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I wonder how many Russian mobsters are going to have their deposits syphoned?

There's a few big facts about the Cyprus situation that are needed to make sense of the whole issue.

First up, like Iceland and Ireland, Cyprus has a massive banking sector, which operates largely as a tax haven for European big money. In the case of Cyprus, their money comes largely from Russia, and much of that from, well, mobsters.

And when I say a massive banking sector, I mean the net assets of the banking sector is about ten times the GDP of the country. Ireland was only about 4 times GDP, and Iceland about the same as Cyprus.

There's an easy fix to this - just don't honour holdings owned by offshore parties. In this case there's not even much of a moral issue, because they're Russian mobsters for feth's sake. But Cyprus doesn't want to do that, presumably because when all the dust settles they still want to have a banking sector that operates as a tax haven for Europe and Russia. Contrast this to Iceland, who decided that actually they'd rather just wash their hands of international finance and didn't honour foreign holdings. They basically don't, and can't have an international banking sector anymore, but they're happy enough to go back to being the country they were before then.


Second up, people keep talking about this issue being due to debts in the government of Cyprus. Well here's the direct quote from the IMF's analysis; "Before the 2008 crisis, Cyprus enjoyed a long period of high growth, low unemployment, and sound public finances." http://www.imf.org/external/pubs/ft/scr/2011/cr11331.pdf What we're seeing here is a banking collapse in a country that simply isn't big enough to fix the problem by itself (because as stated above the banking sector is large, because it works as a haven for other European countries). Of course, people don't really like to talk about that, as it then becomes clear this is just the latest aftershock of the GFC, and yet another reason to question the lunacy of the loose regulations we've allowed on banks in the last few decades.


And finally, the idea to take 10% of deposits is remarkably stupid. I mean it really has scope for being one of those stories told years from now, about the government that was so stupid that it just declared a law one day and took money from people's bank accounts the next day. Banana Republics aren't that erratic. It's so stupid that it demands people take a good, hard look at the austerity nutters running European financial policy and question everything they claim is needed.


Automatically Appended Next Post:

 Kilkrazy wrote:
A -0.25% would mean that clearing banks would have to pay interest to the BoE on their deposits with the BoE. This would encourage them to lend out the cash rather than sit on it, which a big problem at the moment.

To clarify this, it's a negative interest rate after inflation.

So it still pays, let's say 2%, but expected inflation is 2.25%, so in real dollars you're losing 0.25%

It's still better than stuffing your money under the mattress, as then you'd get no money and lose 2.25% in real terms, but it still works to encourage spending over saving, which is something that definitely needs to happen right now.

EDIT - And just to clarify all this, the actual rate of interest never drops below 0%. That's called the zero lower bound. Basically it's standard in poor economic times for the central bank (or reserve bank, or whatever each individual country calls it) to begin some expansionary monetary policy. This basically amounts to the government pumping cash into the banks to drop interest rates, and thereby increasing investment (as it is cheaper for businesses to borrow) and increase consumption spending (as lower interest rates make saving less appealing).

But once the real rate of interest drops to almost zero, well no matter how much more money you pump out, the rate isn't going to go any lower. It doesn't make sense to go any lower, I mean who would pay for the priviledge of having someone else use your money. That's the zero lower bound.

As such, in this situation you have to move to other ways to stimulate the economy. You can ramp up inflation, so that basically while the nominal interest rate stays anchored near 0%, the real interest rate (the nominal rate of interest minus th rate of inflation) moves further and further negative. Or you get government to directly maintain aggregate demand, by spending up big and running large deficits.


Automatically Appended Next Post:

 whembly wrote:
I understand that... (btw, great linguistic jujitzu).

If the IMF/Euro needed some funds, the best way to address it is for the host nation to levy a tax.

More to the point, the middle of a double dip recession brought on by austerity is the absolute dumbest time possible to start worrying about raising more funds for government. Spend and will recover you fething idiots, then worry about setting up the minor EU nations with more sustainable long term finances (which Cyprus actually had, barring the banking disaster).

Basically, levying this "one time tax" on depositors (the mechanism at least) is outright theft imo.

As I've said before, to be theft it has to be illegal, and when government passes it as law then by definition it is not illegal. But even though it isn't theft, it's terrible policy.

In that other thread you were after buzzwords, well I've got a great one for you - "regulatory uncertainty". That's the amount of risk an investment has, because government might just change the rules tomorrow. So for instance, a businessman might say 'well Cyprus is offering 6% return on term deposits, and thanks to the legislative blackhole that exists thanks to their position in the EU we can get that money in there and back out whenever we want without paying tax... however there's every chance they'll just do what they did last time and just take 10% of my investment, so feth that."

That's called regulatory uncertainty.


Automatically Appended Next Post:

 BryllCream wrote:
Whenever the EU does anything to help bail out a country, the whole media cry that it's going to bring down the peripheral countries. It won't. The average saver will be levied 6%, but given that savings are by and large drawn out over time, you can also apply the levy over time. If you've been saving for 20 years, you're losing 0.3% of your savings per annum. That's a fraction of what inflation could cost you anyway.

Government should be a stable ship. Changes are announced miles ahead of time, and are a series of small adjustments, so everyone knows basically what tomorrow will bring, and can make sound, long term plans accordingly.

