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Old 2013-03-23, 12:27   Link #41
Vallen Chaos Valiant
Logician and Romantic
 
 
Join Date: Nov 2004
Location: Within my mind
Age: 33
Quote:
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.
The bank losing 60% of the money wouldn't in itself cause a bank run actually. After all, the whole point of fractional reserve system is that the bank doesn't have most of the money it is suppose to have.

If people's savings are not threatened overtly, people would keep their money in the bank even if in theory most of it no longer exists. That's the power of trust, and why deposit guarantees are there. The point isn't to make sure savings can be recovered, but that it prevents bank runs.

It doesn't matter if it is a Cyprus bank, American bank, or a Chinese bank. If you suddenly tell people you are taking 6.9% of their savings, people will clear out their accounts.

Was Cyprus irresponsible with the financial system? Yes. But that actually has very little to do with the reason the bankrun has started. The cause of the disaster is that they threatened what is suppose to be untouchable.

Quote:
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.
It doesn't matter that the 6.9% deduction is cancelled for people earning less than 100,000. Trust is broken.
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Old 2013-03-23, 14:23   Link #42
Mentar
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Join Date: Nov 2003
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Quote:
Originally Posted by Vallen Chaos Valiant View Post
The bank losing 60% of the money wouldn't in itself cause a bank run actually. After all, the whole point of fractional reserve system is that the bank doesn't have most of the money it is suppose to have.
I'm pretty sure you're misunderstanding the situation. It's not that the banks have merely lost 60% of their capital. The banks are _bankrupt_. They are unable to meet their obligations to pay back their next loan installments, which would normally mean that they are liquidated. A table of creditors is being made, and then the remaining assets are sold off and used to satisfy _parts_ of the creditors' demands. And creditors will lose around 60% of their current deposits (that's the latest estimate which I've read, and which is in line with comparable recent cases like Venezuela).

The fractional reserve system does not protect against creditor loss due to bankruptcy. It is supposed to be a tool to help protect against spikes in customers withdrawing money (so-called "bank runs"). This is something entirely different.

Also, there is no "bank run" yet. There cannot be, because the banks have been closed since the crisis started. Will there be a "bank run" when they open up? Depending on the outcome of the negotiations, likely so. However, in this case, being offshore laundring machines helps. They will install regulations that money can't be simply transferred out of the country. The deposits of Cypriotic citizens are relatively small.

Quote:
If people's savings are not threatened overtly, people would keep their money in the bank even if in theory most of it no longer exists. That's the power of trust, and why deposit guarantees are there. The point isn't to make sure savings can be recovered, but that it prevents bank runs.
Yup, this confirms that you misunderstood things. It's not like the bank can continue to work even though 60% of the capital is gone - that's how they've been operating up to now. If the banks are being liquidated, the creditors will receive back around 40% of their deposits, and the rest is gone forever. There is no bank anymore which could pay them back the missing 60%. It will have ceased to exist. And under these circumstances, a loss of 10-15% is preferable to 60%.

Quote:
It doesn't matter if it is a Cyprus bank, American bank, or a Chinese bank. If you suddenly tell people you are taking 6.9% of their savings, people will clear out their accounts.
And by letting at least one of the three big Cyprus banks going bankrupt, causing a 60% loss for its creditors, is going to be better? You think if this happens, people are NOT going to clear out their accounts in the other banks? Is this seriously the argument you're trying to make?

Quote:
Was Cyprus irresponsible with the financial system? Yes. But that actually has very little to do with the reason the bankrun has started. The cause of the disaster is that they threatened what is suppose to be untouchable.

It doesn't matter that the 6.9% deduction is cancelled for people earning less than 100,000. Trust is broken.
One more time, the money is GONE either way. If you think that a bankruptcy (which would cause some dramatic extra fallout) would have been preferable to the deposit levy, be my guest. It's just like Merkel said: This business model for Cyprus is over either way. Time to look for a different one.

************************************************** ***

EDIT: Just from the news. This is what's obviously going to happen:

1) Creditors of the Bank of Cyprus exceeding 100k Euro deposit lose 20% of their deposits flat. Anyone surprised that this is the bank where most clients are foreigners (mostly Russian and British)?

2) Creditors of the Bank Laiki above 100k Euro are in danger, because this bank will be split up and partially liquidated (bankruptcy). Here we'll see what happens.

3) Creditors of the other Cypriotic banks above 100k Euro deposit lose 4% of their money flat

4) Creditors below 100k Euro deposit are safe. No losses, the state guarantees for them regardless of the bank (which is EU law anyway)

5) The EU will throw Cyprus a lifeline to make sure that the state doesn't go into default

All of this could have been reasonably worked out without the nationalistic riots before. Sheesh.

Last edited by Mentar; 2013-03-23 at 14:42. Reason: New informations just published
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Old 2013-03-23, 16:23   Link #43
AmeNoJaku
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For sources I often follow: BBC, Spiegel, Mond, and in this case Vima (center-right) plus some interviews from American economist from NY Times (I think). What you are writing is the story sold domestically in Germany by the conservatives, but started from the social-democrats. I see bits and pieces of it in Spiegel, but it is more critically presented then the rest of the media.

Also I don't support that Cyprus or any other country in financial trouble is not to blame for them, quite the opposite. But should I write my whole take in the matter will take forever, and I am more concerned with Europe and its people as a whole with how policies manifest in each crisis.

