Cyprus resists?
 

How do you understand the situation?

From my arguably very biased perspective Ireland, Portugal, and Greece succumbed to UK/DDR executives in Brussels, but Cyprus, having already experienced multiple betrayals from allies (England, Turkey, Greece, and now Germany) has more fortitude to resist the humiliation imposed to them.

Reading news from around the world, I wanted to point out some interesting trivia:

1. Reigning German oligarchs claimed that Cyprus launders illegal money, but their own country is higher in the relevant list, Luxembourg even higher, not to mention Lichtenstein, Malta, Switzerland, etc.
2. I was amazed that the church of Cyprus volunteered to aid, usually the church plays hardball with the state, asking for more power (as was the case in the other countries that were ruined by the euro).
3. Russia proved to be even worse than Germans, not only abandoning their only ally in Mediterranean, in addition they gamble their own investors' money... I guess most of it is clean... otherwise Germany wouldn't have natural gas today... in between this is a "legitimate exaggeration" :p

Dunno, I am living for some time away from EU, but having experienced it for a long time during my vacation, I get the feeling that fascism is coming back to destroy them. Of course that was coming since mid-2000s, but none seemed to care then :(

Are they going to destroy again themselves? It's not the first time that conservative to right and extreme-right wing ideologies have killed millions in Europe, but now it's 2013 not 1800s when that idiotic theory made us Prussians, English and French :uhoh:

Er? Cursory research will tell you the problem with Greece, much of the Mediterranean and a lot of other states that are now in trouble is due not to "right wing" policy but actually "left wing" policies. I'm Canadian and believe in the importance of a social safety net, but you cannot grant your citizens and government employees massive benefits and pensions without tax and other revenues to support it.

On top of that, remember that when a country applied to join the EU, they also agreed to budget constraints and the benefits and limitations of joining a single collective currency. Policy makers failed to understand this issue and the founders of the EU looked the other way when financially unsound countries applied for membership.

Frankly, the idea that there is any conspiracy at work here is laughable, the ability for a large group of people to accidentally do something harmful is generally much greater than any minimal conspiracy among "German oligarchs" -- there is plentiful literature on the topic available. If you want to be informed, it is out there for you, but it may or may not jive with your vision of the world.

just let the banks go bankrupt.

This may or may not work. Iceland is an analog we can learn from -- in that situation the banks were all allowed to go "bankrupt" and were seized and restructured by the government. Shareholders and creditors of the banks got mangled. Depositors were mostly left whole -- except for some foreign depositors. See: Landsave dispute. There are some key differences though:

1) Iceland was not part of the EU and had its own currency the Icelandic Krona which it could print and thus devalue the currency. Cyprus cannot as it is part of the EU and cannot freely print Euros. Remember though, printing money is a "currency tax" and causes inflation and therefore hurts everyone that holds your currency. Inflation was up >50% in a year. Imports became prohibitively expensive. Unemployment jumped to double digits. Many shipping and airline and other tourism and import based businesses went bankrupt.

2) When you allow a bank or any large business or institution to go under and you hurt its creditors .. you hurt its creditors no matter who they are. For example, in Iceland's situation, in addition to overseas holders of shares and bonds, Iceland's own pension funds faced significant losses in the range of 15-25%. The reverse trickle down effect resulted in the entire country's economy shrinking by >10% in a year.

That all said, the pain has been "shorter but more intense" than in other situations. The Icelandic economy is expected to grow 2% this year and unemployment is back to single digits.

The whole idiotic problem is EU have so many different cultures/people, and they are strait-jacketed to a single currency.

In pre-EU days, a bottle of mineral water in Greece would worth $0.25 USD, today it is 2.1 Euros.

Yes, Greece cheated, yes Greece didn't reorg their economy in time. Yes Greece has unions. But there lies the fundamental part of the problem, as long as they have Euro hanging over their necks, they can't reform enough to reverse to profitability.

^ I mostly agree, somewhat disagree. Greece should never have been part of the EU. They shouldn't be part of the EU now. They need to live or die by their own policies and budget.

(They'll die. Repeatedly. Greece has gone bankrupt multiple times. There are stories that after being taken over by the Germans during WW2, the regime attempted to extract resources to fuel the war machine but couldn't because Greeks don't pay taxes and don't keep their books in order. They had to basically blow up the economy via tying currency first to gold then to real assets to extract any value.)

^ Besides, I dunno why all this drama about the "evil executives in Brussels", unlike any state of the USA they have the option to secede if they really think they would be better on their own.

