Quote:
Originally Posted by Vallen Chaos Valiant
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.
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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.
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