An Offer Cypriots Can’t Refuse

In what has become a depressingly familiar EU template, yet another “eleventh hour” deal was reached between the European Central Bank (ECB) the European Commission (EC) and the International Monetary Fund (IMF) — known as the “troika” — and Cypriot President Nicos Anastasiades to avoid national bankruptcy. “It’s been yet another hard day’s night,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels, where the deal was put together. “There were no optimal solutions available, only hard choices.”

Hard choices indeed. In return for a $13 billion ($10 billion Euro) bailout, the tiny Mediterranean nation has agreed to wind down Laiki Bank, Cyprus’s second largest, wiping out thousands of jobs in the process. Depositors holding more than $130,000 will take potentially huge losses, the percentage of which has yet to be determined. But because the bank is expected to yield approximately $5.4 billion to satisfy the latest agreement, it is estimated that those losses will be as much as 40 percent, more than four times the 9.9 percent that was part of the deal rejected by the Cypriot parliament in a unanimous 36-0 vote last week.

No parliamentary vote will be required this time around. In the previous deal, the bailout money confiscated from bank accounts was going to be raised by imposing a nationwide tax on bank accounts that were both insured and uninsured. Imposing a tax required a vote by the Cypriot parliament. Because this new grab only targets uninsured accounts at Laiki Bank and the Bank of Cyprus, nine laws passed last Friday by parliament allowing bank “restructures” to go forward means no further vote is required.

Depositors with less than $130,000 in holdings will remain “fully guaranteed.” In a deal reminiscent of the TARP bailout, Laiki Bank will be immediately dissolved into a “bad bank” containing uninsured deposits and toxic assets, while the remaining insured deposits with be transferred to the “good” Bank of Cyprus, the nation’s largest lending institution.

EU-philes and other assorted leftists offered their typical rationale for this latest effort. The New York Times framed the deal as one that would “prune the size of Cyprus’s oversize banking sector, bloated by billions of dollars from Russia and elsewhere in the former Soviet Union.” IMF leader Christine Lagarde called it a “a comprehensive and credible plan” to restore faith in the nation’s banking system. French Finance Minister Pierre Moscovici deemed the deal necessary because Cyprus is “a casino economy that was on the brink of bankruptcy.” Cypriot Finance Minister Michalis Sarris claimed that “we really have avoided a disastrous exit from the eurozone.” German Finance Minister Wolfgang Shaeuble contended the agreement was “capable of stabilizing the situation in Cyprus.”

The realists were far less sanguine. “This decision is painful for the Cypriot people. This decision was a defeat of solidarity, of social cohesion, which are fundamental freedoms, fundamental principles of the European Union,” Parliament President Yiannakis Omirou told AP. “So as soon as possible we have to prepare our economy to go out from the mechanism and the troika,” he added. Nicholas Papadopolous, chairman of the Cypriot parliament’s finance committee, was far more direct. “We are heading for a deep recession, high unemployment. [The troika] wanted to send a message that the Cypriot economy ought to be destroyed, and they’ve succeeded in a large part–they’ve destroyed our banking sector,” he told the BBC. Russian Prime Minister Dmitry Medvedev spelled out the meaning of the deal in no uncertain terms. “The stealing of what has already been stolen continues,” he said.

Perhaps the most amazing–and utterly naive–aspect of this deal is the idea that what has happened in Cyprus will stay in Cyprus. UK Independence Party (UKIP) leader Nigel Farage called on British expats in Spain to pull their money out of Spanish banks, contending the EU leaders had “crossed a line” in Cyprus. “There is going to be a big flight of money and that flight of money won’t just be from Cyprus, it will be from the other eurozone countries, too,” he warned. “There are 750,000 British people who own properties, or who live, many of them in retirement, down in Spain. Now that we see the EU are prepared to resort to anything to keep alive their failing euro project, our advice to expats living down in the Mediterranean must be, ‘Get your money out of there while you’ve still got a chance.’”

Christopher Pissarides, a Nobel prize-winning economist advising President Nicos Anastasiades, contended that the troika is treating Cyprus “far worse” than other EU basket cases that needed bailouts, and predicts that “the way we deal with this situation has implications for the rest of Europe.” “We have a German finance minister who comes and tells us Cypriots that ‘We don’t like your economic model, bankrupt your banks and you can sort it out on the way’…The difference with Cyprus is that it is small. Is Luxembourg going to be next in line? Is Malta going to be next in line? Small members of the Eurozone beware,” he cautioned.