Just announcing that tomorrow they're taking money from you as a once-off is the exact opposite of that. Honestly, at this point any claims of sound, responsible governance from the austerians leading this stupidity just has to be laughed at. They're complete loons.

 sebster wrote:
There's a few big facts about the Cyprus situation that are needed to make sense of the whole issue.

First up, like Iceland and Ireland, Cyprus has a massive banking sector, which operates largely as a tax haven for European big money. In the case of Cyprus, their money comes largely from Russia, and much of that from, well, mobsters.

And when I say a massive banking sector, I mean the net assets of the banking sector is about ten times the GDP of the country. Ireland was only about 4 times GDP, and Iceland about the same as Cyprus.

There's an easy fix to this - just don't honour holdings owned by offshore parties. In this case there's not even much of a moral issue, because they're Russian mobsters for feth's sake. But Cyprus doesn't want to do that, presumably because when all the dust settles they still want to have a banking sector that operates as a tax haven for Europe and Russia. Contrast this to Iceland, who decided that actually they'd rather just wash their hands of international finance and didn't honour foreign holdings. They basically don't, and can't have an international banking sector anymore, but they're happy enough to go back to being the country they were before then.


Second up, people keep talking about this issue being due to debts in the government of Cyprus. Well here's the direct quote from the IMF's analysis; "Before the 2008 crisis, Cyprus enjoyed a long period of high growth, low unemployment, and sound public finances." http://www.imf.org/external/pubs/ft/scr/2011/cr11331.pdf What we're seeing here is a banking collapse in a country that simply isn't big enough to fix the problem by itself (because as stated above the banking sector is large, because it works as a haven for other European countries). Of course, people don't really like to talk about that, as it then becomes clear this is just the latest aftershock of the GFC, and yet another reason to question the lunacy of the loose regulations we've allowed on banks in the last few decades.


And finally, the idea to take 10% of deposits is remarkably stupid. I mean it really has scope for being one of those stories told years from now, about the government that was so stupid that it just declared a law one day and took money from people's bank accounts the next day. Banana Republics aren't that erratic. It's so stupid that it demands people take a good, hard look at the austerity nutters running European financial policy and question everything they claim is needed.

Thanks for jumping in.. when you say "don't honour holdings owned by offshore parties"... meaning that those offshore parties lost their deposits/assets at said bank?

Automatically Appended Next Post:

 whembly wrote:
I understand that... (btw, great linguistic jujitzu).

If the IMF/Euro needed some funds, the best way to address it is for the host nation to levy a tax.

More to the point, the middle of a double dip recession brought on by austerity is the absolute dumbest time possible to start worrying about raising more funds for government. Spend and will recover you fething idiots, then worry about setting up the minor EU nations with more sustainable long term finances (which Cyprus actually had, barring the banking disaster).

Yeah, I'm still perplexed at all this... could it by that the EU is thumbing their nose at the Russians?

Basically, levying this "one time tax" on depositors (the mechanism at least) is outright theft imo.

As I've said before, to be theft it has to be illegal, and when government passes it as law then by definition it is not illegal. But even though it isn't theft, it's terrible policy.

In that other thread you were after buzzwords, well I've got a great one for you - "regulatory uncertainty". That's the amount of risk an investment has, because government might just change the rules tomorrow. So for instance, a businessman might say 'well Cyprus is offering 6% return on term deposits, and thanks to the legislative blackhole that exists thanks to their position in the EU we can get that money in there and back out whenever we want without paying tax... however there's every chance they'll just do what they did last time and just take 10% of my investment, so feth that."

That's called regulatory uncertainty.

I was being melodramatic here.

"regulatory uncertainty" is a concept I'm very familiar about... also, "consumer confidence" is another one... those two are the real issues here.

Automatically Appended Next Post:

 BryllCream wrote:
Whenever the EU does anything to help bail out a country, the whole media cry that it's going to bring down the peripheral countries. It won't. The average saver will be levied 6%, but given that savings are by and large drawn out over time, you can also apply the levy over time. If you've been saving for 20 years, you're losing 0.3% of your savings per annum. That's a fraction of what inflation could cost you anyway.

Government should be a stable ship. Changes are announced miles ahead of time, and are a series of small adjustments, so everyone knows basically what tomorrow will bring, and can make sound, long term plans accordingly.

Just announcing that tomorrow they're taking money from you as a once-off is the exact opposite of that. Honestly, at this point any claims of sound, responsible governance from the austerians leading this stupidity just has to be laughed at. They're complete loons.

Well... looks like the cypriots ain't accepting any bailout plans at the moment... so, nothing may be done.

Having said that, is the damage already done? Does this truly set a precedent for all European countries. That their money in every bank is not safe... even if this bailout plan is quickly reversed (looks like it now), this could come back to haunt eurozone policy makers by making depositors less sure about the safety of their money in case of trouble. Essentially, I think that the consumer confindence may take a hit in this regard.

 whembly wrote:
Thanks for jumping in.. when you say "don't honour holdings owned by offshore parties"... meaning that those offshore parties lost their deposits/assets at said bank?

