03.27.2013 original publish date
04.01.2013 Update: Gov May Now Seize 60% Depositors’ Cash Accounts Over 100,000 Euros (US$129,000) (page bottom)
06.06.2016 Repaired/ Replaced broken links
Cyprus Gov May Seize 30-40% Depositors’ Cash for an EU Bailout
original article written by Net Advisor™
Nicosia, Cyprus. The little island nation of Cyprus, located just south of the country of Turkey and east of Israel and Syria is technically insolvent. Like Greece, Ireland, Portugal, and Spain, with Italy on the map, these countries have been ran by socialistic-driven governments, borrowing more than they could ever repay, along with reckless lending, high unemployment, and collapsing real-estate prices helped lead to their financial problems.
“By 2011, the IMF reported that their (Cyprus) assets – which include all the loans they have made – were equivalent to 835% of annual national income, or GDP.”
— Source: BBC
All of these countries are members of the European Union where Germany has more influence on the future direction of the EU than any other country. Why? Germany has real industry, the money, and who has been looked at to bailout the European Union governments and banking systems.
A Little Country with Big Problems
Cyprus is the EU’s 3rd smallest economy, and like Greece, Cyprus has hit headlines that have global financial markets a bit nervous. Why global markets care about a country whose entire GDP is less than $25 Billion is a study in itself.
The entire country of Cyprus has a population less than 1 million people. This is 1/10th the population of Los Angeles, California which is 9.9 million. New York has a population 8.2 million.
Arguably, the financial markets are not really concerned with Portugal, Greece, Ireland, or Cyprus, they are more concerned about contagion spreading to Italy, Spain, or even France. The UK is not exactly in the economic clear either. The UK government is facing a credit downgrade very soon and has been in two recessions in four years.
“At the end of the second quarter of 2012, the government debt to GDP ratio in the euro area stood at 90%, compared with 88.2% at the end of the first quarter of 2012. In the EU27, the ratio increased from 83.5% to 84.9%. Today’s graphic shows the government debt to GDP ratio for every European country.” (Caption and graphic credit: Reuters, 2012) Click image to enlarge.
EU Facing a Wave of Credit Downgrades
The EU will stay together or fall together. So far, except for Germany, many countries have faced one to multiple credit downgrades. Ireland and Portugal’s credit sat at “junk status” in 2011. Italy’s credit was downgraded in 2011 and again in 2013. France and Spain had their credit ratings downgraded in 2012. Greece has the lowest credit rating in the world.
The United States hasn’t done much better. In 2011, the U.S. faced its first credit downgrade in history by S&P after the Obama government failed to adequately address its deficit problems. In 2012, Moody’s warned the U.S. gov for the 5th time of a possible credit downgrade. Days after the Moody’s warning, Egan-Jones downgraded the U.S. credit rating.
Counties are failing to properly address their fiscal deficits, overall national debt, and their out-of-control spending problems.
“…euro area’s sovereign debt markets remain vulnerable to further shocks to investor confidence because of limited advances in euro area countries’ growth prospects, debt trajectories and institutional reforms.
As a result, Moody’s outlooks on most euro area sovereign ratings remain negative for now.”
— Source: Moody’s Investors Service, 02-27-2013
The U.S. thinks it can spend its way out of debt. The EU thinks it can borrow its way out of debt. Both of these strategies won’t work.
Deposits Frozen at All Cyprus Banks
All Cyprus banks have been closed since March 16, 2013. Will I get my money from my Cyprus bank? Maybe. Check back Tuesday, no Thursday, no make that next Thursday. The government of Cyprus has orchestrated headlines for the media to let people think that the bank closures are only temporary, and will be just fine shortly.
- 03-18-2013 Cyprus banks will stay closed until Thursday
Officially (for now):
“For the smooth functioning of the entire banking system, the Finance Minister has decided upon the recommendation of the Governor of the CBC, that all banks remain closed until Wednesday, 27 March 2013.”
— Announcement of the Central Bank of Cyprus – Bank Holiday, Republic of Cyprus (PDF)
Some 3,000 (mostly students) protested in the streets for not having access to their own money held by Cyprus banks. The Cyprus government closed the banks in what is called a “bank holiday” (more liberal phrases) fearing a run on the banks. If depositors took much or all their money out of the banks, where would the government be able to get the money to meet Germany’s bailout package?
Reverse Bank Robbery: Government to Seize Larger Bank Deposits
Originally, the Cyprus government was going to access a “one-time” tax of 6.75% on all bank accounts “between €20,000 (US$2,900) and €100,000 (US$129,000) in assets,” and a “9.9% tax above that level.” This outraged everyone, and the move was voted down.
Now that the banks are still closed, and no one can get their money out, government had all the time they wanted to figure out who is going to help pay for their mistakes. Answer: Anyone who has more than 100,000 euros (US$129,000) in Cyprus bank deposits are going to see a big chunk taken out shortly.
Cyprus needs to raise 3 Billion Euros to meet Germany’s bailout offer of 10 Billion Euros (13 Billion euros total bailout package) or just more than 50% value of the entire country’s GDP.
The Cyprus government will split depositor’s money into two banks: “a good bank” – those who will be allowed to keep their money (for now), and “a bad bank:” those who have saved 100,000 euros (US$129,000) or more will see their government take away a hefty chunk of their money for government use.
