Most of these links are on Cyprus. I have been doing a lot of tweeting on this topic since early yesterday. If you’re not already on twitter, you should be. Follow me at @edwardn and here is a list of other finance tweeters to follow and a list of good general and finance news sources. If you read other western European languages and are interested in Europe, follow this list. Twitter is an invaluable source of real-time news.
News links for 17 Mar 2013
“Cypriots rush to ATMs before savings are docked as part of a bailout deal agreed in Brussels”
“The largest U.S. banks are “practitioners of crony capitalism,” need to be broken up to ensure they are no longer considered too big to fail, and continue to threaten financial stability, a top Federal Reserve official said on Saturday.”
“The eastern Mediterranean island becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help during the region’s debt crisis.
In a radical departure from previous aid packages – and one that gave rise to incredulity and anger across the country – euro zone finance ministers forced Cyprus’ savers to pay up to 10 percent of their deposits to raise almost 6 billion euros.”
“The harsh terms of the Cyprus bailout package, including haircuts for bank depositors, won praise in Berlin from both left and right, but leading parliamentarians insisted that they must study the details before giving it their approval.”
“Though Google Reader addicts are in mourning, they should have seen it coming. It’s not the kind of product that makes sense for Google in the longer run.”
“Euro-zone leaders will spin the deal as reflecting the unique circumstances surrounding Cyprus, just as they did the Greek debt restructuring last year. But if you were a depositor in a peripheral country that looked like it needed more money from the euro zone, what would your calculation be? That you would never be treated like the people in Cyprus, or that a precedent had been set which reflected the consistent demands of creditor countries for burden-sharing? The chances of big, destabilising movements of money (into cash, if not into other banks) have just shot up.
The second error is one of equity. There is an argument to be made over the principles of bailing in uninsured depositors. And there is a case for hitting everyone in Cypriot banks before any taxpayer in another country. But there is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched, as appears to be the case here”
“Nervous depositors in Cyprus rushed to ATM machines on Saturday to drain their accounts following a bailout agreement with international creditors that includes a levy on all the country’s bank accounts.”
“China will sacrifice short-term economic growth to stave off a financial crisis, economists at Nomura have claimed.”
“Cypriot President Nicos Anastasiades said on Saturday a levy on bank depositors was a painful decision he had to make in order to obtain financial aid, or else the island’s economy would have gone bankrupt.”
“For the past six months, the global financial markets have become increasingly complacent, convinced that the euro-zone crisis is, for practical purposes, over. Cyprus is the test of whether that is correct, or whether the complacency was instead misplaced.”
“How polar bears got their white coat remains a scientific mystery, but newly published research suggests a way they could turn brown again.
One of the study’s authors says that’s what might eventually happen to some groups of modern bears as climate change alters their habitat.
“It’s not something that happened in the past and might happen in the future — it’s happening today,” said Beth Shapiro, one of the authors of the study published in the journal PLOS Genetics.”
“Just because the Samsung Galaxy S4 is currently winning the features arms race does not mean everyone should drop their iPhone 5’s (or even other competing Android phones) and order a new Galaxy S4.
If you’re an iOS user, you have to consider switching platforms. Android 4.2.2 (what the Galaxy is running) is a good platform, but if you like iOS, you may find it overly complex, even confusing. Some people prefer the gated community of Apple’s App store to the somewhat looser Google Play store (they do not vet every app). Also, there is the issue of OS updates to consider.”
“Asked whether a future EU-mandated bank levy can be categorically ruled out, Rehn said that “it can and there is no concrete case where it should be considered.”
Speaking in an interview in Brussels early today after euro finance chiefs worked out the 10 billion-euro ($13 billion) Cypriot package, Rehn said he doesn’t expect an adverse market reaction to the precedent-setting tax on deposits both above and below the insured limit of 100,000 euros.”
“Australia faces a “massive hit” to government revenue, pushing the nation further into deficit ahead of an election in September, Treasurer Wayne Swan said.
The national budget fell a further A$4.6 billion ($4.8 billion) into deficit in the first four weeks of 2013, taking the total shortfall to A$26.8 billion for the first seven months of the financial year, according to Treasury figures released by the government March 15. Just three week ago, Swan predicted a reduction in revenue would add just A$2 billion to the deficit in January.”
“The Cypriot government is now sweating over a possible rejection by the island’s parliament of the shocking set of measures imposed on Nicosia for the eurozone to bail its economy out of a likely default, announced in the early hours of Saturday.
The Cypriot government is preparing the bill to be tabled in Parliament probably on Sunday in an emergency session, as everything will have to be voted by Monday night for Cypriot banks to open on Tuesday.”
The Germans drove the deposit confiscation issue. In fact, the opposition SPD party made their support of any bailout package contingent on this.
“Die SPD macht jedoch unabhängig davon ihre Zustimmung zu einem Rettungspaket von einer umfassenden Beteiligung der Bank-Einleger zur Bedingung.”