In the same Friday session during which bank restructuring laws were passed, the Cypriot parliament also imposed capital controls to prevent a likely stampede of money out of the country. Yet the EC, claiming they were acting on behalf of “Cypriot authorities” said that such controls, which violate EU laws regarding the free flow of capital, can only be imposed for a short time. “This is a restriction on movement that may only last a few days,” said Michel Barnier, the Commissioner responsible for the EU’s single market.

Cypriot banks are supposed to open today, after imposing cash withdrawal limits at bank machines over last weekend when Cypriots began withdrawing their money in droves. At first, they could withdraw 400 Euros, then 260, and then only 100 Euros, after the central bank in Cyprus stepped into prevent a run. Cash was king over the weekend as well, as several retailers refused to take credit cards or checks. “It’s been cash-only here for three days,” said Ali Wissom, a restaurant manager in Nicosia. “The banks have closed, we don’t really know if they will reopen, and all of our suppliers are demanding cash–even the beer company.”

It will undoubtedly get worse. Russians, who maintain accounts totaling $31 billion of the total $88 billion held in Cypriot banks, will surely find other places to put their money, after having been caught flat-footed by this deal. Dozens of them descended on the country last week to vent their anger at Cypriot officials. Fedor Mikhin, who owns an international shipping business, illuminated the implications. “The locals should understand: as soon as the money leaves, the people who go to restaurants, buy cars and buy property leave too,” he said. “The Cypriots’ means of living will disappear. They are saying we laundered all the money, but they lived on that money for ten years and forgot about it,” he added.

European Commission President Jose Manuel Barroso insists the future is less certain.”I am confident that the program will work, but let’s be honest. At this moment, we cannot say exactly what the impact is going to be,” he told reporters. “It will depend on the level of implementation and the commitment of Cyprus itself.”

The “impact” may be more than monetary. A public poll conducted by Cyprus’s Sigma television reveals that more than 66 percent of those surveyed would be willing to drop the euro and move closer to Russia. Much of the island’s anger has been directed towards the EU in general, and German Chancellor Angela Merkel in particular, whose nation Cypriots consider the chief architect behind the deal. “There is a clear danger of this area becoming a platform for confrontation between East and West,” said Harry Tzimitras, director of a research center in Nicosia.

It already has, and the more than 50,000 Russian-speaking people who have come to Cyprus from the former Soviet Union deeply resent the underlying rationale behind this confiscation of funds. “We are not criminals, arms dealers or bootleggers,” said Sergey Ivanov, a Russian who runs a wine business. “There is a generation of Russian businessmen like me who have lost faith in the Russian government, in Russian banks and in Russian laws. That is why we are in Cyprus.” A Nicosia-based lawyer was equally contemptuous. “I don’t understand why it is money laundering when it’s in Cyprus, when in London it’s a perfectly respectable company.”

There is no question that Cyprus has benefited greatly from its 30-year reputation as a tax haven. Foreign companies pay a flat tax rate of just 10 percent, making it extremely attractive to operate there. That reality may explain what this deal is really all about: to send a message that the socialist beast devouring Europe will brook no challenges to its high-tax, supra-nationalist authority despite the reality that it was the supra-nationlists and their lust for a “new world order” under the EU that set the entire “poor southern Europe versus rich northern Europe” dynamic in motion. It is a dynamic that has a financially secure Germany berating its spendthrift southern neighbors for being fiscally irresponsible, even as its heavily export-dependent economy requires such nations to buy German goods.

Ever since the European fiscal crisis began, the bureaucrats in Brussels have successfully convinced the majority of people living in places like Greece, Spain and Italy that national bankruptcy and a return to a national currency would be far more catastrophic than the ongoing austerity measures currently being imposed.

Yet one has to wonder how long that argument will continue to resonate. In Greece, for example, the unemployment rate reached a record-setting 27 percent in November. Almost unbelievably, that rate soars to 61.7 percent for those in the 15-24 age group. They are in their sixth straight year of a “recession,” that is really an outright depression, and their economy shrank another 6.45 percent in 2012. Furthermore, 35 percent of the entire population will be officially living in poverty by the end of 2013, an increase of five percent in just two years, all with no end in sight.

