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Cyprus Parliament Unanimously Rejects Bailout Plan

Posted: March 19, 2013 | Author: | Filed under: Global Financial Crisis | Tags: , , |13 Comments

Cyprus bailout Cypriots

Well, they did it. Matthew Boesler at Business Insider:

The Cypriot parliament has voted against the controversial bank bailout deal hatched with the EU over the weekend, reports Bloomberg.

36 voted no.

19 abstained from voting.

No one voted in favor of it.

The vote was held in a show of hands.

The big part of the bailout plan that has everyone up in arms: a controversial decision to apply haircuts to depositors, which essentially amounts to an expropriation of a certain percentage of money from everyone’s bank account.
That includes insured depositors – those with up to 100,000 euros in the bank – whose funds, up to now, were widely considered sacrosanct.

Now what? Your guess is as good as mine.

I imagine Russia is likely to play a role in this situation going forward, so I found some reactions to the bailout proposal from Vladimir Putin at The Brisbane Times. He wasn’t happy with the deal, which would have removed around 10% of the value of accounts held by many Russians.

Russia’s President Vladimir Putin called the proposed levy ”unfair, unprofessional and dangerous”, and his finance minister suggested Moscow could withdraw a €2.3 billion loan made to Cyprus in 2011. The bank levy was partly intended by Brussels and Berlin to prevent European Union taxpayers spending billions propping up the ill-gotten gains of Russia’s super-rich in Cypriot accounts.

Russian deposits in Cyprus, which offers attractive interest rates and asks few questions, are estimated at €20 billion, meaning Russian corporate and individual investors could lose up to €2 billion in one fell swoop.

Russia’s Finance Minister Anton Siluanov said: ”We had an agreement with colleagues from the eurozone that we’d co-ordinate our actions. So, we will consider the issue of restructuring of the loan taking into account our participation in the co-ordinated actions with the European Union to help Cyprus.”

Other Russian officials tried to allay fears by publicly announcing that whatever happens in Cyprus, the Russian financial system will remain stable.

Merkel stole

I guess Angela Merkel is going to have to come up with another plan or else dream up some better threats.

Obviously this is a fast-moving story, but I’ll include links to the very latest headlines below and then post updates in the comments.

Financial Times: Stocks fall as Cyprus uncertainty mounts

Miamai Herald: Give Cyprus more time, Greece tells EU

Bloomberg: S&P 500 Falls for Third Day as Euro Weakens on Cyprus

Bloomberg: German Stocks Decline Before Cyprus Votes on Bank Levy

Guardian UK: Crisis deepens as Cyprus MPs reject savings tax

13 Comments on “Cyprus Parliament Unanimously Rejects Bailout Plan”

  1. RalphB's avatar RalphB says:
    March 19, 2013 at 3:44 pm

    In another time, this could be seen as the run up to war in Europe. The German government is attempting to force it’s views on the rest of the continent. Seems they haven’t learned a damn thing from the 20th century.

    • bostonboomer's avatar bostonboomer says:
      March 19, 2013 at 3:47 pm

      It’s still kind of scary.

    • Lakis Velotris's avatar Lakis Velotris says:
      March 20, 2013 at 9:21 am

      Yet another Unbridled Trojan Horse. The Greek Church begat Islam and COmmunism by rejecting Original Sin. Time for Greeks to fly off to another planet.

  2. bostonboomer's avatar bostonboomer says:
    March 19, 2013 at 3:45 pm

    Bloomberg: A Cypriot Nobelist Is ‘Appalled’ by the Proposed Bailout Bank Tax

    Christopher Pissarides, who shared a Nobel Prize in economics in 2010, told Bloomberg Businessweek in an e-mail today that he is “appalled” by Europe’s plan to impose a tax on deposits in Cypriot banks to help pay for a $13 billion bailout. Pissarides was born and raised in Cyprus. As a child, he recalled in his Nobel biography, “I used to spend the time with my cousins, fishing in Kyrenia (mostly unsuccessfully) or playing in the riverbeds and springs of Agros.” He has professorships at both the London School of Economics and the University of Cyprus. Last month he was named to head an economic policy council that will advise President Nicos Anastasiades.

