Euro Area

[gaelic cowboy]

This austerity rubbish will not fix our banks unless they start some proper write offs our problems will continue.

The thing is this sets a precedent. How long before other governments, under orders from Bruxelles, start to pinch people money from their banks? This is why I dislike the EU. Accountable to no one. Can't be sacked.

Any Euro fans like to defend this latest outrage?

A comment from a Telegraph article on this sums it up.

It's such a laugh you need to increase capital in banks so you steal savers money, it'll encourage people to remove all there deposits just in case they go looking for another 10%.

If people take out there money there gonna need more capital and potentially another bailout.

Plus they have breached a principle in that people's money is now not safer in banks, this could have a ripple through the whole EU banking system.

[HopAlongBunny]

It certainly does not seem designed to instil confidence in the banking system; but most confidence games are about getting hold of other peoples money...

[Husar]

Oh come on, the spice money must flow.

And if it's sitting idle on some bank account, it is actively hurting the economy, they should take 50% and tell people to invest or lose.
It's also funny how everybody is putting the blame on Germany when we wanted to spare the small savers who have below 100k.
I just heard on the radio that that was our plan but cypriot politicians (the elected kind) and the EU(the bank mostly IIRC) wanted to include everyone.

This little BBC article supports that notion with the following quote:

The speaker of the European Parliament, Germany's Martin Schulz, has called for the levy to be revised to protect small-scale bank customers.

There was even an idea they mentioned that the small savers would be given shares of the bank in return.
You can put your sensationalist outrage under your pillows, next to that stash of money that is destroying your economy a bit more every day.

[Papewaio]

In general your savings is being invested by the bank. That is why they pay rental ie interest on the savings parked there. Not only that, most banks can loan out a multiplier of the amount of savings that are held within their savings accounts.

So money saved in the bank is actually invested multiple times. This becomes an issue when everyone tries and gets their savings at the same time as the money is on assignment at other places and is being leveraged on top of that.

[gaelic cowboy]

Oh come on, the spice money must flow.

And if it's sitting idle on some bank account, it is actively hurting the economy, they should take 50% and tell people to invest or lose.
It's also funny how everybody is putting the blame on Germany when we wanted to spare the small savers who have below 100k.
I just heard on the radio that that was our plan but cypriot politicians (the elected kind) and the EU(the bank mostly IIRC) wanted to include everyone.

Husar the banks are already lending your money when it's on deposit and even when there is NONE there still lending it on the strength of assets. A million in a back account is not idle however a million in a tin box under the bed most certainly is.

This bailout encourages tin box banking which could cause another bailout next year(and potential bank runs if anyone else needs a bailout later on)

This little BBC article supports that notion with the following quote:


There was even an idea they mentioned that the small savers would be given shares of the bank in return.
You can put your sensationalist outrage under your pillows, next to that stash of money that is destroying your economy a bit more every day.

shares in banks that are bust while the bondholders will get full returns its frankly immoral

It is now clear that negotiators of the bailout in Brussels drastically underestimated the reaction in Cyprus, says the BBC's Mark Lowen.

A tiny eurozone economy feels it is being blackmailed by the most powerful, and the growing resentment will do nothing to foster European solidarity,

Did they seriously not expect people to react badly

Stocks tumble as Cyprus reworks divisive bank tax

MICHELE KAMBAS – 18 MARCH 2013 Irish Independent

CYPRIOT ministers were trying to revise a plan to seize money from bank deposits before a parliamentary vote tomorrow that will secure the island's financial rescue or could lead to its default, with reverberations across the euro zone.

Spoiler Alert, click show to read: 

The weekend announcement that Cyprus would impose a tax on bank accounts as part of a €10bn bailout by the European Union broke with previous practice that depositors' savings were sacrosanct.

The euro and stock markets fell on concern the euro zone crisis was returning.

Before the vote, which is too close to call, the government was working to soften the blow to smaller savers by tilting more of the tax towards those with deposits greater than €100,000. Many of these depositors Russians and the planned levy has already elicited an angry reaction from President Vladimir Putin.