Can national bankruptcy and a return to the drachma, which would then be devalued to attract foreign investment, be any worse?

Coming to that conclusion is precisely what the Brussels bureaucrats and the international finance establishment are desperately trying to suppress. Yet in their unrelenting arrogance, they have overplayed their hand. The ultimate fundamental that encourages people to put their money in financial institutions is trust. That trust has now been obliterated. “We now have a new type of rule and everyone within the euro zone has to sit down and see what that implies for their own finances,” warned Christopher Pissarides.

David Folkerts-Landau, chief economist of Deutsche Bank, was far more honest. “If a single country leaves the euro zone, it sets a precedent,” he said last week. “No one will ever again believe that a country will not leave the euro zone.” Whether it stays or goes, Cyprus is facing a nightmarish scenario. What the people of that nation have to figure out is which scenario puts them in a better position for the future.

Cypriots might take their cue from Iceland President Olafur Ragnar Grimson. When that nation faced a banking crisis in 2008, they took a capitalist approach to the problem: they let the banks go under. Five years later, the economy is growing at a three percent clip, and their unemployment rate, which rose to 8.6 percent in January 2011, was down to 5.5 percent in January 2013. At the World Economic Forum in Davos that same month, Grimson posed a fundamental question. “Why do we consider banks to be like holy churches?” he wondered. Perhaps Cypriots–along with a lot of other people–might ask themselves the same question.

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  • AdinaK

    The US is going down the same path. In fact, it is playing out all over the country, in big and small ways. The question becomes: will the average American be prepared? –

    It is way worse than most realize.

    Adina Kutnicki, Israel

    • jimi belton

      Adina I agree….when the dust hits the fan here, there will be more violence than a person can believe….That is why we cannot buy another round of .22 ammo…let alone any serious knock down ammo…I have heard Geo. Soris has bought out a major Ammo producing company and shut it down…..Just asking….it is what has been circulated…Yes the USA is in for Hell on this earth and suddenly… i prepared…..You bet i am, and my house…Bless you…Jimi

  • Ghostwriter

    I hope you're wrong,AdinaK. I hope you're wrong.

  • Chezwick

    The writing is on the wall, folks. Anyone who thinks the EU can survive this crises LONG-TERM is living in a nether-nether land. The German bail-out of its southern neighbors is a bottomless pit. One bailout will always be followed by another. Greece, Cyprus, Portugal, soon-to-be Italy and Spain. And not just one for each country, but one after another as each successive bailout fails to stem the tide.

    Certain economic realities can be counted upon, like the laws of physics. An example would be that the mass production of ethanol would inevitably drive up corn-prices. Another would be that the deficit spending required to maintain the entitlement state will inevitably result in insolvency. You can COUNT ON IT!

    Dreamers, do-gooders, and bleeding hearts…..welcome to the real world.

    • davarino

      Well put Chez, although the lefties would say this is not an indictment of socialism, but that all the money from high taxes was confiscated/stolen to be used for something other than government. Ya, sure, its never the fault of socialist ideals, that have proven never to work, its those evil capitalist. Ya, its not free market capitalism that made America great, it was stealth socialism working behind the scenes hehehehehehe

    • al Kidya

      Ain't Socialism wonderful? NOT!!!

    • Snorbak

      Anyone who cannot see the looming financial collapse is not looking very hard.

      Economics 101: If you problem is liquidity than it can be solved by borrowing some money. If your problem in solvency it will only be made worse by additional borrowing. Insolvent & unofficially bankrupt states running multibillion/ trillion dollar deficits, including the US & EU will ultimately collapse.

      Regardless of the economic principals or modeling used, there will always be those that are prepared to manipulate, bend & break regulations for their own gain. The problems we are seeing unravel within the worlds financial markets are the result of greed. As harsh as this may sound, the best option is to allow poorly managed banks & Govt treasuries to fail, punish those responsible & rebuild from the ground up. Pouring more money into a failed financial system is simply more of the same.

  • Alvaro

    Southern Europe should never have been allowed to enter the Eurozone in the first place.