The problems with succession is

1) It will hurt Greece...a lot.

2) EU will be hurt, if close to critically, because EU's debts are priced on the idea it is carried by the power/faint/credit of the entire EU. If people like Greece can just walk off, the other 16 members will be hurt...dreadfully.

Interesting opinions...

That must have been a very quick search, since the nature of the financial problems of Portugal, Spain, Italy, Greece and Cyprus are very different... probably you are thinking about the solution that the German government imposed on them (as it did with Ireland), which was to turn each problem into public debt. Cyprus, like Ireland (as well as Luxemburg, Malta, UK and Germany) have disproportional financial services compared to the size of their "real" economies. Greece has an extremely inefficient public sector, but the recipe there only made the problem worse since for the last three years they are trying to reduce it by forcing workers into pension, therefore maintaining the cost, while losing the services.

As for right/left wing divide, I consider conservative parties (Merkel, Berlusconi, Sarkozy, Cameron) as right wing. These along with the similarly minded parties in smaller countries bloated the problems in mid-2000s and are now dealing with them.

Also funds for social services can be acquired cheaply by internal lending (as was done before euro), the problem is that the ECB is not allowed to do that, and it's a pillar of the current policy, that it should never be allowed to do that. Couple that with the rest of the austerity measures, obviously the only outcome would be for the economy to shrink.

I am not saying that economies should be bubbles as are all western economies, but deflating them, and having systems that are based in real production, instead of private sector lending should be done slowly and across Europe, not overnight by annihilating whole countries.

The budget constrains were readjusted for Germany and France in early 2000s, and for the US housing bubble. Also there is a misconception between the EU and the eurozone here. EU is a political union of independent states, the eurozone countries are bound by a strange banking system that benefits one of them.

What conspiracy? I think that this is a matter of perspective, whether one understands reliance of politics to the private sector as beneficial or not.

You mean in every country? Should that happened for example in Greece the German private sector would have lost about 150 billion euros, which was slowly mitigated across all European taxpayers, mainly Greeks (through the memorandum measures).

Indeed, but you are missing another key difference for Cyprus, their economy is based around their banking system, whether you force them into bankruptcy or destroy their credibility is in effect completely destroy the country altogether. On the other hand, it would be unfair not remind everyone that Germany and Cyprus are doing all these for less then 6 billion euros that is about 0.13% of Germany's GDP or 20% of Cyprus'.

EU and euro are not the same, as for the price of bottled water inflation is to blame (which in principle austerity is trying to fight), and you are forgetting that salaries have proportionally increased in the public sector (for Spain and Italy in the private sector too).

With that logic EU should be Germany, Switzerland, Austria, and maybe Finnland and the Netherlands. But again I think you are equating the EU with the eurozone. This is no EU, but WW2-like allience. As for a eurozone with those countries will strip them of the all the benefits euro gave them.

Personally, I agree that Ireland, Portugal, Spain, Italy, Greece, and Cyprus shouldn't have entered the eurozone, and it would have been better if they have left when their problems started manifesting when UK and Germany bailed in their own banks and the later readjusted the budget constrains. I can understand that they were counting on doing so later in their cases, but that was wishful thinking.

States in the USA can not secede. Back to the eurozone, countries can exit the monetary union, only by exiting the union, which would be disastrous for everyone. It would be great if there was a mechanism to leave temporarily the eurozone, but that like complete exit would be very bad for the strong economies.

That was true before the memorandum, because one of the terms was to switch external debt to foreign legal jurisdictions (mainly UK law). Still political and psychological factors aside, euro will rapidly rise, German exports will be hurt, and should the poor countries leave EU (and only the eurozone) a third of the highly skilled workforce of rich countries will overnight disappear.

So, I addressed each of my responses to separate part of your statements, but you appear to have a rather interesting set of preconceived notions that is clear from your language. I'm curious what these beliefs are founded upon? I work in Finance, I evaluate companies/businesses in financial distress and I'm generally well versed in macro effects and policy impacts on particular markets and businesses. I've also done research on the working papers that resulted in the formation of the EU/Eurozone and how they were adjusted beyond the framework of its initial design to allow countries that would have otherwise not met the initial thresholds.

I personally think the EU, which I mean to also include the concept of the Eurozone or officially "euro area" despite knowing they're different for simplicity's sake, in terms of an economic and monetary union perspective was the dumbest move in the world. The difference is I think it was very stupid for France and Germany as well, despite the benefits to those countries (currency, terms of trade).