Well, if the bank goes under, as Landsbanki in Iceland did, the government stepped in to guarantee domestic holdings but not foreign holdings. The British and Dutch took the Icelandic government to court over the matter, and Iceland won. So technically Landsbanki still owed the foreign investors the money, but they're a private company that's completely bankrupt, so there's no money to be gotten from there.

Yeah, I'm still perplexed at all this... could it by that the EU is thumbing their nose at the Russians?

Thumbing their nose at the Russians, and those who use tax havens in general. But then they still had a haircut for people under the 100,000 limit (albeit reduced), which meant hitting the locals as well.

I don't know, I just think its bad policy from a collection of politicians and administrators who've really, really lost their way.

I was being melodramatic here.

"regulatory uncertainty" is a concept I'm very familiar about... also, "consumer confidence" is another one... those two are the real issues here.

Consumer confidence takes an indirect hit, through regulatory uncertainty. As does business confidence, which will in the short term be likely to be more affected.

Well... looks like the cypriots ain't accepting any bailout plans at the moment... so, nothing may be done.

Which is all at once the best result, and still a really gakky result. Putting up a proposal that government is always going to shut down just makes government look even more unstable, which hardly helps the orginal problem.

Having said that, is the damage already done? Does this truly set a precedent for all European countries. That their money in every bank is not safe... even if this bailout plan is quickly reversed (looks like it now), this could come back to haunt eurozone policy makers by making depositors less sure about the safety of their money in case of trouble. Essentially, I think that the consumer confindence may take a hit in this regard.

Yeah, there'll certainly be damage. I mean look at financial markets every time the US gets close to the deficit ceiling - you get a noted lull. But I guess if this gets fully and properly rejected, and a solution is found elsewhere the damage will be far from terminal. It's just... when you're already in the midst of a double dip this is the last thing you need.

If true... California is doing something different... retroactively changing the Tax Codes!

California's top-end taxpayers -- already steamed over a recent hike in the nation's highest state income tax -- are now fuming over a new $120 million retroactive tax grab on small business owners.

In December, the state's tax authority determined that a tax break claimed over the past few years by 2,500 entrepreneurs and stockholders of California-based small businesses is no longer valid and sent out notices of payment.

"How would you feel if you made a decision, which was made four years ago, (and) you absolutely knew was legally correct and four years later a governing body came in and said, 'no, it's not correct, now you owe us a bunch more money. And we're going to charge you interest on money you didn't even know you owed'," Brian Overstreet told Fox News from his office north of San Francisco.

Last year, Overstreet and his fellow investors sold Sagient Research Systems and immediately reported the sale to the California Franchise Tax Board, the state's version of the IRS. "It was good for the shareholders, it was good for the employees and good for those of us who founded it," Overstreet said about the sale of the data mining company. "We paid the tax based on the law at the time."

But the FTB changed its interpretation of the law after a state appeals court ruled unconstitutional a qualifying provision of the break requiring companies to maintain 80 percent of their workforce in California. Instead of asking the legislature for guidance on what to do, the FTB suspended the break in its entirety and ordered anyone who's claimed it in the last five years to pay up.

"What that translates into is tens of thousands, if not literally hundreds of thousands, of potential jobs," Overstreet contends.
Overstreet said he's learned more about the workings of state government in the last two months than he ever knew before and he's become the point person for others like him who were surprised by the FTB's decision. "It's going to cause not only significant financial hardship but real personal stress on a lot of people who shouldn't be worried about this," he said. "They did what is right. They paid their taxes. They should be off working away at their next business -- instead they're having to spend their time fighting this stuff."

Overstreet wouldn't disclose the exact amount the FTB says he owes but said it was "well into the six figures," and calls it a sucker punch from the state.

The taxpayers fighting the FTB won an early victory in their fight when the tax board announced a temporary delay in issuing actual bills, technically called Notices of Proposed Assessments. It's believed the additional time is to allow the state's political leaders time to figure out a solution.

"Once the revenue is identified, those folks up in Sacramento will figure out how to spend it already," warns former state Sen. George Runner. "And that's what makes this so difficult. Even though it has this great bipartisan support as being wrong."

Earlier this month, lawmakers from both parties introduced legislation that would force the FTB to scrap the retroactive tax bills. "Californians planned and based their actions on the language of the law as it existed," Democratic Sen. Ted Lieu said in a statement. "Going backward in time and changing the rules innocent taxpayers relied upon violates the very essence of the rule of law."

Republican Assemblyman Jeff Gorell's companion bill would prohibit the state from charging interest and penalties in similar situations in the future.

"We want to unwind this poor decision and bring relief to small business owners throughout the state, while also setting prohibitions against this kind of surprise tax increase again for the future."

What's not as clear is what Gov. Jerry Brown thinks of the issue. "Quite frankly, we haven't heard from the governor on this and the governor could solve this," Runner, a Republican, said. "Ultimately, the legislature can try to fix it, but ultimately the bill still has to end up on the governor's desk."

Brook Taylor, a spokesman with the governor's business development office, told Fox News in an email that the tax credit "provided a real boost to entrepreneurs" and that the court's ruling was unfortunate. Taylor added that, "we are reviewing the situation to determine how best to help these business owners given the court's decision."