The government says Cyprus has no choice but to accept the bailout with the tax on deposits, or go bankrupt.

A Cypriot source told Reuters the introduction of a tax-free threshold for smaller bank deposits - maybe up to €20,000 - was under discussion but not yet agreed.

The parliamentary speaker said debate on the bank levy would be delayed until 1600 GMT tomorrow, suggesting banks, shut today for a bank holiday, will remain closed tomorrow

The euro zone has indicated that changes would be acceptable as long as the return of around six billion euros is maintained. If the Cypriot parliament votes the deal down, the euro zone would face a risk of being dragged back into crisis.

"It is up to the government alone to decide if it wants to change the structure of the ... contribution (from) the banking sector," European Central Bank policymaker Joerg Asmussen, who was pivotal in the weekend negotiations, told reporters on the sidelines of a Berlin conference.

"The important thing is that the financial contribution of 5.8 billion euros remains," he said.

Residents on the island emptied cash machines to get their funds over the weekend. The move also unnerved depositors in the euro zone's weaker economies. Investors feared a precedent that could reignite market turmoil that the European Central Bank has calmed in recent months with its pledge to do whatever it takes to save the euro.

The euro fell before tempering losses. European stocks did similarly, dropping two percent before more than halving losses.

In the bond market - often the most reliable guide to euro zone stress - safe haven German Bund futures shot up while Italian equivalents dived, suggesting some concern that Cyprus could infect its larger neighbours.

"The most important question is what would happen the following day if the bill isn't voted," Cyprus central bank governor Panicos Demetriades told parliament.

"What would certainly happen is that our two big banks would need to be consolidated. This doesn't mean that they would be completely destroyed. We will aim for this to happen in a completely orderly way."

Brussels has emphasised that the measure is a one-off for a country that accounts for just 0.2 percent of European output. The worst fear is that savers in other, larger European countries become nervous and start withdrawing funds, although there was no immediate sign of that on Monday.

U.S. economist Paul Krugman wrote in The New York Times: "It's as if the Europeans are holding up a neon sign, written in Greek and Italian, saying 'Time to stage a run on your banks!'"


PUTIN ANGRY

Cyprus's banking sector dwarfs the size of its economy and its banks have been severely hurt by exposure to much larger neighbour Greece.

Its open economy has meant its banks also attract cash from Russians. Moscow is considering extending an existing 2.5 billion euro loan to help bail the island out and said the fact it had not been consulted about the bailout would come into play.

"It turns out that the euro zone actions ... took place without discussions with Russia, so we will consider the issue of restructuring the (Cyprus) loan taking into account our participation in the joint actions with the European Union," Russian Finance Minister Anton Siluanov told Reuters.

President Vladimir Putin criticised the bank levy as unfair and setting a dangerous precedent.

"Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous," Kremlin spokesman Dmitry Peskov told reporters.




Approval in Cyprus's fractious 56-member parliament is far from a given: no party has an absolute majority and three parties say outright they will not back the tax. A vote initially planned for Sunday was rescheduled to give more time to build a consensus.

On Sunday, a source close to the consultations told Reuters authorities were hoping to cut the tax to 3.0 percent from 6.7 percent for deposits under 100,000 euros. The rate for deposits above that would then be jacked up to 12.5 percent from 9.9 percent.

Cypriot President Nicos Anastasiades, a conservative elected just three weeks ago, said in a TV address that the tax was an alternative to a disorderly bankruptcy. It was painful, but "will eventually stabilise the economy and lead it to recovery".

Savers who lost money would be compensated by shares in commercial banks, with equity returns guaranteed by future revenues expected from natural gas discoveries, Anastasiades said. But many legislators remain unconvinced.

"Essentially parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law," said Yiannakis Omirou, speaker of parliament and head of EDEK, the small Socialist party. "We refuse to subscribe to this."

A country that I beleive is what .1% of the GDP of EU sends EU markets down by a many multiples of that.