Quote:
Originally Posted by Mentar View Post
1) Creditors of the Bank of Cyprus exceeding 100k Euro deposit lose 20% of their deposits flat. Anyone surprised that this is the bank where most clients are foreigners (mostly Russian and British)?
That's half the truth, you are forgetting Greeks (who after Germany, their second most popular destination for their deposits was Cyprus) when their bonds were cut. And the majority of local medium to large size companies, like construction, communication, etc.

Quote:
Originally Posted by Mentar View Post
2) Creditors of the Bank Laiki above 100k Euro are in danger, because this bank will be split up and partially liquidated (bankruptcy). Here we'll see what happens.
That was what Cyprus proposed, but I read new rumors about the troika rejected both, and now asked for both banks to merge and split assets into "good" and "bad"

Quote:
Originally Posted by Mentar View Post
3) Creditors of the other Cypriotic banks above 100k Euro deposit lose 4% of their money flat
That wasn't enough, ECB calculated that if all bank accounts in all banks above 100k are levied for 15-16% the target 6 billion can be reached, which was the starting point of the negotiation last week, since Cyprus had no real proposition to counter Germany's 40% above 100k.

Quote:
Originally Posted by Mentar View Post
4) Creditors below 100k Euro deposit are safe. No losses, the state guarantees for them regardless of the bank (which is EU law anyway)
The state guarantee is a joke, remember that liquidity for the banks comes through ELA, therefore european taxpayers (40% workers in Germany, not only Germans... let's not forget that despite other criticism, that country is open to all taxpayers, not only their capitals). Also I haven't seen a version of the rescue plan yet without some kind of limit in daily or monthly transactions (about 10k the largest I can recall).

Quote:
Originally Posted by Mentar View Post
5) The EU will throw Cyprus a lifeline to make sure that the state doesn't go into default
That's not true, should they decided (against all reason, IMO) to remain in euro and defaulting, ECB made clear that will not help in any way.

Quote:
Originally Posted by Mentar View Post
All of this could have been reasonably worked out without the nationalistic riots before. Sheesh.
There have been no riots yet, only demonstration...

It would be better to understand the context here. Germany emerged from the destruction of WWII with reparation to everyone except the four occupying forfeited, occupation loans still serviced, supported both politically and financially to unify East Germany. On the other hand, Cyprus was occupied by England until '60, ruled by a theocrat until Greek fascist deposed, and invaded by Turkey... despite that managed to build up an economy following Luxembourg's model, attracting foreign capital through better then standard returns, this is also the case with other countries like Luxembourg, Malta (within the euro), Switzerland, Monaco, Lichtenstein, Latvia (in Europe), and cities with special laws (like London).

Voters in all countries have neither the benefit nor desire to discuss such matters even at a superficial depth we do here, let alone none of us has access to unbiased facts (judging how polarized leaks are, depending on sources). I would also be rather reluctant to call the communist party of Cyprus (main opposition to the rescue plan supporting, if not instigating the demonstration) nationalistic, being also the only party still cooperating with their turkish cypriots on the occupied zone. Finally, the main imagery used is similar to Greece, anti-fascist, since this is how they understand (with significant aid from media) German policy.

Anyway, look, I understand that each government wants to push a different story to the press, but it would be wise to filter out a little what is presented... in the case of Greece, German media changed black to white in less than a month last year. I do not support one side or the other, I am trying to make it pretty clear that both Cyprus and Germany have very short-sighted goals, and basically play poker with the lives of all europeans at stake.
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Old 2013-03-23, 17:52   Link #44
Mentar
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Join Date: Nov 2003
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*sigh*

Quote:
Originally Posted by AmeNoJaku View Post
For sources I often follow: BBC, Spiegel, Mond, and in this case Vima (center-right) plus some interviews from American economist from NY Times (I think). What you are writing is the story sold domestically in Germany by the conservatives, but started from the social-democrats. I see bits and pieces of it in Spiegel, but it is more critically presented then the rest of the media.
The points 1-5 listed were from Spiegel, and they are mirrored throughout various other news outlets. So, I consider them fairly credible, and in fact, the outcome is pretty much exactly how I predicted it earlier. So, while the details may still shift a bit (some percentage numbers), I'm sure that this is close to where we will end up.

Quote:
That was what Cyprus proposed, but I read new rumors about the troika rejected both, and now asked for both banks to merge and split assets into "good" and "bad"
You should question your sources then. Mine is:

http://www.spiegel.de/wirtschaft/soz...-a-890609.html

Quote:
That wasn't enough, ECB calculated that if all bank accounts in all banks above 100k are levied for 15-16% the target 6 billion can be reached, which was the starting point of the negotiation last week, since Cyprus had no real proposition to counter Germany's 40% above 100k.
Hello? You might want to reread point 1) where the Bank of Cyprus levied 20% on 100k+. This is where most of the big foreign deposits are. They are side-financing the reduction on the other institutes. And there never ever was a "Germany's 40% over 100k" to begin with, this is BS squared.

Quote:
The state guarantee is a joke, remember that liquidity for the banks comes through ELA, therefore european taxpayers (40% workers in Germany, not only Germans... let's not forget that despite other criticism, that country is open to all taxpayers, not only their capitals).
The state guarantee is no joke, but law. The ECB has made clear that the ELA will be revoked on Monday if no solution is found by then.