Anyways, the idea of taxing all depositors was a bad idea, the structure will likely in coming days be revised to apply a "tax" only to deposits above the statutory insured amount. Ultimately, if the banks were to go bankrupt instead without support only the statutory insured amount would be guaranteed by the government anyway.

Ultimately, I'm unsure of what you believe to be the "ideal" situation with regards to the banking system, global reserve currencies and use of leverage in business. Germany benefited from a weaker currency and thus benefited via trade. Greece and numerous other countries benefited due to an increased perception of safety and thus could borrow and otherwise have terms of international trade beyond its fundamental credit worthiness. Cyprus benefited when it joined as it then shared the same currency as its largest trading partner, Greece, and became ever more a finance gateway between Western Europe and Central Europe. That said, Greece, separate from the EU would have faced financial issues much sooner and without a bail out would have declared cascading private and public bankruptcy. Cyprus as one of Greece's largest trading partners and holder of significant Greek bonds would have faltered as well. Is any of that really in doubt?

That is what I said :p

No, is not inflation, is the value of their currency. (Lira I think?), It is like how Americans visit Japan and say "everything is cheap!" because Dollar holds > value than Yen.

So if Greek economy is getting weak, is currency falls, and people will buy greek goods more. The problem is now you are straddled on to a super currency that worth more than the dollar and slightly less than British pounds, your currency cannot depreciate by either design or market force.

Now you are in trouble. You can't just all blame "public sector" for this, especially since public sector also provide services.

Sorry, but I can not address everything here, I'll try though as many as I can...

Trying to listen carefully arguments from all sides, whether it's current or historical politics. Obviously, I (like everyone) have come to certain conclusions, but in my case, I have been persuaded by strong counter-arguments.

I guessed as much, your perspective follows the popular beliefs of that sector in the west.

I insist on separating the political union from the monetary... The reason is that the political union progressed slowly but steadily before the monetary one, most of the successful policies are also independent from the monetary union. In any case, concerning the monetary union, I disagree that Germany lost from it, Germans did, but their companies and economy bloomed again, after cheap East German cost was running out of steam. For the rest of the countries, it wasn't a bad idea, they could take advantage of it, but should I oversimplify, they made the worse possible decisions.

I think you assumed some things there... probably it's my fault too making partial statements :p

Anyway, about the banking system, I think that separating investment and shadow banking from savings accounts, pension funds and low-risk loans. This was actually how banks were operating up to mid-90s. Now shadow banking and high-risk funds shouldn't be insured by states or even allowed to loan states. Now this is simply impossible, not only for Cyprus, but for Germany and the UK, the later in particular is trying to do it for a couple of years now with very little success. In Cyprus they tried to do this overnight, destroying completely the whole country... which makes me extremely suspicious about the ultimate goals in their case.

Sorry, I misread you there :p

Education, trans-national mobility, peace, support programs, social inclusion programs, and a lot more are benefits from the union... agricultural policy was a great idea, but ended up as an expensive and unpopular flop.

The monetary union had the potential for rich countries to benefit form an undervalued currency boost their exports, while poor countries gained access to cheap funds in order to expand their real economy, instead of finance institutions, public sector, land bubble, etc.

The priority of any government concerning financial policy should be to prevent a bank run.

I don't care how in debt you are and how much bail out money you need. I don't even care if you are in danger of a default; NOTHING is worse than a bank run that leads to every Tom Dick and Harry withdrawing all their savings at the same time.

Fractional Reserve Banking requires that no bank runs take place. Bank run = System collapses.

To directly erase money from savings accounts is a direct and unmistakable signal to begin a Bank-run intentionally. Which means it might as well be a suicidal move.

If there are no savings in banks, then there are no fractional reserves period.

Even though they backed off for now, the damage is done. The EU has shot themselves in the head.

They didn't back out, Germany and the IMF insist on seizing about 6 billion euros from all the banks (though it is unclear if that would be only from large deposits), since Cyprus hasn't come up with any alternative that they consider worthy to discuss... in between Denmark has also seized a fraction from bank deposits of two banks back in 2011.

But yes, I generally agree, like most plans that IMF and Germany came up with ended up destroying the countries they claimed to be helping.

I disagree in principle that any state should nationalize private sector flops, like Greece did and destroyed what little was at least working there, and generally since states decided to base their wealth in private sector lending, now they can not just let banks fall... what they decided to do in Cyprus puts the whole banking system into even greater risk, then Lehman Brothers did.