Cyprus deal sends shares tumbling and pushes gold up

MARC JONES – 18 MARCH 2013

THE surprise decision by euro zone leaders to part-fund a bailout of Cyprus by taxing bank deposits sent shockwaves through financial markets today, with shares and the bonds of struggling euro zone governments tumbling.

Spoiler Alert, click show to read: 

The bloc struck a deal on Saturday to hand Cyprus rescue loans worth €10bn, but defied warnings - including from the European Central Bank - and imposed a levy that would see those with cash in the island's banks lose between 6.75 and 9.9 percent of their money.

Parliament in Cyprus put off a vote on the measure - which has shaken depositors' confidence in banks across the continent

- until tomorrow, however, and with public anger at the deal widespread the government said it was already looking to ease the pain for small savers.

Without the rescue, Cyprus would have be unable to avoid a default.

That would have undermined the promise that Greece's debt writedown last year was a one-off, but the unprecedented move to hit depositors adds a radical new dimension to the crisis across the euro zone.

The initial response of investors was unambiguous. Shares lurched lower, the euro fell to a new three-month low, while safe-haven assets such as gold and German government bonds jumped.

The cost of insuring the debt of even high-quality European banks against default also rose sharply with analysts citing fears the decision could spark contagion across peripheral regions with the potential for widespread outflows of deposits.

"If I were a saver, certainly in Spain or maybe Italy, I think I'd be looking askance at these measures and think this could yet happen to me," Peter Dixon, global financial economist at Commerzbank said.

The European Markit iTraxx senior financials index, which tracks the most important European bank credit default swap (CDS) rates, widened by 17 basis points.

Some credit default swaps in Spanish, Italian and Portuguese banks widened more sharply with the five-year CDS for Spain's

Santander 30 basis points higher, while for Italy's UniCredit it was 23.5 basis points wider.

However, some in the markets were drawing support from a view that the safety measures put in place at the European Central Bank should contain the fallout.

"Clearly this is a negative development for European assets but in the terms of contagion we think it is quite limited," said Guillermo Felices, head euro asset allocation at Barclays in London.

"There are tools - such as the ECB's OMT (bond buying programme) and the option of more 3-year LTROs (ECB loans to banks) that can provide liquidity if needed - that the market will feel comfortable about when assessing the longer-term implications."

Three of the world's biggest central banks are also expected to signal their fresh commitment to loose monetary policies this

week.

The Bank of Japan welcomes a new governor on Wednesday who is likely to begin pumping huge amounts of yen into the recession-hit economy. On the same day the Bank of England may get a new pro-growth mandate in the British government's annual budget, while the Federal Reserve is expected to reaffirm its commitment to the current aggressive U.S. bond-buying programme.

Equity markets were underscoring the more immediate worries, however, that the Cyprus deal could see savers and firms in other highly indebted countries like Italy and Spain rush to pull money out of their own banks.

By 1115 GMT the pan-European FTSEurofirst 300 had clawed back around half of its initial losses but was still down 0.8 percent in its worst morning since last month's inconclusive Italian election.

London's FTSE 100, Frankfurt's DAX and Paris's CAC-40 were down 0.8, 1 and 1.4 percent respectively, leaving MSCI's global share index down 0.85 percent.





CENTRAL BANK SUPPORT

In the currency market, the euro staged a slight recovery after having dropped as low as $1.2882 in the Asian trade, to session be up 0.1 percent on the day $1.2950.

The dollar itself, which investors often head for when tensions in Europe rise, gained 0.45 percent.

"Euro zone politicians will be at pains today to manage down the danger of contagion to other markets. The euro will find a little bit of support from that but markets will remain jittery," said Jane Foley, senior currency strategist at Rabobank.

Italian and Spanish bond yields both jumped sharply as the two countries remain at the centre of concern in the euro zone due to the size of their economies which some economists warn would be too big to rescue.

If savers and firms did pull their money en masse from already strained banks it could tip the region back into full-blown crisis, although the ECB's backstop measures are designed to prevent such problems.

