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Cyprus reaches last-minute deal on 10 billion euro bailout

Discussion in 'BBS Hangout: Debate & Discussion' started by pirc1, Mar 25, 2013.

  1. pirc1

    pirc1 Contributing Member

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    Guess those russian rich people will be crying now. If this happens in Cayman islands, would US invade? :p

    http://news.yahoo.com/cyprus-eu-imf-agree-draft-proposal-rescue-banks-002707963.html




    By Jan Strupczewski and Michele Kambas
    BRUSSELS/NICOSIA (Reuters) - Cyprus clinched a last-ditch deal with international lenders to shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for a 10 billion euro ($13 billion) bailout.
    The agreement came hours before a deadline to avert a collapse of the banking system in fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund.
    Without a deal, Cyprus's banking system would have collapsed and the country could have become the first to crash out of the European single currency.
    Swiftly backed by euro zone finance ministers, the plan will spare the Mediterranean island a financial meltdown by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank".
    Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalize Bank of Cyprus through a deposit/equity conversion.
    The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros, Eurogroup chairman Jeroen Dijssebloem said.
    Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution.
    An EU spokesman said no across-the-board levy or tax would be imposed on deposits in Cypriot banks, although the hit on large account holders in the two biggest banks is likely to be far greater than initially planned. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits.
    UNFORESEEABLE CONSEQUENCES
    Cyprus government spokesman Christos Stylianides said: "We averted a disorderly bankruptcy which would have led to an exit of Cyprus from the euro zone with unforeseeable consequences."
    Asked about the level of losses on uninsured depositors in Bank of Cyprus, he told state radio: "The assessment is that it will be under or around 30 percent."
    The Cyprus central bank said the agreement had also avoided the disorderly default of Laiki Bank.
    Among Cypriots, there was a mood of wariness about the deal.
    "How long will it last?" asked Georgia Xenophontos, 23, a hotel receptionist in Nicosia. "Why should anyone believe anything this government says?"
    But many in the capital appeared intent on enjoying a sunny holiday morning, drinking coffee at pavement cafes and watching camera crews filming people drawing money from bank machines.
    German Finance Minister Wolfgang Schaeuble said Cypriot lawmakers would not need to vote on the new scheme, since they had already enacted a law on procedures for bank resolution.
    At a news conference in Berlin, Schaeuble said the agreement was "much better" from Germany's perspective than the deal last week that would have hit small depositors and was rejected by the Cypriot parliament.
    The new deal offers the country the best chance of getting back on its feet, Schaeuble said.
    Anastasiades is expected to make a statement at some point after his return to Cyprus at 1:30 p.m. EDT.
    Lefteris Christoforou, vice-chairman of the ruling Democratic Rally party, said it was important that Cyprus had avoided a chaotic bankruptcy. "It is a bad deal, but the extreme scenario we had to contend with was worse."
    RESIGNATION THREAT
    A senior source in the Brussels talks said Anastasiades threatened to resign at one stage on Sunday if pushed too far.
    The Conservative leader, barely a month in office and wrestling with Cyprus's worst crisis since a 1974 invasion by Turkish forces split the island in two, was forced to abandon his efforts to shield big account holders.
    Diplomats said the president had fought hard to preserve the country's business model as an offshore financial center drawing huge sums from wealthy Russians and Britons but had lost.
    The EU and IMF required that Cyprus raise 5.8 billion euros from its banking sector towards its own financial rescue in return for 10 billion euros in international loans. The head of the EU rescue fund said Cyprus should receive the first emergency funds in May.
    IMF chief Christine Lagarde said the agreement was "a comprehensive and credible plan" that addresses the core problem of the banking system.
    "This agreement provides the basis for restoring trust in the banking system, which is key to supporting growth," she said in a statement.
    With banks closed for the last week, the Central Bank of Cyprus imposed a 100-euro daily limit on withdrawals from cash machines at the two biggest banks to avert a run.
    French Finance Minister Pierre Moscovici rejected charges that the EU had brought Cypriots to their knees, saying it was the island's offshore business model that had failed.
    "To all those who say that we are strangling an entire people ... Cyprus is a casino economy that was on the brink of bankruptcy," he said.
    The euro gained against the dollar on the news in early Asian trading.
    Analysts had said failure to clinch a deal could have caused a financial market sell-off, but some said the island's small size - it accounts for just 0.2 percent of the euro zone's economic output - would have limited contagion.
    Cyprus's banking sector, with assets eight times the size of the economy, has been crippled by exposure to Greece, where private bondholders suffered a 75 percent "haircut" last year.
    Without a deal by the end of Monday, the ECB said it would have cut off emergency funds to the banks, spelling certain collapse and potentially pushing the country out of the euro.
    Under the bailout agreement, Laiki's ECB funds will pass to Bank of Cyprus, and the central bank will "provide liquidity to BoC in line with applicable rules".
    Anticipating a run when banks reopen on Tuesday, parliament has given the government powers to impose capital controls.
    On Tuesday, the 56-seat parliament had rejected a levy on depositors, big and small. Finance Minister Michael Sarris then spent three fruitless days in Moscow trying to win help from Russia, whose citizens and companies have billions of euros at stake in Cypriot banks.
    The tottering banks held 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros - enormous sums for an island of 1.1 million people that could never sustain such a big financial system on its own.
    (Additional reporting by Luke Baker, John O'Donnell, Robin Emmott, Philip Blenkinsop and Rex Merrifield in Brussels, Michele Kambas, Karolina Tagaris, Costas Pitas in Nicosia and Lionel Laurent in Paris. Writing by Paul Taylor, editing by Giles Elgood and Will Waterman)
     
  2. Commodore

    Commodore Contributing Member

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    first they came for the Russian rich people's money, and I said nothing...
     