As it stands, Cyprus has kept their banks closed for a week.

If this drags out to a month, we can be sure the Cyprus banks are finished. Everyone now know a bank run is guaranteed, and the only question is how long they are going to delay it.

I just never expected Cyprus to be the match that lights the powder-keg. All because someone was stupid enough to undermine the very concept of banking. In the end it wasn't chronic mismanagement but a critical error that blew it all.

People need to believe their savings are protected. That Trust is the essence of all financial transactions. The trust doesn't have to be based on reality, but it had to be believed. If you rip that illusion away, banks cease to BE.

Russia rebuffs Cyprus, EU awaits bailout "Plan B"
http://www.reuters.com/article/2013/...92G03I20130322

EU either bail them out with a trivial sum or risk catastrophic bank runs that may spread.

They can risk it by letting Cyprus fail assuming it is too small to matter, but that's a gamble I think the EU is not willing to attempt.

Oh, and it is interesting that the original plan to take money from all the savings accounts has been unanimously rejected, even by the people who created the plan. So Cyprus politicians essentially realised they messed up and is back-peddling as fast as they can.

But the damage is done. There will be a bank run, the week long banking holiday and counting, makes sure of that.

The idea of putting a bank levy on savings accounts to fund a bailout is tantamount to theft. What is more this policy goes against the basic promises made in the aftermass of the 2007-2008 financial crisis when various banking reforms were put in place to insure that any accounts upto €100,000 would be insured. This proposal breaches this agreement and thus breaks the trust between banks and depositors that their funds will not be raided in the next bailout. How anyone can justify this course of actions is beyond me. The depositors of these banks have no influence in the lending practices of the bank so I fail to see how they can be held responsible nevermind punished for extravagant spending of other parties (be it the banks or other customers). The banks have a lot of tools and resources to measure and assess risk so the argument of ignorance are not really valid. Sure we can also blame irresponsible lenders but since the banks have more sophisticated tools to identify risk the main blame should lie with them. Yet as we have it, it is the debtors and not the creditors (banks and bondholders) who are getting the shaft here.

As to the issue and morals of repaying debt while I can understand it is important to pay ones dues there is a important caveat that is often not said in this debate. When paying someone back the moral obligation to pay them back is only really applicable if the lender actually owns the asset or cash in question. Due to the way commercial banks lend money out of thin air through the fractional reserve system most of the money lent was not owned by them to begin with. It was created into existence. If the banks lend money that is not theirs then it raises the issue of whether it is morally right they should demand payment with interest. If I borrowed my mates car but lent out to you with a charge would that be morally right? In any case though it is somewhat academic because a lot of the debt we see today will never be repaid. Politicians and banks have to acknowledge this fact and find a more equitable way of distributing the loses. Problem is no one wants to hold the empty bag when the music stops so they will try and shift the losses to the weakest parties who are less able to defend their own interests.

^ You do understand that as a depositor, beyond your deposit insurance, you're basically a junior unsecured claim against the bank right? Cyprus got bullied a bit by the EU, pushed back and they will eventually negotiate something slightly more palatable.

The big mistake hurt was an attempt by the EU to get the government of Cyprus to void its own deposit insurance limits.

Well beyond a certain point it becomes a unsecured claim but this bank levy - at least in its initial iteration - seemed to be imposed on everyone. And while you could say this whole saga is just another case of the EU pushing its weight the thing that does make this particular story notable is the fact this is the first time they have come up with the idea of a bank levy. Before all the EU demanded was various fiscal and employment or pension reforms.

That is an understatement. :p

The mistake or should I say blunder is so big it makes me pause for a moment and consider whether such clever people and technocrats could really think that such a bone headed idea was the best possible move. I think and this is where we could move into the realms of conspiracy that perhaps Cyprus was used as a testing bed to try out new ideas and see what the public reaction is. Cyprus is a small economy - one of the smallest in Europe - so the risks can be contained if things do go belly up. Well it is only an idea and a far-fetched one at that. However it does pay to consider other possible alternative reasons why this decision came to pass. In any case we will see how this pans out in due course.

I fail to see how could any EUcrats not realize screwing with a country's deposit Insurance tend to cause panic and bank runs...

Their initial excuse was that "the deposit insurance is designed for when a bank went under. Since this is about keeping a bank afloat, the deposit insurance doesn't apply".