Quote:
Also I haven't seen a version of the rescue plan yet without some kind of limit in daily or monthly transactions (about 10k the largest I can recall).
I doubt that you've seen ANY version of the rescue plan, with all due respect. All we get are press summaries of negotiation positions.

Quote:
That's not true, should they decided (against all reason, IMO) to remain in euro and defaulting, ECB made clear that will not help in any way.
In case you still haven't noticed it, the plan pushed by the Cypriot delegation is NOT to default, so your point is moot. If they do choose default, it's logical that the ECB will wash their hands of it and let Cyprus take their plunge.

This whole farce is as exhausting as it is predictable. It's always been the same and WILL always be the same. I could have written down the arc right from the beginning. Greece, Ireland, Spain, Italy, Cyprus - ALWAYS the same bullshit. This is the recipe:

1) Money runs out and either the state or systemic banks are about to fail their payments. They call for help at the very very last moment.

2) The Troika comes over and has a look at the mess. They then develop a catalog of unpopular reforms in return for the required loans.

3) To deflect criticism for their local failings in their own responsibilities, local politicians beat the nationalist drums and blame the EU and especially Germany for the mess. The reform list gets slandered as an unacceptable imperialist overreach of Nazi puppets. Low-information masses are whipped into a frenzy, demonstrations and ballyhoo. Posturing without end, and it's always the others who are at fault. American and British economic geniuses who have predicted the collapse as the Euro each year for the last decade are listed as crown witnesses, but THIS time they are right for sure. Naturally - the same holds true for Germany to some degree: Here, nationalist rat catchers are hitting the same drum, picturing the PIIGS with a broad brush as lazy lying ungrateful worms unable to work, so Germany has to drop the Euro and return to the Deutschmark.

4) Closer to the deadlines, the same politicians who categorically rejected the reforms as a national insult suddenly become realistic, and a deal is made which is close to the initial Troika positions. [By the way: This is where we are right now in the Cyprus crisis] Why? Because they knew right from the start that in the end they NEEDED the help from the EU no matter what. But now, it's not their fault anymore.

5) The deal is made and the local citizens are now grumbling how "the EU dictated the mess in the name of the corporate overlords/German Nazis/unelected EUrocrats/whatnot".

It's an unpalatable, venomous stew which makes me want to puke every single time it is cooked, and it is ALWAYS the same. The media can't resist big sob stories about the hardships forced on people, but neglect to point out the real reasons behind them, and so become willing enablers of the nationalist rat catchers. On the lenders' sides, even the staunchest europhile supporters like me get sick in the stomach when they realize that even though they are financing the bailouts of other countries, they only receive scorn and insults for them. I don't require gratefulness of any kind, at the moment I'd already be more than content if those people I cross-finance would just take my money, STFU and concentrate on getting their mess cleaned up. And when I do just that, I realize that I've fallen into the same trap over here that others fell in on the other side. The European idea gets eroded by this bit by bit.

But I guess there's hope. Ireland managed to admirably pull themselves out of the mess after the bailout, and they're on a good path. One can only hope that the inertia of the political process will be enough to give the austerity the time to work. If so, things will start to get better in 2-3 years, just like they have in Germany (we had our austerity phase 7-8 years ago).
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Old 2013-03-23, 18:46   Link #45
ganbaru
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Join Date: Dec 2007
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Analysis: "Lex Cyprus" will set precedents for closer EU union
http://www.reuters.com/article/2013/...92M09N20130323
Quote:
(Reuters) - Lawyers have a saying that hard cases make bad law.

Whatever happens this weekend on a bailout for Cyprus will set precedents for the euro zone's future banking union, investor confidence in the single currency area and political relations among European states.
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Old 2013-03-23, 18:59   Link #46
AmeNoJaku
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Join Date: Apr 2012
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@Mentar: If you can read greek, I suggest the german-friendly vima and kathimerini, which have statements from EU officials, and german MPs on the matter, not appearing in Spiegel... some did in BBC live stream, but fewer in their website. The 40% appeared on CyBC last Friday, and again in Financial Times, and was never denied by the german ministry, unlike other claims made by cypriot politicians, like levying below 100k. Now don't get me wrong, you also addressed the problem that reports of events depend on allegiance, I seriously doubt a lot of "news" I hear from cypriot, greek and english sources, as much as those coming from german.

In any case, I don't disagree much with your conclusions in your last part of your post (except Ireland), but I want to refrain from having only one side presented. Also whatever the case, I still think that a centralized policy is safer for the people in the continent, rather then weak governments, even if at this point its policy is influenced strongly (since you dislike the term dictated) by one.
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Old 2013-03-23, 19:50   Link #47
Mentar
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Join Date: Nov 2003
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Quote:
Originally Posted by AmeNoJaku View Post
@Mentar: If you can read greek, I suggest the german-friendly vima and kathimerini, which have statements from EU officials, and german MPs on the matter, not appearing in Spiegel... some did in BBC live stream, but fewer in their website. The 40% appeared on CyBC last Friday, and again in Financial Times, and was never denied by the german ministry, unlike other claims made by cypriot politicians, like levying below 100k.
Link, please (English needed, I can't read Greek, sorry). Personally, I have strong doubts about this because the German position has always been "how Cyprus manages their own share is up to them, as long as it's not done with new loans or crazy stuff like monetizing their pension funds and the likes". Why would Germany have an interest in demanding such an extreme haircut? Nonsense like this would immediately be used by the social democrats as fodder in the German elections, and I've never heard of this. It makes no sense to me, so I smell a fabrication.