California's high tax rates, strong environmental regulations and a Democratic lock on many public offices have led some to conclude the state is anti-business. Texas Gov. Rick Perry, among other state executives, has made repeated overtures to the state's business leaders to relocate. Those criticisms have been regularly rebuffed by Brown and his staff.

During a recent dust-up over a radio ad promoting Texas, Brown reportedly said, "you go where the gold is" and that Perry is "not going to Lubbock, or whatever those places are that make up that state."

What's not addressed by the pending legislation is what to do about the future of the tax credit. It's been around for 20 years to promote job-growth and investment -- especially in the computer technology and bio-research industries. "California has always prided itself in the ability to be that incubator for high-tech, for entrepreneurial investment," Runner said. "And this just goes to the core of that. Undermines our credibility, if you will, on that particular issue."

Overstreet's main focus has been on retroactive part of the FTB's action but he also said if lawmakers allow for the tax break to go away entirely it will have consequences for the state. "As a going-forward problem if entrepreneurs are no longer allowed this kind of incentive, there's no longer any reason for us to intentionally grow our companies here in California. We are going to take our business to where it is the cheapest and most effective place to hire people."

Interesting read...

Only a few days ago, the markets were looking in good shape — indeed in better shape than they have at any time since the crash of 2008.

Japan was coming back to life. The Dow DJIA +0.39% was recovering its highs of five years ago. Some of the European markets were bouncing up again, and gold was falling in value as investors decided the economy was getting back to stability, and perhaps even a normal level of growth.

And then? The euro-zone crisis flares up again. In Cyprus, euro-zone finance ministers meeting late on a Friday night decided to impose a levy on all bank accounts in the country as part of a bailout agreement for the island.

For the sake of 5.7 billion euros — a sum so small it would be an insult to peanuts to compare it to a packet of the salty nuts — the people running the single currency put the recovery in jeopardy.

It was a “Lehman moment” — a tiny decision, with huge consequences. And the euro zone looks set to keep lobbing those moments at the market, choking off every potential bull run.

The proposal to impose a levy on deposits in Cyprus threatened a run on the banks right across Europe, leading to a potential catastrophe for the global economy.

After all, if they imposed a levy on deposits in Cyprus, why not pull the same trick in other floundering European countries? Would anyone really want to have money in a Portuguese, Spanish, Italian, or indeed a French bank after that fateful step was taken? It might easily be confiscated if those nations needed to be rescued.

A sign hangs above a Bank of Cyprus branch in Nicosia, Cyprus, on Tuesday.
True, there were few immediate signs of queues forming outside banks in Madrid or Milan on Monday or Tuesday. Still, the seed of doubt about whether those accounts are safe or not has been planted and will now be impossible to remove. Whether the bank run is in fast- or slow-motion does not in the end make much difference. If deposits flee out of countries over the next weeks and months, banking systems will crumble and economies will suffer.

There are respectable arguments to be made on both sides. No one disputes that the Cypriot banking system needed bailing out, largely because of the huge losses it had made in Greece. The issue was who would pay for it.

The Cypriot government couldn’t afford it, and it can’t print money. The rest of the euro zone didn’t want to pay for a bailout that protected a lot of dodgy Russian money. So there is something to be said for forcing depositors to take some of the risk, because that way they might think harder about which banks were safe and which were not, rather than just assuming central banks and governments will always come to the rescue.

Against that, it is clearly unfair to penalize ordinary Cypriot savers.

The levy punishes the prudent with savings in the bank — a point the Cypriot government has recognized by exempting accounts of less than 20,000 euros. It drains money out of the economy. It encourages everyone to keep their savings stashed under the mattress at home rather than putting it in the bank where it might actually be lent out to people. And worst of all, it spreads the fear that no bank is safe — and fear is the one force that no economic system can withstand.

The stock market’s reaction to the Cyprus banking crisis is appearing to many as a case of wilful denial, Mark Hulbert discusses.

So you could debate whether the right decision was made in Cyprus. What you can’t argue is that the measure was worth the risk.

The Cyprus levy would raise a mere 5.7 billion euros. It’s a paltry amount. Indeed, the entire Cypriot economy amounts to a mere 0.2% of the euro zone. The entire nation could be bailed out several times over without imposing any serious costs on its partners in the single currency.

In that sense, the decision was a “Lehman moment” for the markets. Why? Because when the U.S. authorities were faced with the choice of bailing out the Wall Street bank in 2008, they decided it was not worth the moral hazard involved. They reckoned it was better to let it go bust than allow a bunch of wild, over-paid investment bankers to pass their losses onto the state.

As it turned out, that was a big mistake. After Lehman, we had the credit crunch, and a five-year global depression. If the clock could be re-wound, there is no doubt those same regulators and politicians would give Lehman the few billion it needed to stay afloat. It would have been cheap at any price.

Likewise, Germany and France decided it was better to impose some costs on bank creditors than let them think they could get bailed-out for nothing. The trouble is, euro-zone finance ministers have no grasp of how the markets work. They have not understood how interconnected they have become, or how relatively small events can have big consequences if they send out the wrong signals.

Now they have made it clear that no bank deposit in the euro zone is safe, and they shouldn’t be surprised if money starts to leave the continent. They might be backpedaling furiously now, looking at ways to protect small savers. But the damage has been done.