No one believed it for a second. This is bad policy and who ever advised the politicians to do this should be named and shamed.

Wolfgang Schäuble, Michael Sarris and the rest of the eurozone finance ministers who unanimously agreed on the plan last Friday.

I could have never imagined a worse outcome for Cyprus (and by extent all Europe) a couple of weeks ago...

Let me recap what events were confirmed by all sides:

1) In the eurogroup (meeting of the eurozone finance ministers), Germany proposes a 15% one-time tax on all bank deposits above 100 thousand euros to complement the austerity policies in return for the 10 billion euro loan and more loans to its banks from European Central Bank.

2) Cyprus argues that this will trigger a bank-run, and says that it would be better to tax all deposits... and unanimously the eurogroup agrees that this is a better idea.

3) After pressure from the people the plan is rejected by the Cypriot parliament and the bank holidays are extended so that the government could negotiate another plan with Germany and Russia.

4) Germany threatens to stop supporting the Cypriot banks, i.e. burden Cyprus state with their debt (in between Cyprus debt as a percentage of its GDP is still lower then Germany's).

5) Cyprus completely cuts down all communication with Germany, unearths the previous' communist government plans to seize citizens' assets (pension funds, bonds, etc.) in order to cover the money needed to save its banks (before the eurogroup's meeting). In the meantime, only then starts negotiating with Russia some for of help and that was the first time someone from the eurozone discussed the details with them.

6) Russia flatly rejects all propositions that Cyprus made... the reasons for this are complicated, and I read multiple versions which are mutually exclusive.

7) Cyprus leaks its "plan B" instead of presenting it to the new eurogroup, which enrages even more Germany.

8) Yesterday, Cypriot bankers and government started discussing the size of the tax necessary and if they will have in addition to the austerity measures, split all its banks into small deposit and investment entities, taxing the first and letting the later go bankrupt. All this now that Germany is unwilling to let ECB support them, and loan the original 10 billion euros.

[rant]IMHO, all the sides here must get a Darwin awarded for capitalism, not only they annihilated a country (without sovereign debt for 0.02% of EU's current GDP*), but along with it destroyed the little trust markets had left in euro, in addition to degrading even more european foreign relation to post-WWII levels. These guys (mainly Cypriot and German conservatives who played the key roles in this weeks fiasco) care more about getting re-elected without having any plan about what to do when manage it.

Should I put it in a very oversimplified way, assuming the eurozone was an economical and not just a monetary union, it would only take an increase of 1% to taxes across all countries and their sectors, when the crisis started with Ireland back in 2009 to balance all PIGSS+France/Cyprus sovereign debt and give them the time to clean up their banking systems... but now the sovereign debt has exploded to disproportional figures, all banks require ECB's liquidity (taxpayers' money), taxes have increased more indirectly more then 1% in Germany and have tripled in the weaker countries, and most eurozone countries are 2-3 years in recession, with official unemployment (<1 year after getting fired) over 10%, Spain and Greece close 30%

In Cyprus case, unless they follow Iceland's example in addition to exiting at least the monetary union, there are a lot worse coming, with the IMF. They managed to rebuild their country without anyone's help, after the English occupation, the Greek coup, and Turkish invasion. But since I am not one of them, I guess it isn't my place to offer advise on the matter.[/rant]

Had the 19th century European policy makers seen this coming, I wonder how they would've reconsidered their Hellenophilia and the eastern question thing :p

The what?! Helping a country go from 90% to 140% sovereign debt, while buying out cheaply all its industries, and forcing it export to them all its highly educated workforce, is not particularly friendly. Still the rhetoric is necessary since all European states in lesser or greater extent have moral systems based on Greco-Roman culture, a little corrupted by middle eastern religions. And since you are probably referring to the expulsion of the Ottoman Empire from the Balkans, keep in mind that this was a general strategy in all countries not just Greece, and that most muslim fought alongside christian nationalists (not only Greek, since Albanian, Serbian, and Romanian fought alongside in 1821/1912 and earlier unsupported revolts) against an empire that was very corrupt and oppressive to them, in the end the Turkish nationalist destroyed that empire with a popular revolt... just saying ;)

EDIT: As with Cyprus, I don't won't to exclude Greek's (or other PIGSS) own faults for the current mess, Greece in particular still defends an ottoman public sector, created by the fascist military junta and the conservatives in the 70s, exalted by social-democrats in the 80s, and sustained by all parties to this day.