Quote:
In any case, I don't disagree much with your conclusions in your last part of your post (except Ireland), but I want to refrain from having only one side presented. Also whatever the case, I still think that a centralized policy is safer for the people in the continent, rather then weak governments, even if at this point its policy is influenced strongly (since you dislike the term dictated) by one.
This is pretty frustrating to me, and I believe that I can gauge the feelings of my fellow Germans (and many Dutch, Austrians and Scandinavians, too) pretty well: We don't mind making transfer payments to the less affluent parts of Europe - we also do the same between the German states which differ strongly in economic power. That's perfectly fine, we've been on the receiving end of such transfers in the past, too (think Marshall Plan).

BUT.

After the inflationary disaster of the Weimar republic, one simple truth has burned itself into the German mind: You must live within your means. You can't spend your way out of economic troubles or debts, and if that means that you need to cut back on entitlements and privileges, then SO THE F*CK BE IT. Do what's necessary, suck it up, and get back to work. We had our own painful austerity packages, so we know how it feels. Life got better several years later.

I don't have ANY interest in "dictating policy" to anyone else. I don't have ANY interest in "dominating the economy" or other revanchist stupidity. I appreciate the fact that the Euro allows me to pay in many countries without having to exchange currency, but it's not like I want to force him down the throat of other countries - in fact, the Euro was forced on Germany in exchange for the Unification, and those countries like Greece or Cyprus who now rant against the Euro were the ones who cheated (Greece) and blackmailed (Cyprus) themselves into it. So, it's come to the point that whenever I hear the PIIGS states assert sinister motives behind German positions, I feel like strangling a kitten.

Either you subscribe to the idea of balancing income and expenses, or return to your own national currency. I fully support Merkel in preventing any deal which turns the Euro into a money printing machine (like the US$). If you give wages big raises over longer periods of times, they need to be justified by production increases, and if you don't have those, you're living beyond your means. That's all Germany has been really "dictating" lately. And no, I don't consider this a bad thing. It's required.
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Old 2013-03-24, 05:22   Link #48
monsta666
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I don't really like the terms Greek, Spanish, Italian bailouts etc because it implies that somehow the citizens are being bailed out when in reality it is the banks in those respective countries getting bailed out. The citizens do not receive any of this bail out money (or the amounts are so low to make it insignificant) and all they get is austerity and a reduced standard of living. What's more none these austerity measures do not actually make them more competitive as suggested as they are all tied in to the same currency (the Euro) if they had their own currency and they could deflate their currency then they could make their exports more competitive.

So why are the banks getting bailed out? The obvious answer is because they took out too many loans are overextended and worse many of those loans made are now in risk of being defaulted upon. But here is the rub, much of those loans made were done by German banks and the German banks have been overextended by handing out too many loans to Southern countries. Germany is a big creditor to these nations and those southern countries are the debtors to German banks. Now we can say it is the fault of souther European states that they were too reckless with spending but why did the German banks give out so many loans and worse than that why did they offer low interest loans if such countries are such a high credit risk? Don't tell me there was no way for them to know because I can open a book and see clearly that these respective nations have defaulted in numerous occasions. For example Greece has defaulted 5 times in the last two hundred years and spent over half that 200 year period in some state of default. As recently as the 1970s there was a civil war in Greece yet despite all these events they were receiving loans of around 2-3% as late as 2009 from Germany. A massive miscalculation of risk.

The German banks made a big mistake and now that these loans are going south are at risk of going bankrupt. Instead of facing the consequences of their mistake (as normal capitalism would dictate) they want a bailout so all these countries (who are their clients) get bailed out so they do not lose money from their bad deals. The ECB like all central banks in recent is the big bad bank were all commercial banks sell their loser loans as no one else in the market is willing to buy those loans at prices that would keep them solvent. To me this strikes as more of a German or northern bank bailout (you could include France and other banks from the Northern countries) but to sell this bailout it comes under the guise of a Spanish, Italian bailout etc. The German taxpayer is footing the bill not to bail out other citizens but to bail out other banks. The big test will come when those southern states default. I have a hard time seeing how the German banks remain solvent. It is these type of reasons why the Germans lost their AAA credit rating in the first place.

This problem will only get worse if the Germans advocate such unpopular measures as bank levies on a regular basis. If these banks do not receive further funds and the depositors are faced with the haircuts (and not the creditors) then even depositors from safe countries who are unlikely to default will take their money and invest it either in their mattress or abroad and that will create its own blowback.

If things get really bad I say the consequences could go far beyond the issue of economics and it is likely we get a mad racist fascist dictator under this environment. Let us not forget that it was Germany who voted in Hitler when the country went bankrupt through paying massive war reparations to Britain and France. I am afraid this situation could offer similar conditions if we are not careful and show little regard for the suffering of the people in those states. Sure they were irresponsible but they do not deserve this kind of suffering and lost hope. People need to show empathy and not get carried away with inflicting punishment. The whole financial system is a giant ponzi scheme anyway and it will collapse sooner or later so all this blaming becomes somewhat academic anyway.
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Old 2013-03-24, 06:14   Link #49
AmeNoJaku
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Join Date: Apr 2012
Location: Work in Europe... imminent :(
@Mentar: I agree even more with the way you make your point now, save for the Weimar Republic analogy... my understanding is that it was crushed by WWI reperations, and thank gods the same mistake was not repeated after WWII. Also I don't disagree that Greece cheated to enter euro, but in way so did Germany, when they adjusted the targets for them (BBC should be OK).