If the officials running the euro zone can’t get to grips with how markets work, the bull market is not going to get any traction. The world economy may well steadily improve, employment will rise, debt may come down, and corporate profits power ahead. But the euro zone will keep chucking Lehmans into the mix.

Every time equity markets start to rise, there will be another catastrophe in Europe and they will start to wobble again.

The result? The bull market is never going to have a chance to get going — at least until the euro crisis is finally resolved with the partial dismemberment of the single currency or a fully-fledged fiscal and political union between its members.

That situation in California is along the same lines. Retroactive tax grabs are a terrible idea and that sounds like a pretty clear example. I mean, it gets more complicated in a lot of situations, because people will claim something is retroactive, when what's really going on is the tax office has said 'no, that was never legal and was never a fair reading of the law'. First real job in accounting I had was a tax firm that got caught with that, and they deserved to get caught because what they were doing was dodgy.

The second article was really good, and made a point I think a lot have missed - the actual amount of money being discussed here is tiny by the standard of the Euro. $5 billion is an accounting error. That said, I wish the article hadn't fallen in to the old trap of 'market is rising = healthy economy'. Falling in to the line of thinking 'as long as the market is going up and we don't do anything to upset it' is kind of how we got to where we are now. Still, other than that it was a good summing up of the situation.

IIRC the law is required to be clearly understandable by the regular joe on the street, so saying people have been incorrectly reading the law shouldn't hold any water at all.

Or am I just remembering Contract Law specifically?

 Grey Templar wrote:
IIRC the law is required to be clearly understandable by the regular joe on the street, so saying people have been incorrectly reading the law shouldn't hold any water at all.

There's reading a law, and then there's reading a law.

The instance I'm referring to saw people invest in timber plantations. You buy land, spend some money planting trees and then you wait ten years to cut the things down. But then you get some people reading a law that stated that a person could recognise non-cash expenses that draw down on the equity in their company, and shoving all kinds of fictitious management expenses into the arrangement, the net effect of which was that you invested $20,000 in year 1, and then each year after that you claim $10,000 in fictitious 'management expenses' that you negatively gear against your other income and keep doing so for for ten years, after which you're ahead in your after tax position, even if the whole plantation died of tree rot.

When faced with that kind of reading of tax law, the courts and tax office not only should demand they pay up, and likely with penalties, but they must do so in order for the system to function at all.

And that's basically why the tax code is so complex. If everyone just played an honest game and tried to interpret the rules with a clear sense of reason and fair play, then the whole thing could be written on the back of a cocktail napkin. It's kind of like wargaming in that sense.

I never heard that idea expressed in my legal classes, though I only had a couple. I did hear about it when I read Thomas Moore's Utopia, though. Anyhow, I agree that the writers of law should make an effort to make the law as simple as possible to the layman, but I think it's a bit of stretch to claim that just because a law is not understood by a person (and this is assuming the person attempted a fair and reasonable reading the in the first place) that it is unfair. First up, that standard would have to be applied to the average person, not each and every person, and second up it's a complex world with many differing view points, throwing out any law that didn't need some interpretation would mean not having laws at all.

I (semi seriously) think we should just move to flow charts for all laws, that way the language can be kept simple and still have a high degree of complexity.

Or people could just hire a third party to draft the actual language of each law. With the intent to remove anything that would be obscure or unclear.

And now there's a bit more information filtering through, that's explaining why Cyprus hasn't just gone with a "feth the non-residents and don't cover their holdings" strategy like Iceland - apparently only 40% of holdings are from non-residents. Now, when the bank holdings are 10 times GDP that would mean that resident holdings are 6 times GDP... which obviously makes no sense - how many people do you think have bank holdings that are 6 times their yearly income?

The trick being that a lot of people are ex-pats who've made their money in Europe and then moved to Cyprus for the tax benefits, or in even more cases - moved to Cyprus in a purely legal form, while they've continued to live and make money in Europe, basically just taking advantage of keeping their money in Cypriate banks.

And on top of all this, there's still an unpopped real estate bubble in Cyprus, that will go as soon as everyone realises that the Cypriate banking sector is beyond fethed.

 Grey Templar wrote:
Or people could just hire a third party to draft the actual language of each law. With the intent to remove anything that would be obscure or unclear.

Laws aren't obscure and unclear because they're poorly written. They're subjective and unclear because, like I already explained to you, the world is complex. The line between one thing and another frequently has no clear definition.

The Russian said... no bailout from us:

Russian gas giant Gazprom and oil company Rosneft did not display any interest in Cyprus' hydrocarbons deposit offer to Russia, an Energy Ministry source told journalists.

"So far, there has been no result," he said after bilateral talks.

Another problem is Cyprus' territorial disputes with Turkey, he added.

Asked to assess the accuracy of the estimates and proposals prepared by Cyprus, the source said that "they [Cypriots] invited us to take part in a tender on a [hydrocarbon] deposit there, but a seismic survey has not been completed yet, and it is unclear what kind of deposit they have. It should be analyzed more profoundly in the future. Gazprom and Rosneft are not interested in these proposals."

