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Sunday, 17 March 2013

Savers kebabed

The Cypriot cash snatch has probably given UKIP their biggest PR boost in many years.

For the benefit of those who haven't got to the bottom of the story, in summary international lenders have agreed to a €10bn of the Cypriot government on the basis that the government will also grab €5.8bn from Cypriot bank deposits.

The cash from account holders with Cypriot banks and the Cyprus branches of foreign banks will come in the form of a one-off 9.9% on deposits over €100,000 that will be taken from their accounts when the banks reopen on Tuesday,. Monday is a Cypriot holiday. An additional 6.75% levy will be imposed on deposits below €100,000.

Western Europe has not seen such arbitrary retribution since the WWII punishments meted out by the Germans in response to attacks by partisan and resistance movements. Cyprus is the fourth eurozone country to receive a sovereign bailout after Greece, Ireland and Portugal. Spain has also required €40bn in EU aid to shore up its teetering banking system. The Cyprus precedent means that the next time a country is bailed out, the Cypriots can reasonably expect that country to receive the same treatment, so from now on expect a run on banks and capital flight whenever a eurozone economy looks in trouble.

The EU and others leading the negotiation have justified the measure by saying it broadened the number of people who will shoulder the burden of the bailout. Without the measures, he said, much of it would fall on Cypriot taxpayers; by going after all large deposit holders, many of whom are Russian or British, outsiders would help fund the rescue.

Cypriots hit by the levy will be granted shares in their banks of equivalent value to their losses, but it is hard to see how the Cypriot government could order foreign banks that have taken deposits in the Cypriot branches to issue shares to their Cypriot depositors, particularly when the confiscated cash would be used to pay off the government's creditors.

Christine Lagarde, the IMF managing director who participated in the marathon talks, said she would now recommend to the fund’s board that it contribute to the bailout, though she said it was too early to say whether it would chip in one-third of the cost as it has in Ireland, Portugal and the first Greek bailout. So the Cypriots were strong armed into ponying up 10% of other peoples' money without actually getting any idea of how much the IMF was going to put up.

Remember dear reader, that at no point have EU officials said how much they would contribute to any of these bailouts, because they have contributed precisely nothing. Indeed, only 2 days ago the European Parliament voted against a measure that increased the EU budget by only 1% per annum, because that would limit their power to splurge.

On the other hand, if you are a UK tax payer, you will be picking up the bill for the compensation of UK military and diplomatic personnel. Yet again, the general public is picking up the tab for the profligacy of the public sector, this time in another country.

1 comment:

webwrights said...

A Cypriot financial journalist whom I heard interviewed overnight made the rather bitter point that their banks had already been obliged to take a €4bn haircut as part of the 'co-operative' Greek bailout. That hit was at least partially responsible for subsequently dropping them in this particular cart.

Just why the hell should the Cypriots have to submit to this expropriation, when the Irish, Greeks, Portuguese and Spaniards did not? I would be marching on the Nicosia parliament building with a pitchfork and a noose. Let's see if the opposition have the balls to say NO.