Anyway, your arguments, I have heard countless times from my brother who was working several years in Germany and got screwed twice with the Greek bailout, because he had to pay for it as a German employee and again as a Greek citizen owning property, add to that that many times he didn't get the best reactions because of all the rhetoric there... in the end despite being very critical of his own country's screw ups, he moved to another country. Look as monsta666 wrote, it is unfair to attach political decision to the population, many of us know that not every German agrees with Bild/Focus and Merkel, but also not every Greek is a lazy crook, or Cypriot the whore of a Russian mobster.

Despite justification all solutions Germany and IMF enforced in troubled countries have made the problems far worse then before their intervention... just think how would you feel Germany had close to 30% official unemployment or if you went to your bank and saw that 10, 20, or even 40% of your company's capital disappeared... and all these not because you individually did something wrong, but because politicians of your own and allied countries were lying to you for a decade. I am just saying before blaming the demonstrators as stupid, try to understand the shock they have to overcome in order to react rationally, both Cypriot and German.

As for the solution and disaster you mentioned, these are to extremes, we blindly follow one in the justified fear of the other... I think that there can be a middle way, particularly if politics in every country begin to consider the well-being of all their citizens and not numbers that their "legal sponsors" only care about.

PS: I found a mention for the 40% from a German source, citing CyBC here.
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Old 2013-03-24, 10:08   Link #50
Mentar
Sore wa himitsu desu!
 
 
Join Date: Nov 2003
Location: Hamburg
Age: 44
Oh lord...

Quote:
Originally Posted by monsta666 View Post
I don't really like the terms Greek, Spanish, Italian bailouts etc because it implies that somehow the citizens are being bailed out when in reality it is the banks in those respective countries getting bailed out. The citizens do not receive any of this bail out money (or the amounts are so low to make it insignificant) and all they get is austerity and a reduced standard of living.
The citizens already have received money upfront, when their state was showering them with entitlements which they didn't earn enough money for. And no, it's not like only banks are bailed out - for example during the Greek crisis, they received a national debt haircut, which is effectively the same as being gifted money. Did you see the bloated state official apparatus there, where tens of thousands of officials received lavish pensions while doing nothing productive? Ever heard of the tens of thousands of pensions paid to people who had been dead for many years? This is where the national debt came from.

Quote:
What's more none these austerity measures do not actually make them more competitive as suggested as they are all tied in to the same currency (the Euro) if they had their own currency and they could deflate their currency then they could make their exports more competitive.
monsta, when all you earn is 2000 Euro, then you CAN'T afford a lifestyle as if you earned 4000. And when you're forced to rein in your spending, of course that hurts. But who is supposed to pay for your excesses? The rich uncle (the EU)? For all eternity?

This "if they had their own currency, things would be better" nonsense is extremely short-sighted. Because then, due to their own currency becoming more and more worthless, the Greek couldn't afford many things anymore which they can purchase now since the Euro is relatively strong. Ever thought of that?

No, sorry man. The PIIGS nations need to actually learn to pay taxes and scale back their expenses until they match their real productivity. There is no other way around it.

Quote:
[Lots of stuff about German banks deleted]
There was no special exposure of German banks in Greece. Particularly Cyprus went overboard here (which is one of the reasons why they're in trouble now, after the Greek debt haircut). France was in a ticklish spot before the ECB (coincidentally under French leadership by then) happened to massively buy these toxic papers all over the board as an emergency measure.

Quote:
The German banks made a big mistake and now that these loans are going south are at risk of going bankrupt. Instead of facing the consequences of their mistake (as normal capitalism would dictate) they want a bailout so all these countries (who are their clients) get bailed out so they do not lose money from their bad deals.
Again, this is nothing special about German banks, but by banks all over the financial spectrum. The main reason why there is a European consensus to nationalize the debt of the local banks is to keep the problem manageable and avoid Lehman scenarios as much as possible. Cyprus is a special case, because relative to the size of the deposits, Cyprus as a state is a flea. They can't shoulder the debt, because they are too small.

Quote:
The ECB like all central banks in recent is the big bad bank were all commercial banks sell their loser loans as no one else in the market is willing to buy those loans at prices that would keep them solvent. To me this strikes as more of a German or northern bank bailout (you could include France and other banks from the Northern countries) but to sell this bailout it comes under the guise of a Spanish, Italian bailout etc. The German taxpayer is footing the bill not to bail out other citizens but to bail out other banks. The big test will come when those southern states default. I have a hard time seeing how the German banks remain solvent.
As long as the southern countries stay on board and don't elect obstructionist clowns (see Italy), this won't happen. You can be sure that the ECB will always provide as much liquidity as required, but not more than necessary.

Quote:
It is these type of reasons why the Germans lost their AAA credit rating in the first place.
You're misinformed. Germany didn't lose their AAA rating, they still have it.


