2013-03-20, 12:49 | Link #1 |
Franco's Phalanx is next!
Join Date: Apr 2012
Location: Little England, Europe and Asia
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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:
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
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2013-03-20, 12:57 | Link #2 |
Nyaaan~~
Join Date: Feb 2006
Age: 41
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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.
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2013-03-20, 14:18 | Link #4 |
Nyaaan~~
Join Date: Feb 2006
Age: 41
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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.
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2013-03-20, 14:54 | Link #5 |
Master of Coin
Join Date: Mar 2008
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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. |
2013-03-20, 15:02 | Link #6 |
Nyaaan~~
Join Date: Feb 2006
Age: 41
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^ 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.)
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2013-03-20, 15:38 | Link #8 | |
Master of Coin
Join Date: Mar 2008
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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. |
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2013-03-20, 20:27 | Link #9 | ||||||||
Franco's Phalanx is next!
Join Date: Apr 2012
Location: Little England, Europe and Asia
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Interesting opinions...
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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. Quote:
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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). Quote:
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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. Quote:
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2013-03-20, 20:56 | Link #10 |
Nyaaan~~
Join Date: Feb 2006
Age: 41
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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?
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2013-03-20, 21:34 | Link #12 | |
Master of Coin
Join Date: Mar 2008
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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. |
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2013-03-22, 03:26 | Link #13 | |||||
Franco's Phalanx is next!
Join Date: Apr 2012
Location: Little England, Europe and Asia
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Sorry, but I can not address everything here, I'll try though as many as I can...
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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 Quote:
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.
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2013-03-22, 03:54 | Link #14 |
Logician and Romantic
Join Date: Nov 2004
Location: Within my mind
Age: 43
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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.
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2013-03-22, 04:16 | Link #15 | |
Franco's Phalanx is next!
Join Date: Apr 2012
Location: Little England, Europe and Asia
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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.
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2013-03-22, 04:48 | Link #16 |
Logician and Romantic
Join Date: Nov 2004
Location: Within my mind
Age: 43
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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.
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2013-03-22, 06:46 | Link #17 | |
books-eater youkai
Join Date: Dec 2007
Location: Betweem wisdom and insanity
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Russia rebuffs Cyprus, EU awaits bailout "Plan B"
http://www.reuters.com/article/2013/...92G03I20130322 Quote:
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2013-03-22, 07:36 | Link #18 |
Logician and Romantic
Join Date: Nov 2004
Location: Within my mind
Age: 43
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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.
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Last edited by Vallen Chaos Valiant; 2013-03-22 at 10:28. |
2013-03-22, 10:55 | Link #19 |
Senior Member
Join Date: Jan 2012
Location: London, England
Age: 37
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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. |
2013-03-22, 11:02 | Link #20 |
Nyaaan~~
Join Date: Feb 2006
Age: 41
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^ 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.
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