Addressing Cyprus' offshore gas deposit, Russian Prime Minister Dmitry Medvedev said on Thursday that "this question is not simple because, firstly, its cost is not very clear to me, and, secondly, we are aware of their problems with Turkey."

"This issue will prove to be very challenging for discussions," Medvedev added.

Cyriots going to plan X, Y, Z? Looks like the so called "one time tax" to depositor is back on the table:

Cyprus was just hours away from a deal on Friday to raise billions of euros and unlock a bailout from the European Union that could avert financial meltdown and exit from the euro, its ruling party said.

The remarks from the deputy leader came after Moscow had rebuffed requests from Nicosia for assistance to save Cypriot banks in which Russians have billions of euros at risk.

He gave little detail beyond saying Cyprus was close to a compromise that would let parliament reverse its rejection of a rescue package offered by euro zone partners a week ago under which holders of bank deposits would suffer losses.

"There is cautious optimism that in the next few hours we may be able to reach an agreed platform so parliament can approve these specific measures which will be consistent with the approach, the framework and the targets agreed at the last Eurogroup," Averof Neophytou, deputy leader of President Nicos Anastasiades's Democratic Rally, told reporters in the capital.

Germany warned Cyprus it was "playing with fire" but also kept up pressure by saying the euro zone was well able to contain any crisis - sticking to a threat to cut Cyprus off.

With the clock running down to a Monday deadline set by the European Central Bank when it will sever essential cash flows to Cypriot banks if no bailout program is agreed, Cyprus took a first step toward financial consolidation by arranging for the takeover of big Greek units of its banks by a Greek competitor.

Shares in Piraeus Bank in Athens shot up 20 percent before officials confirmed Piraeus would take control of the Greek units of Bank of Cyprus and Cyprus Popular Bank, two big retail lenders badly burned by exposure to Greece's own troubles.

Euro zone leaders, led by Germany, have offered Cyprus 10 billion euros ($13 billion) on condition it raises 5.8 billion of its own. A plan to fund that by taxing deposits - breaking what had hitherto been a taboo in efforts to stabilize the currency bloc - had led to parliament throwing out the deal.

EU officials criticized Cyprus for insisting on taxing even small savers whose deposits up to 100,000 euros benefit from a state guarantee - a measure Cypriot leaders favored in order to limit the losses for bigger depositors, many of them Russian and seen as vital to the future viability of the Cypriot economy.

RUSSIA DISAPPOINT

Hopes of favor from Moscow were disappointed on Friday.

Cypriot Finance Minister Michael Sarris left for home after failing to renegotiate a 2.5-billion euro loan from the Russian government, win new financing or lure Russian investors to Cyprus's banks and gas reserves.

The Bank of Cyprus urged the government to go back and make a deal with the EU, under which larger deposits over 100,000 euros, would be taxed. It was preferable, it said, to a collapse of the system and a return to the Cypriot pound which would wipe out assets. "There must be no further delay," the bank said.

EU leaders, notably Germans who face an election in six months, have been reluctant to give up on the bank levy since it protects them from accusations of using European taxpayers money to bail out big Russian investors in Cyprus.

While this had raised concern that it might erode confidence in banks in other, bigger euro zone states, notably Spain and Italy, the leaders of the euro zone have made clear they believe they can contain any damage, even it Cyprus is forced into a bankruptcy that would lead to it abandoning the euro.

German Finance Minister Wolfgang Schaeuble said on Friday that muted reactions to the crisis in financial markets showed the euro zone was able to contain the Cyprus problem.

On the island, lawmakers and banking officials were locked in talks inside parliament. Hundreds of angry Cypriots faced off with riot police outside.

On the table are proposals to nationalize pension funds, pool state assets and split Popular Bank in a desperate effort to satisfy exasperated European allies. (!!!!!!!!!!!!!!!!!!!!)

There were persistent rumors of a possible U-turn on the bank levy, targeting only big depositors with over 100,000 in Cypriot banks, many of the foreigners including Russians.

"PLAYING WITH FIRE"

Everything is subject to the approval of Cyprus's lenders at the EU, ECB and International Monetary Fund.

The head of the Eurogroup of euro zone ministers, Dutchman Jeroen Dijsselbloem, said it was focused on keeping Cyprus in the euro zone. Asked whether Cyprus's exit from the euro zone was inevitable, he did not rule it out, however:

"All kinds of scenarios are possible and the scenarios we're focusing on are to come to a joint solution in which Cyprus is saved but in which the banking sector continues in a smaller but healthier form."

Germany had rejected a proposal to nationalize pension funds and demanded Cyprus take an axe to its banks.

Chancellor Angela Merkel told lawmakers that while she wanted to keep Cyprus in the euro zone, the country must first recognize it had no future as an offshore financial center for wealthy Russians and Britons, two parliamentarians told Reuters.

Cypriots have been stunned by the pace of the unfolding drama, having elected conservative President Nicos Anastasiades barely a month ago on a mandate to secure a bailout.

Depositors, who have been besieging bank cash machines all week, queued again on Friday to withdraw what they could.

"Our so-called friends and partners sold us out," said Marios Panayides, 65, a protester at the parliament. "They have completely abandoned us on the edge of an abyss."