That seems quite a universal approach in politics.
Direct income transfers are sensitive topic for politicians. The sovereign debt crisis was more of a symptom than a cause. The high interest rates on sovereign debt were in large part driven by a fear of the high systemic risk in the European banking sector, not so much by the unsustainability of public finances in the PIIGS. Had the interbankmarket remained functional and the ECB quicker on the provision of liquidity, things might have turned out different.

I warned that would be overgeneralizing :heh:

Anyway, you are describing the vicious circle that the current policies for euro has created, states need finances and being unable to print money they lend from banks, reducing their credibility, and being unable to pay their sovereign debt, forcing the banks into insolvency, only to burrow even more to rescue them, putting both sides in an even worse situation... details of course are different from country to country, but all them were forced into this endless spiral because of the rules that ECB has for the banking system within the eurozone, dictated by IMF, German bankers and their main clients, who coincidentally are the legal financial supporters of the conservatives in the coming elections. Dunno, the way I see this situation, whether euro is left with Germany, or a true financial union is created, now the damaged has been done, and there is absolutely no desirable alternative left to avoid years of recession, social and political instability. I just hope it won't lead up to a war like it did in the 30s.

I'm not sure if it's a vicious cycle. Most EU governments have a fairly decent grip on their budget deficits and interest payments on debt are far from overwhelming annual budgets. Monetary expansion without structural reforms only brings relief in the short term. Unfortunately the spending cuts in combination with a recession are very painful, and people are getting hurt on the individual level.

That was the case with Ireland, Portugal, Greece, and Cyprus before the accepted more debt from IMF and ECB.

But I agree in general principle, since they decided to deal with their problems in this way (accumulating more debt, and being bound by euros current macro-economic targets) at the worst possible time (global recession), it is bound to be destructive for the people.

^ This all touches on a very simple subject that no one has seemed to jump on yet -- the above discussion basically described countries as people with no self-control. When presented with an option to borrow against its future to consume now .. it went ahead and did so. So is the problem a fundamental one of human nature? Can we (people or countries) not be trusted with a fractional reserve banking system or fiat currencies?

I don't know if it's intentional, but I see the temptation for blame to be laid on the greater financial system and the "leader" EU countries for willing to be lenders. Are we saying global financial markets were too lax on Ireland, Portugal, Greece and Cyprus? It's their fault cause they enabled recklessness? :heh:

Personally, should we play the blaming game, I think that people are responsible from being so easily swayed by what a small minority offers. All of these "accusations" I made most of the time mention the ideological background of the masses they represent... nonetheless, it was, is and will always be the responsibility of capable leadership to guide the majority through hard choices, and this is the problem main problem of Europe today (as it was in the 30s), there are only clowns and crooks left, thankfully no psychopaths yet, though Sarris and Schäuble could potentially qualify, one being a pedo and the other manic-depressive (according to sigma (cypriot) and SDZ (german), respectively... neither though particularly reliable).

I'm not going to defend the morality (though it's different over the necessity) of the Hamidiyan despotism, but I take any tone taken straight from Lord Kinross or any ex-Ottoman national historiographies (including Turkish ones) with a grain of salt. And Albanian one was more motivated by fear over being genocided by neighboring christians rather then "centuries of oppression under Turkish yoke"(tm).

I can't exactly say for the Slavic Balkans since their communist experience kinda severed their pre-Cold War ties to the west*, but Greece and Cyprus certainly had received a lot of free passes due to christianity and idealized fantasy of ancient greek civilization with which modern greek cultures have little in common, including entrance into EU which has caused all this. Indeed, this experience should've shown everyone that distant Hellenic heritage and christianity doesn't automatically make a country western europe and suitable with western european system. On the other hand, they are indeed victims of as much their own fault as they are of half-attentive western meddling, which has more often then not, ended up terribly for the economy of the subjected countries.

*)though again, there's also Romania and Bulgaria which have had worse track records in human rights then Turkey but had their entrance forms got stamped almost immediately after submission.

It's perfectly acceptable for people and countries to borrow against the future for immediate needs or investments. However debt needs to be managed, and this is where self-control comes in. Some countries people lost the faith of their creditors that they would able to service their debts. This lack of faith does not necessarily have to be rational and can be become a self-fulfilling prophesy.

Most of the time creditworthiness is a very useful mechanism to control spendthrift. However when lax creditors meet proliferate spenders, that is a recipe for disaster.

I guess there is some innate need to blame an 'evil' faction when in reality limited rationality and conflicts of interest lead to suboptimal outcomes.