The widespread anxiety drove up German government bonds, the traditional favourite of risk-adverse European investors, and indiscriminately pushed up the cost of insuring against a sovereign default in the euro zone's southern rim.

[drone]

Nothing solves an economic crisis like a bank run. Well done!

[gaelic cowboy]

Nothing solves an economic crisis like a bank run. Well done!

Why didnt they just take it all from everyone over the €100,000 mark and pay for the whole bailout??

[Husar]

Husar the banks are already lending your money when it's on deposit and even when there is NONE there still lending it on the strength of assets. A million in a back account is not idle however a million in a tin box under the bed most certainly is.

Already said I'm aware of this, but it means you entrust your money to the bank, and if your bank cannot be trusted then you lose your money. Now the government may guarantee some amount but it seems like the government can't be trusted and the fault for this lies with the people, who elected that government. If the people trusted a lie and didn't check back whether all these guarantees actually work out, then it's their own fault for electing the same liars again and again. Now you may say some 48% or whatever didn't elect the liars but that's how the world works. People die every day and it's none of their fault. The alternative is to let the banks go belly up and then 100% of the savings are lost.

The real issue is that nothing was done about the reliance on the banks before they went down the drain and nothing is being done about it now that the problems are obvious. And to say that the government should do something is funny because half of Europe elected conservative, free-market parties that are against government meddling in the private industry.

And @Andres, if you have such a problem with Cypriots surrendering some of their money to get money from Germany and the EU, maybe you want Belgian taxpayers to chip in the amount that the Cypriots would have to pay instead?

[gaelic cowboy]

Already said I'm aware of this, but it means you entrust your money to the bank, and if your bank cannot be trusted then you lose your money. Now the government may guarantee some amount but it seems like the government can't be trusted and the fault for this lies with the people, who elected that government. If the people trusted a lie and didn't check back whether all these guarantees actually work out, then it's their own fault for electing the same liars again and again. Now you may say some 48% or whatever didn't elect the liars but that's how the world works. People die every day and it's none of their fault. The alternative is to let the banks go belly up and then 100% of the savings are lost.

this could be edited quite easily to say Germans closed there eyes to the faults of the Euro and it's banking system too.

Or more simply there is enough blame to go round in both the borrower and lender category.

No exchange rate difference was taken for no risk by lenders and borrowers, we now know that was totally wrong but it is been rewarded by heaping bailout debts onto sovereigns.

The real issue is that nothing was done about the reliance on the banks before they went down the drain and nothing is being done about it now that the problems are obvious. And to say that the government should do something is funny because half of Europe elected conservative, free-market parties that are against government meddling in the private industry.

Indeed and the simplest thing to do is just allow outright monetary financing of all eurozone banks by the ECB. but that wont happen.

At it's core this problem was a pan european bank to bank up which has exposed the poor design of EMU.

You wont solve this problem heaping debts on countries balance sheets when the problem is banking liquidity.

[Andres]

Indeed and the simplest thing to do is just allow outright monetary financing of all eurozone banks by the ECB. but that wont happen.

That's indeed a much better solution (after splitting the toxic products off of the rest).

[Andres]

Already said I'm aware of this, but it means you entrust your money to the bank, and if your bank cannot be trusted then you lose your money. Now the government may guarantee some amount but it seems like the government can't be trusted and the fault for this lies with the people, who elected that government. If the people trusted a lie and didn't check back whether all these guarantees actually work out, then it's their own fault for electing the same liars again and again. Now you may say some 48% or whatever didn't elect the liars but that's how the world works. People die every day and it's none of their fault. The alternative is to let the banks go belly up and then 100% of the savings are lost.

The real issue is that nothing was done about the reliance on the banks before they went down the drain and nothing is being done about it now that the problems are obvious. And to say that the government should do something is funny because half of Europe elected conservative, free-market parties that are against government meddling in the private industry.

And @Andres, if you have such a problem with Cypriots surrendering some of their money to get money from Germany and the EU, maybe you want Belgian taxpayers to chip in the amount that the Cypriots would have to pay instead?

