egg and now sees others dipping their sticky fingers into the pie. This may become the tipping point.

    • True. The EU, as stupid as ever, having just torn up Bank guarantees. There is no point whatsoever in keeping one cent in any Bank in Greece, Spain, Portugal or Italy. You would be a fool to leave it there. Either transfer your money to Germany or the Netherlands, out of the Eurozone completely, or turn it into cash and/or Gold.

  44. Pingback: Chipre | Maven Trap

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