Today is the Morning After. The banks are closed in Cyprus, but elsewhere they aren’t. Here are some links on the Cyprus bailout, and why it is such a blunder. In the articles there are a lot of links as well so please read everything and then contact the European Parliament to send this Commission home. Charles Wyplosz puts it very simply like this:
The decision to tax all Cypriot bank deposits has attracted massive attention (Spiegel 2013) – and rightly so. It is a huge blunder:
• In the unlikely event that all goes well, the government will receive a bit of cash – but not enough to cover the loan generously offered by its European partners – and the Cypriot banking system will be history.
• The alternative is a massive bank crisis in many Eurozone countries – a huge blow to the euro, maybe even a fatal one.
First, Bloomberg on the current reaction of the markets:
Then, backgrounds and explanations why this is such a blunder.
Cyprus: The Next Blunder (Charles Wyplosz)
Cyprus’ Stability Levy: Another sad euphemism (updated on 18th March) (Yanis Varoufakis)
Will Cyprus Become Creditanstalt 2.0? (Naked Capitalism)
Fed Watch: The War on Common Sense Continues (Tim Duy) A small excerpt:
Peter Siegel at the FT places the blame on the Germans:
Unbeknown to the Cypriot delegation members as they entered the hulking Justus Lipsius summit building in Brussels on Friday night, their fate was already sealed: their German counterparts wanted about €7bn for the estimated €17bn bailout of their country to come from deposits in the country’s banks.“They were hand in hand with Finns, who were much more dogmatic,” said one senior eurozone official involved in the 10-hour marathon talks that stretched until 3am on Saturday morning. “Had that not happened, full bail-in,” the official added, using the terminology for wiping out nearly all Cypriot bank accounts.
I don’t know if that meant if the Finns saved some of the Cypriot depositors (metaphorically speaking) or how to parse this sentence. But I am not happy with this. My adopted home country endorses raiding banks to plug holes. Not good. Through the Financial Times (link in the Naked Capitalism piece):
Mr Schäuble was not alone. Several officials involved in the talks said he not only had backing from the Finns, Slovaks and to a lesser extent the Dutch. The International Monetary Fund, which had been urging depositor haircuts for months, had won the argument over the skittish European Commission, which had long worried that seizing depositor assets could spark a bank run in Cyprus […]
So also my home country. This article by Ed Harrison explains the ideas behind the German (and possibly Dutch and Finnish) policies on the Eurozone. Not to become happy about. Great. Here is a comprehensive overview of the whole deal-making process, courtesy of the Wall Streat Journal:
Cyprus Rescue Risks Backlash
Background and analysis:
This Crazy Cyprus Deal Could Screw Up A Lot More Than Cyprus… (Business Insider)
Cyprus bails-in depositors to reduce cost of Eurozone bailout – a turning point in the Eurozone crisis? (Open Europe Blog)