According to the article in Spanish daily El Pais, the Russians will help Cyprus only in return for information on Russian tax cheats. Moreover, the article suggests that as the problems in Cyprus came acropper, the Russian money fleeing may have precipitated the bail-in. If all of this is true, why are deposits under the 100,000 euro deposit guarantee threshold subject to a tax? And why are ALL Cypriot bank deposits getting taxed, even those in less rickety banks. This whole affair is absurdly shambolic.
“The more interesting question, however, is how will depositors react in the rest of the Eurozone. There will undoubtedly be promises that this is the only country in the euro area that will write down deposits but promises from European politicians don’t mean much. They insisted for ages that a default in Greece was “not an option” but it happened and Cyprus’s own finance minister dismissed the idea of a depositor haircut only a few days ago saying ”Really and categorically – and this doesn’t only apply in the case of Cyprus but for the world over and the euro zone there really couldn’t be a more stupid idea.” Well maybe but it’s a stupid idea whose time has come.”
” the eurozone ignores at its peril the fact that these decisions do not happen in an economic or financial vacuum. They have political and social consequences that cannot be ignored if the single currency is to have a future. One need only look at the political changes that have taken place in Greece, Ireland, Portugal, Spain, Italy and elsewhere to realize that the euro area is running out of leaders who have the backing needed to implement the decisions being taken.
Cypriot President Nicos Anastasiades, elected just last month, has to clarify to his people why he is adopting a bank deposit tax when he told voters a few weeks ago that he was absolutely opposed to it. Even before Anastasiades had returned from Brussels, his political opponents were demanding a referendum on the deposit tax. Some were even calling for new elections or an exit from the euro.
Anastasiades also has to explain to Cypriots why small-time depositors have to pay a similar levy to the one some eurozone countries supposedly demanded so alleged Russian oligarchs would be forced to pay for bailing out the island’s banking system. Furthermore, he has to inform them why the Cypriot government’s pledge to guarantee deposits up to 100,000 euros – supposedly even in the most extreme circumstances – is not even worth the paper it was written on.”
“Cyprus’s parliament will decide on Sunday whether savers must pay a levy on bank deposits under terms for an international bailout to avert bankruptcy – with approval far from certain.”
“Depositors losing money when banks are kept afloat, when they would have escaped unscathed if the banks failed, seems both unfair and illogical.
Hence the reason for the “shock and awe” response to the Cyprus bailout terms. A 6.75% one-off “stability levy” will be imposed on deposits covered by deposit insurance (under 100,000 Euros). The levy on larger deposits will be 9.99% – not a great difference, really, and much less than might have been expected: after all, depositors could lose 100% of deposit value above 100,000 Euros. Additionally, there will be higher withholding taxes on interest. These penalties will be applied to all deposits, including those in well-managed banks that don’t require bailout.
The description of this as a “tax” or levy is a bit of a fudge. Under what type of taxation scheme are people provided with shares to compensate them for the taxes they have paid? But that is what is happening here.”
““In the extraordinary meeting of the Eurogroup, we faced decisions that had already been taken and came across faits accomplis,” he said.
“On Tuesday, March 19 we would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis, which would put a definitive end to the uncertainty and restart our economy,” added the recently elected president.
Anastasiades will issue a televised message to the Cypriot people on Sunday.”
“Euro zone ministers struck a deal on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion) to stave off bankruptcy. Under the program, the island’s debt should fall to 100 percent of economic output by 2020.
Here are the outlines of the financial package”
“Cyprus is suffering deflationary effects, bank closure costs, capital controls, yet without getting the redenomination benefits and independent monetary policy benefits of leaving the euro. If that appears “OK” (do note however that Cyprus is spared the burden of creating a new currency), won’t the notion that leaving the euro is practical after all start to spread? Which could cause bigger bank runs than if the Cypriot transition goes badly?”
“Back in 1941, with the memory of the Great Depression still weighing heavy, an American wrote into the Federal Reserve with an idea. “Would it not be feasible,” the member of the public asked, “to impose a Federal tax on the deposit of funds in bank checking accounts?”
The reply from the Fed was polite but succinct: while there’s no doubt a tax on bank deposits would have “the advantage of administrative simplicity”, it is “not in accord with one of the fundamental principles of taxation in a democracy, namely, that taxes should be imposed in accordance with ability to pay”.
And that, when it comes down to it, is the most scandalous and worrying aspect of the overnight decision to impose a one-off levy on all bank deposits in Cyprus. “
“I actually feel a bit sorry for the bears. They have warned us for years about the dangers of central bank balance sheet expansion and monetary accommodation. And their “elite” have even banded together in the WSJ to sign protest petitions against QE. But the spoo keeps rising, jobs keep getting created and wealth keeps getting generated (at least for those who didn’t follow the bears’ ill-conceived advice). I feel sorry for them because they are simply living in the dark ages of monetary policy theory. They are stuck thinking like witch doctors rather than modern medical doctors.”