Quote:
Originally Posted by AmeNoJaku View Post
@Mentar: I agree even more with the way you make your point now, save for the Weimar Republic analogy... my understanding is that it was crushed by WWI reperations, and thank gods the same mistake was not repeated after WWII. Also I don't disagree that Greece cheated to enter euro, but in way so did Germany, when they adjusted the targets for them (BBC should be OK).
That Greece massively cooked the books to pretend to meet the Euro convergence criteria is a proven, documented fact, so "cheated" is a simple factual description. You could make a point that the rest of Europe was purposely looking the other way and not trying to really investigate the wondrous numbers, but it doesn't change what happened.

Quote:
Look as monsta666 wrote, it is unfair to attach political decision to the population, many of us know that not every German agrees with Bild/Focus and Merkel, but also not every Greek is a lazy crook, or Cypriot the whore of a Russian mobster.
You actually think that Merkel ever said that every Greek is a crook or Russians mobsters? Whatever you may think of her, she's way too much of a professional with amazing self-control to be caught dead saying that.

Look: When I say that Greeks need to start learning to pay taxes, I'm not implying that none of them don't, or even that the majority don't - but there are so many who don't that it's a big, big problem. But I do understand the underlying point you're trying to make, and I generally agree. These huge generalizations are not helpful.

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Despite justification all solutions Germany and IMF enforced in troubled countries have made the problems far worse then before their intervention... just think how would you feel Germany had close to 30% official unemployment or if you went to your bank and saw that 10, 20, or even 40% of your company's capital disappeared... and all these not because you individually did something wrong, but because politicians of your own and allied countries were lying to you for a decade.
Real honest? I'd be angry, yes. But I honestly think that I wouldn't drop so low as to bite the hand who is putting food on my table, or go so far as to blame and insult it.

You think I haven't lost my job too due to company bankruptcy? Yes, I have also been forced to make adjustments in response, had to look around and take up a lower-paid job. So what? I wouldn't have been seen in strikes screwing over the rest of the country. And I find little respect in my heart for those who do.

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I am just saying before blaming the demonstrators as stupid, try to understand the shock they have to overcome in order to react rationally, both Cypriot and German.
Yes. But I expect from a grown-up to be able to take bad news and adapt. This easy cop-out of finding someone to blame for your misfortune and using this as a shield against change is a sign of immaturity for me.

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As for the solution and disaster you mentioned, these are to extremes, we blindly follow one in the justified fear of the other... I think that there can be a middle way, particularly if politics in every country begin to consider the well-being of all their citizens and not numbers that their "legal sponsors" only care about.
Agreed. I am generally receptive to EU-initiatives combating the worst results of the high unemployment, especially youth unemployment. I'm also open for opening the ECB coffers for them, as long as it's clear that they are time-limited and only for the transitional phases. That's a relaxation in austerity which I can live with. Still, this must NOT result in perpetual budget deficits.

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PS: I found a mention for the 40% from a German source, citing CyBC here.
Okay, so the only source is the CyBC, so please excuse my scepticism. I doubt that Schäuble (who is another experienced professional) would seriously push such an extreme suggestion, since it would immediately be attacked by the SPD in the German elections.
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Old 2013-03-24, 11:50   Link #51
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There was no special exposure of German banks in Greece. Particularly Cyprus went overboard here (which is one of the reasons why they're in trouble now, after the Greek debt haircut). France was in a ticklish spot before the ECB (coincidentally under French leadership by then) happened to massively buy these toxic papers all over the board as an emergency measure.
In total numbers France was #1 investor in Greece, Germany #2 and the UK #3. The latter being the lucky one as their banks get saved by the other Europeans.



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Originally Posted by AmeNoJaku View Post
@Mentar: I agree even more with the way you make your point now, save for the Weimar Republic analogy... my understanding is that it was crushed by WWI reperations, and thank gods the same mistake was not repeated after WWII. Also I don't disagree that Greece cheated to enter euro, but in way so did Germany, when they adjusted the targets for them (BBC should be OK).
The difference is that Germany didn't receive a helping hand once it got into trouble. It not making the 3% did not make the countries going strong then make them start transferring money into Germany to get the economy going again. (Germany paid its last WWI reparations in 2010, btw.)

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It would be better to understand the context here. Germany emerged from the destruction of WWII with reparation to everyone except the four occupying forfeited, occupation loans still serviced, supported both politically and financially to unify East Germany.
Those foreign powers were the ones that separated Germany in the first place. Especially the Soviet Union that expelled Millions of Germans (many did not survive) from their homes forever and build the Iron Curtain. And no, these powers did not support Germany's unification. France and Britain were not very pleased of the idea. It is mostly to thank the U.S. and the fall of the Soviet Union. And even during the times of the re-unification Germany was still a net-payer into the EU. So while it had to stem the re-unification it still had to subsidize countries like Italy, Spain, Greece and even France.