“Cyprus Popular Bank Pcl (CPB) and the Bank of Cyprus Plc would be split to create a so-called bad bank, one of the officials said.
Insured deposits — below the European Union ceiling of 100,000 euros ($129,000) — would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold…”
— Source: Global Research. Canada
How much money could bank depositors with cash and assets over 100,000 euros lose? Initially the talk was 20% – more than double the amount first discussed that got voted down. Now the talk is 30% or more of depositor’s money over 100,000 euros.
“It is not clear how much of the money will be taken, but a government spokesman suggests customers should expect to lose about 30% of the balance.”
— Source: BBC
However, Reuters quoting Cyprus’s Finance Minister Michael Sarris who suggested that this number could be in the 40% range. Not all deposits are held by local country persons. The UK, Russia, and other counties have money in this bank too, and will suffer losses too.
The Cyprus government also planned to nationalize all pensions. This idea seems to be rejected (for now).
Surprise? Leading Cyprus Banks’ Credit Downgraded: “Default” and “Selected Default”
One of the credit agencies Fitch downgraded Cyprus’ two largest banks.
“Ratings firm Fitch Ratings has downgraded the two largest Cypriot banks following the agreement Cypriot authorities reached with European Union authorities on Monday morning.”
— Source: Fox Business News, 03-26-2013
Fox Business News reported that the country’s largest institution, Bank of Cyprus was downgraded to “SD” (Selective Default). It will be restructured with most of the financial pain shared by depositors as discussed above.
Cyprus’ second largest financial institution, Laiki Bank was downgraded to “D” (Default), and will be liquidated. Anything above 100,000 euros in Cyprus’ banks are not insured and this is where we say that depositors could be wiped out. The government will decide this and just take the money in order to get their EU (Germany) bailout package.
Open for Business? Sort of
The Cyprus banks are expected to reopen on 03-28-2013, however forget about getting all your money out. The government has imposed withdrawal limits of cash each day to try and avoid a bank run. They also have additional security at the bank just in case.
“Authorities are looking to increase the daily withdrawal limit from 100 euros to 300 euros (from $130 to $386), while payroll payments will be allowed in order to help businesses…”
— Source: Associated Press PDF
Commentary: What Free Market Economy?
We seem to have artificially controlled economies by governments now. The U.S. FED has been artificially pumping $85 Billion per month to prop up the U.S. economy, and maintains there is ‘no inflation’ – if you exclude food and energy that is.
There is no risk to the U.S. economy unless we actually have to pay the money back, foreign counties slow or stop lending to the USA, or bond yields (interest rates) surge higher despite the FED’s influence. The result of that is where no bailout short of seizing some of American’s retirement accounts, pensions, bank account or other assets could be eyed by the government in the USA or elsewhere.
In Cyprus, the way the crisis is being handled is exactly that. Government sees a pot of money, stops people from getting to it, then figures out who to go after and how much to take. Instead of leaving the banks open for the free market to operate, and allow people to decide what they want to do with their own money, government has made all the decisions for them.
This is not exactly what we call a free market.
In a true free market there are failures and successes. Good things can come out of near failed companies.
Back in 1996, then called Apple Computer, Inc. was failing. Business-Week made it front page news. Did we order a bailout? Did government get involved? No. It took one man with a team of motivated individuals to turn the company around and for after some time, become the largest company in the world, with new innovative products.
Not everyone can be a Steve Jobs, and not every business can turnaround. That is what a free market is about. Some make it, some do not. Cyprus is a case where government was not interested in innovation, allowing the takeover by more efficiently ran banks. Everyone was afraid of failure and collateral damage from this tiny nation. Sure, in a free market, this could spook the financial industry, but they find a way to get through it.
Are we going to live in a world now where no bank or government can fail? No matter where we need to get the money to avoid failure, government may do just that – even if it’s your money.
Something to think about.
04.01.2013 UPDATE
Bank Depositors Will Help Bailout Cyprus Banks & Their Government
Those who held over 100,000 Euros (US$129,000) cash in Cyprus banks will now lose 37.5% of their money as the government will seize the funds and apply it toward the EU bailout of Cyprus.
Bank Depositors Deal Gets Worse by the Day
Originally, depositors were going to lose about 6 to 10% of their cash and that panicked everyone. After public outcry, that idea was voted down. Now said depositors will lose 37.5% of their money, and this deal is getting even worse by the day. The latest report suggests that bank savers could lose 60% of their money.
“Savers with over 100,000 euros deposited in the Bank of Cyprus could now be hit for losses of up to 60 per cent, according to a central bank official and a senior finance ministry technocrat.”
— Source: DailyMail.UK
The apparent purpose is to avoid “a bank collapse.” Hint. The banks and government have already collapsed, that is the real purpose of the bailout. Cyprus bank depositors are now coming forward in discussing how much money they have lost.
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Additional Reports:
- Greece is the Word, and So is Bailout (2010)
- Market Report: Stocks, Europe and the U.S. Economy (2011)
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image credits: Map © 2006 Mapquest; Cyprus bank deposit data graphic © 2013 AFP; “The fall of an American Icon” front cover of Business Week, February 5, 1996 (Scan: NetAdvisor.org).
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