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  3. MoonDogg

    MoonDogg Member

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  4. BamBam

    BamBam Contributing Member

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    Nicely played! There are several versions of First they came...
    and all are just as powerful. There is a lot of wisdom in that
    statement!
    ..............
    ..............
    ..............
     
  5. pirc1

    pirc1 Contributing Member

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    Lol, they did not have to take the deal, they could just wipe out everyone's saving, rich and poor.
     
  6. Commodore

    Commodore Contributing Member

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    Here we see an example of professed ethics not applying outside one's own tribe.

    In this case, stealing is wrong, but we don't mind stealing bread from the mouths of decadence.
     
  7. Commodore

    Commodore Contributing Member

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    ah so they should be greatful it all wasn't taken, I see
     
  8. pippendagimp

    pippendagimp Member

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    the banking families will have their puppet govts confiscate your left testicle as well, if they so please.
     
  9. Major

    Major Member

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    It's not about being happy. Deposits over 100k Euros aren't insured, so this is the risk people take. It's no different here or anywhere else - if you put $1,000,000 in a bank that fails, anything over your FDIC-insured amount ($200k?) is subject to be lost if the bank fails.

    In Cyprus, the banks failed. You're the let-them-fail guy, but now seem to be arguing the opposite side.
     
  10. SamFisher

    SamFisher Contributing Member

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    Well they could just let the euro inflate, which would probably be good for Euorpe also, but that's also stealing according to you.

    I think the root of the problem is that you think people losing money on risky investments that have to be bailed out in order to prevent cataclsymic meltdown = stealing.

    YOu have a lot to learn about capitalism, iin which people make bad bets all the time.

    There's a phrase for your version of it in which that doesn't exist - it's utopian socialism.
     
  11. Classic

    Classic Member

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    Game. Set. Match.
     
  12. pirc1

    pirc1 Contributing Member

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    Says the one who say let the bank fail and don't bail them out.
     
  13. larsv8

    larsv8 Contributing Member

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    I have always pegged you a step above Basso and Bigtexx, but seriously, what is supposed to happen here?

    As Major said, you are the "let them fail" guy. Do you even know what it means when a bank fails?
     
  14. Commodore

    Commodore Contributing Member

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    What risky investments are you referring to here?

    What failed in this instance is the central bank, which is just the government of Cyprus. They want to borrow 13 billion euros and robbed their depositers blind for collateral.

    Posters here using the Animal House defense: "You f***ed up depositers. You trusted us."

    Here Bernanke can print dollars. We don't need to rob citizens to find the collateral to finance our debt. Just monetize it instead. Cyprus does't have that option.

    Of course, all wealth will now flee Cyprus and there will be nothing left to take to finance future debt. This will end badly. They will have to leave the euro and create their own worthless currency.
     
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  15. Commodore

    Commodore Contributing Member

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    nothing is being allowed to fail here, they are getting a 13 billion euro bailout
     
  16. Major

    Major Member

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    Umm, the 2nd largest bank in Cyprus is what failed. They invested in lots of Greek debt and then got blown up when the debt was restructured. That bank is being wound down - its small depositors are being moved to the largest bank in Cyprus. The larger depositors with uninsured deposits are losing some of that. Europe is then contributing to help recapitalize the Cypriot banks to prevent the failure of more banks.

    What's happening is exactly your dream scenario in free market capitalism; except that maybe you'd prefer Cyprus lets them fail completely and have depositors lose all their money instead of some of it.
     
  17. larsv8

    larsv8 Contributing Member

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    That is a gross over simplification.

    Arg Major beat me (again).
     
  18. SamFisher

    SamFisher Contributing Member

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    Laundering your money in a very loosely regulated offshore money laundering haven with an outsized banking sector with no oversight that are historically prone to collapse (see Iceland) = That is an investment choice, like any other.

    They could have stashed it in Switzerland, or London or channel islands or wahtever, like many Russian oligarchs have, and paid a higher premium, or run the risk and kept it in Russia, or bought gold, or engaged in any other number of investment choices with attendant risks and rewards.

    No, what failed was a vastly outsized banking sector that took foreign money, no questions asked, on the condition that you didn't ask any questions of it. There was too much money flowing into a tiny nation, they had to put it somewhere, and they put it somewhere that wasn't safe. That's the risk you take when you buy money laundering.
     
  19. MoonDogg

    MoonDogg Member

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