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On the other hand, Cyprus was occupied by England until '60, ruled by a theocrat until Greek fascist deposed, and invaded by Turkey... despite that managed to build up an economy following Luxembourg's model, attracting foreign capital through better then standard returns, this is also the case with other countries like Luxembourg, Malta (within the euro), Switzerland, Monaco, Lichtenstein, Latvia (in Europe), and cities with special laws (like London).
Yes, and Germany was occupied until the 90s. And Switzerland didn't ask Germany for money. Others having a similar scheme still does not entitle Cyprus to a single dime.
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Old 2013-03-24, 17:02   Link #52
monsta666
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The citizens already have received money upfront, when their state was showering them with entitlements which they didn't earn enough money for. And no, it's not like only banks are bailed out - for example during the Greek crisis, they received a national debt haircut, which is effectively the same as being gifted money. Did you see the bloated state official apparatus there, where tens of thousands of officials received lavish pensions while doing nothing productive? Ever heard of the tens of thousands of pensions paid to people who had been dead for many years? This is where the national debt came from.
They received a haircut in terms of repayment conditions. But that does not mean they got money. If anything all the main beneficiaries of this bailout were the Greek banks. In any case though the debt is irredeemable it ain't going to be paid and it is a moot point. People got to face the music and admit a lot of these banks are insolvent and are only kept alive through bailouts, close to zero interest loans and other liquidity measures such as QE. You remove those things then the whole pack of cards falls. This doesn't just include the southern European states but can be extended to the UK (where I am from), the US and Japan. If all those go then I am sure even Germany would go down as the global economy would be in tatters. This is the reason for this theatre. I could also argue on another level why this hope for growth will not happen.

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monsta, when all you earn is 2000 Euro, then you CAN'T afford a lifestyle as if you earned 4000. And when you're forced to rein in your spending, of course that hurts. But who is supposed to pay for your excesses? The rich uncle (the EU)? For all eternity?
Not saying the Greeks are totally exempt from guilt and they have to take a big chuck of the blame for messing up. There can be no doubts about that point. At the same time however when it comes to loans it takes two to tango. For every debtor there is a creditor and while the debtors were reckless one has to question the wisdom of extending credit to them. If someone clearly spends beyond their means then credit should not be extended again and again. The reason I tend to hammer at these bankers is because I know they are not stupid. We can blame bankers for many things but stupidity is not one of the bad qualities they possess. They knew what the situation was yet they chose to ignore as they could get a quick buck.

As I posted previously, it was easy to spot that Greece was a bad debtor by taking a cursory glance at their credit history and I am no banker. I am sure the banks have much more sophisticated tools for assessing risk than I do yet they failed to see nothing wrong? Sorry I don't buy it, I know they are not dumb so I can only conclude they chose to turn a blind eye.

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No, sorry man. The PIIGS nations need to actually learn to pay taxes and scale back their expenses until they match their real productivity. There is no other way around it.
Austerity doesn't work in improving an economy. And it especially does not work if the global economy is facing a downturn. Yes Canada and to a lesser extent Germany did manage to grow their economy despite some austerity measures in the past but that came in the backdrop that the global economy was booming in the early 90s and 00s. Also the Germans had the advantage of joining the Euro which made their currency weaker than their previous deutschmark allowing their industries to become more competitive. The combination of these factors allowed the gains in exports to exceed the losses that came from austerity. The southern nations will not have that advantage and will in fact have the opposite effect; an economic drag as they are all working under a currency that is overvalued relative to their economy. If the Eurozone could split between southern and northern nations then maybe the currencies could better reflect the economies in question and that would make their exports more competitive.

But this line of thinking is flawed because it is impossible for all nations to become exporters as there must be nations to import to. The whole premise of austerity is to make labour more productive so they can compete on the world market and sell more exports but this method cannot work for anyone. And also, as much as exporters complain about the irresponsible spending of importing nations, it is this overspending that allows exporting nations to succeed. If everyone was to be spendthrift, conserved/repaired products and did not generally spend like a madman then capitalism would fail. Our whole economy can only really operate under the conditions of growth since the metric used to measure success growth which is purely GDP growth. For growth to occur people must spend more year after year after year for all eternity. After all GDP is just a measurement of total spending. I know this notion sounds crazy and I would even say it is ridiculous and totally unsustainable but if we want to make this economy work we have to work under these parameters.

Yes I would say the whole economic system and the pursuit of perpetual growth is a broken one but that is really another topic altogether. I don't want to go into that point here.

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You're misinformed. Germany didn't lose their AAA rating, they still have it.
Sorry my mistake.

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Originally Posted by Mentar View Post
That Greece massively cooked the books to pretend to meet the Euro convergence criteria is a proven, documented fact, so "cheated" is a simple factual description. You could make a point that the rest of Europe was purposely looking the other way and not trying to really investigate the wondrous numbers, but it doesn't change what happened.
It doesn't change what happened but still since borrowing involves two parties then accountability has to be held for both sides. Borrowers must be reprimanded but creditors must also pay for not doing their due diligence. The fact that Greece was allowed to enter the Euro under dubious circumstances does not help the case of the creditors much either.

In any case I feel this Euro project was a mistake and the only way things could get better is if the Eurozone integrates further and becomes a Federal state with one government, one fiscal policy and one monetary policy. The other option is for it to simply break up. I see no political or social will for further integration so the breakup is the only way. Sure there will be collateral damage in the immediate aftermath but as they say: you can't make an omelette without cracking some eggs.

If people want to deny things are not a bust and the situation can be saved then I feel this thing will just be dragged out further, more money will be lost and people will get more angry and if people get angry enough there could be some pretty bad blowback. Best just to swallow the bitter pill and be done with the pain now rather than extend this pain further. People have had enough of extend and pretend and this goes for both sides from the Germans to the Greeks or any European nation you care to add. I can understand the Euro project was done under the best of intentions and no one meant for things to turn out this way but sometimes we just got to hold our hands and admit we made a mistake. Problem is no one wants to admit mistakes as a lot has been invested in this project and many egos (and careers) will be ended by making an admission of failure.
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Old 2013-03-24, 17:25   Link #53
Vallen Chaos Valiant
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Everyone knows the Cyprus government has a hand in the crisis. I don't think anyone doubts that.