(Additional reporting by Jan Strupczewski and Luke Baker in Brussels, Karolina Tagaris and Costas Pitas in Nicosia, Georgina Prodhan in Vienna, Lidia Kelly and Darya Korsunskaya in Moscow, Paul Carrel in Frankfurt and Gernot Heller in Berlin; Writing by Matt Robinson; Editing by Philippa Fletcher and Alastair Macdonald)

Automatically Appended Next Post:
Can some explain the following in layman terms?

Historic moment for the eurozone as capital controls approved
To re-iterate, the decision to approve the capital controls bill means Cypriots are likely to soon face tough restrictions on how much money they can take out of their bank, on access to their own savings, and on their ability to transfer funds.

This is the full list of powers that could be imposed ( translated by @YiannisMouzakis this morning)

-Restrictions in daily withdrawals
-Ban on premature termination of time savings deposits
-Compulsory renewal of all time savings deposits upon maturity
-Conversion of current accounts to time deposits
-Ban or restrictions on non cash transactions
-Restrictions on use of debit, credit or prepaid debit cards
-Ban or restriction on cashing in checks
-Restrictions on domestic interbank transfers or transfers within the same bank
-Restrictions on the interactions/transactions of the public with credit institutions
-Restrictions on movements of capital, payments, transfers
-Any other measure which the Finance Minister or the Governor of Cyprus Central Bank see necessary for reasons of public order and safety

And so it begins. The EU cutting off its nose to spite its face… RT @efiefthimiou: #Cyprus Parliament passes bill on capital control

Seems very ominous...

 whembly wrote:
Can some explain the following in layman terms?

-Ban on premature termination of time savings deposits
-Compulsory renewal of all time savings deposits upon maturity
-Conversion of current accounts to time deposits

These three alone can be read as "We reserve the right to steal all of your money". They would allow the government to take your money out of your bank account and put it into another account that only they can access, without any requirement that they give it back when the term deposit expires.

You exaggerate for effect.

It would simply prevent the Russian Oligarch type of depositor from whipping his money out of the country at a moment's notice.

 AlexHolker wrote:
These three alone can be read as "We reserve the right to steal all of your money". They would allow the government to take your money out of your bank account and put it into another account that only they can access, without any requirement that they give it back when the term deposit expires.

No, it doesn't. It means that you can't pull your money out of the bank. This is done to prevent a run on the banks during the time in which all this nonsense is sorted out. You might not like (no-one should like having money they deposited in good faith being frozen) but that's a long way from claiming this in itself is the problem.

The problem is that Cyprus operated as an off-shore tax haven, and let its banking sector grow to massively dwarf the rest of the economy. When the housing bubble popped, the banks in Cyprus were left over-extended like most other countries with lax banking regulations, but Cyprus doesn't have an economy big enough to cover the shortfall. That's the problem. Freezing various forms of deposit might be a sucky thing, but it's a part of (what is hopefully) a solution to the real problem.

Yup... looks like they got the bailout. I think it still need to be voted on by the parliament.

Under the plan, Cyprus' second-largest bank, Laiki, will be restructured and holders of bank deposits of more than 100,000 euros there will have to take losses, Dijsselbloem said, adding that it was not yet clear how severe the losses would be.

I guess most of the ex-patriot deposits are in this Laiki Bank?

 whembly wrote:
Yup... looks like they got the bailout. I think it still need to be voted on by the parliament.

Under the plan, Cyprus' second-largest bank, Laiki, will be restructured and holders of bank deposits of more than 100,000 euros there will have to take losses, Dijsselbloem said, adding that it was not yet clear how severe the losses would be.

I guess most of the ex-patriot deposits are in this Laiki Bank?

In the end, it looks like Cyprus has realised that they've got to close their back on being a dodgy offshore bank for Russian gangsters. Good result from a gak situation.

Still, if I was a Cypriate parliamentarian I'd be looking under my car every morning before turning on the ignition.

 sebster wrote:

 AlexHolker wrote:
These three alone can be read as "We reserve the right to steal all of your money". They would allow the government to take your money out of your bank account and put it into another account that only they can access, without any requirement that they give it back when the term deposit expires.

No, it doesn't. It means that you can't pull your money out of the bank.

A meaningless distinction. The sole purpose of money in the bank is to be taken out of the bank. You might want it to be kept safe until you take it out, or you might want to take more out than you put in, but money that cannot be taken out might as well not exist.

The purpose of a time deposit account is to lock away the money for a higher rate of interest. The use of that type of account is to stash cash you don't want to withdraw.

 Kilkrazy wrote:
The purpose of a time deposit account is to lock away the money for a higher rate of interest. The use of that type of account is to stash cash you don't want to withdraw.

No, it's to stash cash you don't want to withdraw right now. You do want to withdraw it at some point in the future - an option which is not available if the government can force you to renew the account ad infinitum.

Wow... suitcases of cash may be confiscated... here's the general Q&A:

Q: What actions does Cyprus need to take to enforce the capital controls adopted with last week’s legislation?