Financial markets did not have enough information to make a proper assessment of the creditworthiness of these countries. When current events triggered a reassessment, the high reaction speed was more of an issue than the underlying problem.

We should also not forget the crisis brought some serious design flaws (contagion risks) of the ECB/European banking system to the light.

Good lord.

Your "confirmed recap" has so many factual errors that I wonder where the heck you got that from. Sources would be nice.

Let's start with what you omitted:

0) Cypriotic banks are de-facto bankrupt and unable to meet their obligations (which would trigger insolvency) due to massive reckless betting on Greek obligations and various other hi-risk business transactions gone bad. The amount they need to avoid default is around 16 billion Euro (for reference: the entire Cypriotic GDP is a bit above 20 billion Euro - so you can see how deep they slammed the cart into the ditch). Since by EU law, the state guarantees the first 100.000€ of deposits in the banks for each debitor, such a bank insolvency would trigger a national insolvency of Cyprus, as well.

Therefore, Cyprus requests loans from the Troika. The EU makes clear that they will not go beyond ~10 billion Euro, so 5.8 billion Euro have to be provided by Cyprus. HOW they manage to do that is up to them.

As far as I know, that's not what happened. Amusingly, the first suggestion of a one-time tax was made by Cyprus politicians.

The EU group didn't care how Cyprus did their part. Then, Cyprus president Anastasiadis presents the deposit levy plan as his best choice:

http://www.thejournal.ie/cyprus-bank...35916-Mar2013/

No. Not Germany, Germany has no special stake in this. What happened instead was that Anastasiadis turned populistic, started to denounce his own suggestion as some kind of Nazi capitulation demand, declared that he "expected the tax to fail in parliament" (effectively killing it), and a wave of anti-EU and particularly anti-Germany riots broke out. He cut the communication line to the Eurogroup and started to babble about creating other solutions.

No again. After hearing nothing from the Cyprus side, the ECB (not Germany) set an ultimatum, saying that if there was no solution how Cyprus would manage their share, the credit lifeline would be cut next monday.

Again, Germany isn't involved, you're confusing them with the Eurogroup and Troika. Also, explain to me why the Eurogroup would have to discuss Cypriotic sovereign inner matters with Russia?

Then please let me explain: The suggestions were all ridiculous and financially unfeasible. Cyprus was suggesting that in exchange for some exploitation rights for gas fields found close to Cyprus, Russia was to help them out financially. The main reasons were that

1) The same gas fields would have led to conflicts with the Turks on who was authorized to exploit them

2) Loans wouldn't have helped anyway, since the EU 10-billion limit was based on the upper limit of sustainable national debt by Cyprus. You can't fix that by simply securing one loan to pay off another. It would have had to be in the form of "direct payment", and that was obviously impossible.

And so, after all the Chest-beating, the Cyprus side realized that it was actually in trouble and needed the help of the hand it has bitten in and insulted so heartily.

Germany still didn't care HOW the Cyprus part was financed. That's the hilarious part: For the first time in ages, Berlin did NOT lead the negotiations and left them to the EU group (its leader Dijsselbloem, a honorable Dutch, took responsibility and apologized).

What enraged Berlin was the fact that Cyprus didn't contact the Eurogroup at all _for several days_. Imagine that. Cyprus is close to state bankruptcy, and simply didn't talk. This kind of ridiculous and irresponsible behaviour ticked Merkel off.

Total BS again. If Cyprus can field their part, Germany will naturally support the plan. And - oh wonder - all of a sudden, the deposit levy is back in the talks again. However, due to the trustworthiness of Cyprus politicians, it remains to be seen whether or not they can pull it off. At least they are negotiating again, and they will muddle through somehow.

It's the opposite. To maintain trust in the Euro, they have no other choice than to enforce stability mechanisms. What Cyprus demanded was effectively "Hey, we gambled away 80% of our yearly GDP and are broke. Give us the money, 17 billions. Now.", and the EU said "Oh no you don't. We'll lend you enough money so that you BARELY squeeze through with a maintainable national debt. The rest needs to be done via cuts."

Realistically, if the EU would just refuse to toss good money after their bad one, then the deposits would lose ~60% of value in a bankruptcy. Compared to that, ~10-15% where it's going to end up for accounts bigger than 100.000 € is a MUCH better deal. Small creditors will be left alone, I guess.