What is happening though, is that we are finding out exactly how badly the EU needs Cyprus to stay; not because they want Cyprus but because they don't want to create a precedent for EU members to leave the system.

Does Cyprus deserve any money? No. But this has nothing to do with gifting Cyprus. This is about if the EU think they can afford to cut Cyprus loose. The government of Cyprus is betting that EU would blink first.
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Old 2013-03-24, 19:44   Link #54
AmeNoJaku
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@Mentar: As I wrote before, I don't really disagree with you, save for some subtle influences in your single-sided perspective... bear in mind that I am not saying Cyprus is free of blame, but so is Germany, the IMF and everyone else who created this mess... governments and their sponsors, not stupid people

@VCV: Did East Germany, and the rest of Eastern European Soviet block deserve the money back in the '90s? Did Korea/Japan/Germany deserve the money back in the '50s? According to your logic the answer is also NO. Indeed, they messed up one way or another, but today the world is a much better place than in the '40s, at least partially because they got those undeserved and unpaid loans... There is a reason politics is separated from finance, one should consider long-term goals, while the other nag about numbers, both are useful, but neither should overwhelm the other, like today, at least from my perspective

@sneaker: That graph is also very interesting and everyone wants to ignore for their own reasons... should we include the rest of EU countries (like the UK), and the private sector... dunno, I believe the majority of people would radically reconsider who should be at least more rightfully demonized
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Old 2013-03-24, 19:50   Link #55
willx
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@VCV: Did East Germany, and the rest of Eastern European Soviet block deserve the money back in the '90s? Did Korea/Japan/Germany deserve the money back in the '50s? According to your logic the answer is also NO. Indeed, they messed up one way or another, but today the world is a much better place than in the '40s, at least partially because they got those undeserved and unpaid loans... There is a reason politics is separated from finance, one should consider long-term goals, while the other nag about numbers, both are useful, but neither should overwhelm the other, like today, at least from my perspective
Yes, but if it is undeserved, then politics have become involved with finance -- people have grown to have a sense of entitlement. Not just Cypriots, but people in general .. everyone expects a handout or a big paycheque and the ability to go on vacation and live a certain lifestyle that they've been sold or bought into. Rightly or wrongly .. it looks like it's unsustainable. Just like .. oh, budgets!

Generally people get upset though when you tell them .. NO! Your son does not deserve to go to university. You do not deserve to go on vacation. No, you can't build that bridge! Etc etc.
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Old 2013-03-24, 19:54   Link #56
Vallen Chaos Valiant
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Yes, but if it is undeserved, then politics have become involved with finance -- people have grown to have a sense of entitlement. Not just Cypriots, but people in general .. everyone expects a handout or a big paycheque and the ability to go on vacation and live a certain lifestyle that they've been sold or bought into. Rightly or wrongly .. it looks like it's unsustainable. Just like .. oh, budgets!
See, I still think people are getting the wrong idea about this.

Cyprus KNOWS that they have the means to threaten the EU. It's not a matter of entitlement; it is a matter of blackmail.

Cyprus knows that EU is willing to pay them off to keep the EU together. This has nothing to do with what they deserve, but what they know they can extort. And isn't that what international politics is about? Extorting maximum gains from other nations?
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Old 2013-03-24, 19:56   Link #57
willx
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See, I still think people are getting the wrong idea about this.

Cyprus KNOWS that they have the means to threaten the EU. It's not a matter of entitlement; it is a matter of blackmail.

Cyprus knows that EU is willing to pay them off to keep the EU together. This has nothing to do with what they deserve, but what they know they can extort. And isn't that what international politics is about? Extorting maximum gains from other nations?
I'm talking about the citizens of Cyprus vs. the country. The country/politicians think what they think, the populous is outraged though out of a sense of entitlement.
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Old 2013-03-24, 19:57   Link #58
Sumeragi
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Originally Posted by AmeNoJaku View Post
@VCV: Did East Germany, and the rest of Eastern European Soviet block deserve the money back in the '90s? Did Korea/Japan/Germany deserve the money back in the '50s? According to your logic the answer is also NO. Indeed, they messed up one way or another, but today the world is a much better place than in the '40s, at least partially because they got those undeserved and unpaid loans... There is a reason politics is separated from finance, one should consider long-term goals, while the other nag about numbers, both are useful, but neither should overwhelm the other, like today, at least from my perspective
At least with Korea/Japan/Germany, they had a long term plan on how to use the money.
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Old 2013-03-24, 20:01   Link #59
Vallen Chaos Valiant
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I'm talking about the citizens of Cyprus vs. the country. The country/politicians think what they think, the populous is outraged though out of a sense of entitlement.
You are surprised that citizens feel they are entitled to the savings in their bank accounts?

Do you feel you are entitled to your own life's savings? I certainly do for mine.
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Old 2013-03-24, 20:03   Link #60
willx
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You are surprised that citizens feel they are entitled to the savings in their bank accounts?

Do you feel you are entitled to your own life's savings? I certainly do for mine.
Sigh, read back several pages, this is all intertwined. I also clearly said that making a move on deposits below the government insured thresholds is foolish.
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