A: The Cypriot parliament passed enabling legislation last week, giving the central-bank governor and the finance minister the power to take measures to stem capital outflows. The legislation is quite generic and allows the country’s top finance and monetary officials to impose measures ranging from daily ATM withdrawals to freezing domestic interbank lending, suspending direct-debit orders and converting checking accounts into time deposits. The law allows the finance minister or, when relevant, the central-bank governor, to “take whichever restrictive measure [they] consider necessary under the circumstances, for reasons of public order and/or public security.” A decree enacting this bill and laying out the specific details of the capital controls is yet to be issued.

Q: What capital controls are already being enforced (e.g. border checks, ATM limits)

A: Customs officials said border guards at the counrtry’s air and sea ports have been instructed to check baggage and monitor whether travelers are taking more than €10,000 (about $13,000) out of the country. Any amount above that €10,000 threshold can be confiscated. Daily ATM limits vary: at Popular Bank of Cyprus (Laiki), cash-machine withdrawals have been capped at €100 euros; at Bank of Cyprus, the limit is €120. Other ATMs are operating normally.

Q: Can people bypass controls and ATM withdrawal limits by crossing over to Northern Cyprus?

A: At present, border guards at the main pedestrian crossing point on Ledra Street aren’t searching people unless they have intelligence indicating that someone is carrying a large amount of cash. That could change.

Q: How are the ATM limits and bank closures affecting businesses, such as hotels?

A: Many businesses are struggling to understand how the capital-control measures will affect their day-to-day operations, such as their access to cash, meeting payroll and other obligations, as well as the longer-term impact of the financial crisis on their businesses. “In two-three days we need to pay our employees. Will we be able to do that? What happens with the workers who get paid via Laiki?” asks Michalis Pilikos, the president OEB, Cyprus’s national business association. “For many this will be a major wound, we’ll see immediate mass layoffs and closures.” In the meantime, many small businesses are refusing to accept credit-card transactions of electronic transfers out of uncertainty over when banks will reopen and concern they may not be able to recoup the funds. Some larger businesses, like Nicosia’s Hilton Hotel, still accept credit cards but not bank transfers.

Q: When are banks likely to reopen? What will happen when banks reopen? Will even small depositors have access to their deposits?

A: On Monday, March 25, banks were officially closed for a national holiday in commemoration of Greece’s Independence Day. They have been closed since March 16. Banks are due to open Tuesday at 8:00 a.m., but there is some speculation that the extended bank holiday may yet stretch for another day or longer as Cypriot officials race to implement the new capital control measures. Officials are expected to have the capital-control measures in place before the banks reopen.

On the flip side, this sounds like the European version of the Cayman Islands.

 whembly wrote:
Wow... suitcases of cash may be confiscated...

I'm pretty sure that you need to declare if you are travelling with over 10,000 euros already, though I am not sure what the laws are regarding what happens if you travel with that much and don't declare it I imagine they could at least impound it for a while.

The US checks for suitcases of cash as well, so go figure.

 d-usa wrote:
The US checks for suitcases of cash as well, so go figure.

They do? Was that a post 911 thing?

I traveled out of states prior to 911 and they never asked me if I had loads of cash...

 whembly wrote:

 d-usa wrote:
The US checks for suitcases of cash as well, so go figure.

They do? Was that a post 911 thing?

I traveled out of states prior to 911 and they never asked me if I had loads of cash...

https://help.cbp.gov/app/answers/detail/a_id/195/kw/DECLARING%20CURRENCY%20WHEN%20LEAVING%20US/session/L3NpZC9aRURQeTNtbA%3D%3D

There is no limit on the amount of money that can be taken out of or brought into the United States. However, if a person or persons traveling together and filing a joint declaration (CBP Form 6059-B) have $10,000 or more in currency or negotiable monetary instruments, they must fill out a "Report of International Transportation of Currency and Monetary Instruments" FinCEN 105 (former CF 4790).

 d-usa wrote:

 whembly wrote:

 d-usa wrote:
The US checks for suitcases of cash as well, so go figure.

They do? Was that a post 911 thing?

I traveled out of states prior to 911 and they never asked me if I had loads of cash...

https://help.cbp.gov/app/answers/detail/a_id/195/kw/DECLARING%20CURRENCY%20WHEN%20LEAVING%20US/session/L3NpZC9aRURQeTNtbA%3D%3D

There is no limit on the amount of money that can be taken out of or brought into the United States. However, if a person or persons traveling together and filing a joint declaration (CBP Form 6059-B) have $10,000 or more in currency or negotiable monetary instruments, they must fill out a "Report of International Transportation of Currency and Monetary Instruments" FinCEN 105 (former CF 4790).

Huh... cool.

Thanks.

I regularly carry at least 10,000 Euros in my wallet so have to fill out one of those forms every time I fly to the shops. It is a nightmare!

 AlexHolker wrote:
A meaningless distinction. The sole purpose of money in the bank is to be taken out of the bank. You might want it to be kept safe until you take it out, or you might want to take more out than you put in, but money that cannot be taken out might as well not exist.

Oh look, I can play the misleading quote game too!

money... might as well not exist.

Communist!



Or, you know, read my actual answer, in its entirety. It's only about eight lines, and it shouldn't take you too long. I think that's less lines than the Hungry Caterpillar. In it you might actually learn something about what drove this problem and why this is a sucky but necessary part of the solution, that means people have a chance of getting any of their money back down the line.

Or you know, don't and just carry on with whatever it is you're doing now.