That's the risk you take if you go for offshore banks for money laundering. If everything runs fine, you reap big rewards. Now they lost. That's free market, too - it must go both directions.

Hilarious. If they default, then they're completely (censored). Except for their banking sector, they have nearly nothing left, and nobody would place their money there for half a century. But the collapse was triggered by their own greed and reckless risk-taking, nothing else. This "it's someone else's fault - particularly Germany's" screed is seriously getting on my nerves.

This.

Also, stop saying the ECB is controlled by Germany. There is a reason why one of the PIIGS is their president - Germany has barely any control at all, that's one of the main reasons the ECB has been willing to ignore all predefined rules, because Germany cannot stop that. Germany has two members in the ECB council, exactly as much as Luxembourg and Cyprus.
It's sad that some people feel entitled to German money/guarantees and any kind of demand suddenly constitutes a new Nazi oppression. You are forgetting what you are demanding: that other EU member's taxpayers should pay for you after your low-tax and high-interest economies failed. PIIGS' politicians act like without austerity everything would be fine but they forget that without intervention from the richer(*) states they would be totally bankrupt. Or maybe "forget" is not the correct word. They know that - they just put the blame on foreign powers to get re-elected.

(*) Germany isn't actually all that rich. IIRC German wages were the only ones within the EU to actually go down after the Euro implementation while Greece was at the top with some 40%. A recent study says German households are actually much much (factor 2 - 4) poorer than the average Italian, Spanish or French household. Germany was considered the "ill man" of Europe for a long time, while still being its biggest contributor, even during the time of the re-unification. Another recent study estimates some 45% percent of the all time net payings within the EU have been lifted by Germany alone. It does not matter whether you worked hard or whether your economy will go down the drain - that's mainly your own responsibility and just because you are an EU member it does not entitle you to anyone else's money.

There's also a nice quote by Dhomochevsky from the news thread to put things into perspective:

No matter what one might feel about Cyprus being a tax haven, that doesn't change the fact that the attempt to take money from ordinary savings account is stupid.

Cyprus bank run is guaranteed. And EU better hope the panic stays within Cyprus.

Whether all that was clever or not... well, that's a different story.

But even if it was stupid, it is still in the right of the contributing countries behind the Troika to act stupid - it does not constitute any form of entitlement. Just like Cyprus all the countries behind the Troika are sovereign themselves. It is no country's right to demand anything from the other countries, however great their misery may be.

Nations are free to set terms when they loan money to one another. That's how it is always done. But fractional reserve is the literal cornerstone of modern banking, and threatening savings accounts means threatening the very core of the financial system.

I don't have any issues with nations negotiating with one another. My comments concern the suicidal act of triggering a bank run.

Now, technically a bankrun has already started. There is a reason why capital control is on in Cyprus and all the banks are still closed. So the problem is no longer "how to prevent a disaster" and more "how to minimise the fallout".

People of Cyprus are going to empty their savings ASAP, this is now the reality. The question is what is happening after that.

That's funny :) ... why didn't the Cypriotic banks think about that earlier? Ask yourself: How do you reconcile responsible banking with "oops, lookie there, we have losses in the range of 80% our GDP"?

And this is what is raising my hairs in wild anger. In case you haven't noticed, the disaster has already happened. The banks are BANKRUPT. The depositors already HAVE lost 60% of their money, and the EU plan allows them to limit these losses to 10-15% instead. But rather than thanking the EU to save them 40-50% of their deposits, they scream bloody murder. Or, to be more correctly, it's mostly the uninformed nationalistic mob who does.

It was never an EU demand to involve the "small people". Small people don't have saving accounts of 100k+ Euro. This was the brilliant idea of the Cypriotic politicians before they turned a full flip-flop and the media started the riots.

So, the "Bank Run" was bound to happen under all circumstances anyway, unless the EU ponies up the full amount just for the sake of keeping it all under wraps. And that - I'm sorry - would not only be wrong, it would also be unsustainable. Sure, we could do it the US way and just print 80 billion Euro each month to distribute them wherever, but that would be irresponsible.

The Cyprus banking sector has to go McSplat and start anew, this time without the bloated offshore banking racket. One more tax haven less. Expensive hit with a 10 billion Euro bill, but at least this money isn't completely wasted.

People of Cyprus won't be touched much anyway, how many people do you expect to have 100k+ Euro deposits in their bank accounts? It will go just like Greece... after half a year, much of the money will come back. And in the meantime, some Russian oligarchs took a bit of a hit. My heart isn't bleeding much.