Is this the best they could come up with?

Why not saving the banks by splitting them and putting the toxic products in "bad banks", use European money to recapitalise the "good banks" and bring those "good banks" under control of Europe?

And please, don't give a fleming lessons in solidarity. I have been paying for Wallonia's misery ever since I started working, yet no hair on my head that thinks about robbing the Walloon citizens of my country of their hard earned savings. Their politicians are scum, but that doesn't mean I would ever advocate robbing the Walloon population of their savings.

If that is the sentiment in Germany, then perhaps you should just admit you don't really want a European Union where we stick together in good times and in bad and instead leave us, so that we can devaluate the euro; a measure we can't take with Germany in the Union, since then it would only benefit Germany.

But you won't, because the Euro suits German interests very well. If Germany were outside the Eurozone, your German Mark would be a much stronger currency than the Euro, which would be bad for your succesful export. Compared to what the German Mark would be, the Euro, certainly without Germany in the zone, is weak, so you can now hide behind the Euro which benefits your economy at the expense of the rest of Europe.

You can look at it from that angle too, you know.

Anyway, I'm not saying Germany should just pay off debts of the poorer southern countries, but robbing the population like that is not the way to go. I don't know how this is sold to the German people, but you undermine the entire European banking system with this measure. You are asking for a run on the banks which will make things much worse for the Cypriotic people. And the Italian, Spanish, Portugese and Greek.

[Husar]

this could be edited quite easily to say Germans closed there eyes to the faults of the Euro and it's banking system too.

We closed our eyes when the Eurozone was established already, I never disputed that and have to live with it today...

Why not saving the banks by splitting them and putting the toxic products in "bad banks", use European money to recapitalise the "good banks" and bring those "good banks" under control of Europe?

Because that's socialism.
Also who wants a bad bank and what do you do with them?

And please, don't give a fleming lessons in solidarity. I have been paying for Wallonia's misery ever since I started working, yet no hair on my head that thinks about robbing the Walloon citizens of my country of their hard earned savings. Their politicians are scum, but that doesn't mean I would ever advocate robbing the Walloon population of their savings.

We paid Russia to get East Germany and then we started to pay East Germany to get anywhere, additionally the German states also redistribute money from stronger to weaker ones. However, they are also all united under a central government that establishes some rules, which is the part where the Eurozone fails miserably because everybody still believes in independent nation states...

If that is the sentiment in Germany, then perhaps you should just admit you don't really want a European Union where we stick together in good times and in bad and instead leave us, so that we can devaluate the euro; a measure we can't take with Germany in the Union, since then it would only benefit Germany.

But you won't, because the Euro suits German interests very well. If Germany were outside the Eurozone, your German Mark would be a much stronger currency than the Euro, which would be bad for your succesful export. Compared to what the German Mark would be, the Euro, certainly without Germany in the zone, is weak, so you can now hide behind the Euro which benefits your economy at the expense of the rest of Europe.

And in return we give lots of money to everybody else to keep them afloat. Also the notion that Germany wants to deprive small time cypriot savers of their money is wrong as I have demonstrated earlier. The idea actually came from the EU and their elected government.

You can look at it from that angle too, you know.

That's anti-teutonism and you ignore the part where our economy benefits but the people don't because there was more the government ruined back then in addition to the eurozone entry.
Another thing, if it only benefits Germany, why did Greece fake its finances to get in in the first place?

Anyway, I'm not saying Germany should just pay off debts of the poorer southern countries, but robbing the population like that is not the way to go. I don't know how this is sold to the German people, but you undermine the entire European banking system with this measure. You are asking for a run on the banks which will make things much worse for the Cypriotic people. And the Italian, Spanish, Portugese and Greek.

We are not, you still assume we are the (only) driving force behind this move, which is wrong.
Of course the best move would be to let companies that failed fail. However people are afraid that letting banks fail would be the end of society as we know it and think of all the jobs and stuff.