  3. bostonboomer's avatar bostonboomer says:
    March 19, 2013 at 3:49 pm

    A deal like this was considered for the U.S. in 1941: In 1941, The Federal Reserve Wrote A Letter Explaining Why The Cyprus Bailout Was Such A Terrible Idea.

    in 1941, the Federal Reserve responded to an inquiry on why American deposits weren’t taxed, since it would be so easy to administer and would produce so much revenue.

    Perhaps, the Fed said, it could be done.

    But such a tax would also violate “one of the fundamental principles of taxation in a democracy.”
    That is, some rich guy may actually have a relatively small amount in his deposit account that consists only of his salary and dividends, while a local businessman may have his entire payroll locked up in his branch’s vault.

  4. RalphB's avatar RalphB says:
    March 19, 2013 at 3:56 pm

    From what Germany is pushing, the Cypriot bank bondholders must be German since the plan calls for them to come out completely untouched.

  5. bostonboomer's avatar bostonboomer says:
    March 19, 2013 at 4:09 pm

    From Wonkblog:

    The central bank chief of Cyprus, the aptly named Panicos Demetriades, has said that 10 percent of the country’s bank deposits will flee should any kind of bank levy take effect. That would likely increase the necessary scale of the bailout, perhaps to a level the troika is unwilling to tolerate. Worse, it could prompt an even larger haircut, leading to further capital flight, and so on, creating a deadly spiral. Demetriades, the central bank, and the ECB all want to exempt deposits under €100,000, which are subject to government guarantees which the bank levy would abrogate, but his warnings suggest he doesn’t think that change would be sufficient to stop significant withdrawals as soon as banks open on Thursday.

    There are also geopolitical concerns. Russia, a patron of sorts to Cyprus and source of about a third of its bank deposits, is firmly against any kind of bank levy. President Vladimir Putin has described the plan as “unfair, unprofessional and dangerous,” while Prime Minister Dmitri Medvedev said it “was just like a confiscation of someone else’s money.” Medvedev ominously warned that Russia may be forced to “correct” its relationship with Cyprus if the levy should go into effect. It may be that preventing that sort of “correction” is important enough to Cypriot legislators to render any deal including a haircut a non-starter.

    I love the way Dylan Matthews thinks it’s no big deal to confiscate 10% of a business’s funds.

    • RalphB's avatar RalphB says:
      March 19, 2013 at 4:18 pm

      Give Matthews a charter membership to the Andrew Ross Sorkin “Banker’s buttboy” club. He earned it.

  6. bostonboomer's avatar bostonboomer says:
    March 19, 2013 at 5:10 pm

    EU Stiff-Arms Cyprus After Country Says ‘No’ To Bank Bailout Deal

    Read more: http://www.businessinsider.com/eu-stiff-arms-cyprus-after-country-says-no-to-bank-bailout-deal-2013-3#ixzz2O1gTlZ1A

  7. bostonboomer's avatar bostonboomer says:
    March 19, 2013 at 5:29 pm

    Report: Plane tickets from Moscow to Cyrus are sold out.

    http://www.businessinsider.com/plane-tickets-from-moscow-to-cyprus-sold-out-2013-3

  8. bostonboomer's avatar bostonboomer says:
    March 19, 2013 at 6:33 pm

    Joe Weisenthal: CYPRUS: Two Possibilities For What Happens Now

    http://www.businessinsider.com/socgen-lays-out-possibilities-after-cyprus-rejects-bailout-2013-3

  9. minkoffminx's avatar JJ Lopez Minkoff says:
    March 19, 2013 at 8:22 pm

    Hey check it out: South Carolina: Elizabeth Colbert Busch Wins Democratic Primary | At the Races

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