Cyprus is broke...well, that's not exactly right. Cypriot banks are broke because waaaay too many of their assets seem to be written in Greek and the Greeks are broke and, well, you get the picture. Now as an economy, Cyprus is pretty much of a banking system so if the banking system is broke, well, you get the picture. Cyprus is also pretty much the Wild West of financial centers; anything goes, nobody knows and nobody cares. Best of all, nobody can find out which has made it a haven for, we'll, you get the picture. A bunch of haven seekers happen to be Russians; don't forget that fact, it's important to the picture.
Cyprus owes the EU a bunch of money which of course they do not have and as any sane country would do have asked Euroland and the IMF, bless them, for a bail-out, and have been in discussions for over half a year. Problem is, half the people in the world have no idea of the location of Cyprus much less a concern as to what it's debts might be and it got lost in the shuffle when Spain and Italy nearly went toes up last year. But time marches on as do repayment dates and suddenly the time for Cyprus had come absent the (roughly) 15 billion Euros that was needed.
It appears that late last week the Dutch decided to bring things to a head and called an emergency meeting in Brussels for the weekend. To make a long discussion short, what apparently happened--
and this is very much second hand on my part--was that Angie laid down the law: Germany would
not agree to any more than 10 billion in bail out funding and the rest would have to come from a creative source.
I'm sure you all remember our numerous discussions concerning bank capital and liquidity and how it is THE critical factor in bank risk. Cypriot banks have an abundance of deposits (they were paying too much); their funding base included nothing else...no bonds, no notes, no debentures...nothing. So, when it came around to look for "burden sharing" as Angie demanded, there wasn't much to go around. In fact, all that was there were the depositors...otherwise nada. Lots of them were Russian; some estimates, tho high I believe, have them at 50% of the total, and most of them from oligarchs which is "crook" in the new Russian. Somewhere, somebody got the brilliant idea of grabbing the deposits. Of course the deposits were guaranteed up to a point but what the hey, let's not worry about details. So what was proposed was a tax on the deposits; actually, there were a number of proposals but that isn't important to the narrative. The final decision was to tax deposits at over 100,000 Euros at about 10% and anything under at about 7%. And it was here that the politics which, like everything else in this 5 year soap opera began divining things.
This is a learned guess on my part but a pretty good one I think. There was no way Angie would be seen bailing out Russian crooks, hence the 10 billion limit. By the same token, taking 10% from these Russian clowns can get you killed even if you run Cyprus...or Russia for that matter. Better you stiff your own countrymen than turn stiff yourself.
They shut the banking system today I guess having the late idea that this had the possibility of causing a run. Euroland banks were quiet..waiting. The Cypriot are supposed to open in a couple of days time. I wonder. This in itself probably doesn't have the legs to cause a mass disruption at this time but one must wonder after this complete piece of idiocy one would have to be quite mad to commit capital to Euroland anytime in the near future. This may have ended it in a manner that no one could have predicted. The European Union has turned into the Gong Show; things like this usually get cancelled.
Finally, one final question: dove’e Mario? The head of the ECB who is undoubtably going have to bail out this mess was no where to be seen or heard throughout this entire mess. Where is he? Or perhaps the better question is why is he absent. If you have an idea let me know.
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