    • Rostislav

      I think that the question is not about North and South or East and West. The question is about the pervert Socialist bureaucracy of the EU in general. Even in my Soviet Union our well-experienced bureaucrats were never so strict with a control of any petty rules' departures (uniform size of EU cucumbers, politcorrect names for EU bottled water etc) and never so generous with the basic budget laws' abuse (Germany's own budget including). Cyprus tragedy proves only one thing, already proven long ago: Socialism just can't work, be it in a single country, like the USSR, in an international alliance, like the EU or in a global project, like Agenda 21. Rostislav, Saint-Petersburg, Russia.

  • Dr.N.Ramasubramanyan

    EU countries are falling one after the other.Latest is Cyprus.How bailouts will in the long run benefit? Falling Euro may benefit Germany to boost its exports and have a solid trade surplus. But Russia is now dead against Germany because Russians will lose their deposits and Germany laughs it as ugly money lost. Before 1st world war, an Autrian price was bombed and killed in his car, resulting in Russia and Gemany jumping into war. Cyprus crisis should not lead to such situation. Hitlar called Jews as ugly. Germany indirectly indicts in the same way aboutRussia.There is no financial integrity in the world now. People lose faith in banking system.

  • umustbkidding

    "When we get piled upon one another in large cities, as in Europe, we shall become as corrupt as Europe ." — Thomas Jefferson


"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

– Thomas Jefferson


"I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them." — Thomas Jefferson
"My reading of history convinces me that most bad government results from too much government." — Thomas Jefferson


"No free man shall ever be debarred the use of arms." — Thomas Jefferson


"The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government."– Thomas Jefferson


"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants." — Thomas Jefferson

"To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical."– Thomas Jefferson


Thomas Jefferson said in 1802:

"I believe that banking institutions are more dangerous to our liberties than standing armies.

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property – until their children wake-up
homeless on the continent their fathers conquered."

  • HiPlainsDrifter

    Seems the can constantly kicked down the never ending road, is wearing thin.
    Wars and revolutions have been started for much less…

  • AnOrdinaryMan

    Wait…let me get this straight. The EU has dissolved Laikia bank, on Cyprus, because Germany is insolvent? And they need the funds to help Germany out of its fiscal crisis? This has profound implications for the so-called "New World Order;" namely, if socialism doesn't work in Europe, how can it work on a global scale? Watch out America….here it comes.

  • RiverFred

    At sometime the US will have to do something about it's out of control deficit (the US just gave the Palestinians $1/2 billion of your tax money to support their "Allah Martyrs") thus kick starting inflation making your $$$ worth far less.

  • surfcitysocal

    "When that nation (Iceland) faced a banking crisis in 2008, they took a capitalist approach to the problem: they let the banks go under. Five years later, the economy is growing at a three percent clip, and their unemployment rate, which rose to 8.6 percent in January 2011, was down to 5.5 percent in January 2013."

    Oh, those evil capitalists!

  • Roy Dzigli

    I wrote a paper when I was a Sophmore in high School…HIGH SCHOOL!!! in the 60's. THE 60's!!!!!!!
    lol . The premise was that what the Germans could not do through force they would do through financial means. What does a 16 year old know? (I also predicted the ruin of the black family unit through welfare and the overrun of the media by leftists because of Watergate ….The hero worship of Woodward and Bernstein? Duh! Thank Nixon for that) A lot of it is in the Communist manifesto if you want to read it.
    What do I predict now? Actually I don't care. I'm old….nothing to lose because i'll be dead before civilization colapses if it does. My good guess is that a real genius Messiah not this faux genius Obama will appear and save our bacon…..I'm just sayin! Regards,Roy

  • Fritz

    I wonder how long before a few statist Eurocrats get to dine on Pollonium laced sushi after this fiasco? You don't just go in and raid the bank accounts of millionaires and billionaires just because they have the wrong postal code and think you will get away with it, especially when their pal has his finger over the other nuclear button in the world. Germany and the other E.U states will pay for this, in one way or another, they may have an economic engine but it's Russia that has the fuel.
    As for the people of Cyprus they deserve better, I hope they leave the E.U and move into the Russian sphere of influence. Granted Putin isn't exactly a democrat, in fact he's a KGB thug, but compared to the meddling E.U elite the man is a libertarian. Or better yet the former Warsaw pact countries should collectively pull the plug on the E.U and create their own trading block, at least they know first hand how state controlled economies based on property confiscation fail to work.

  • Len_Powder

    "It is a dynamic that has a financially secure Germany berating its spendthrift southern neighbors for being fiscally irresponsible, even as its heavily export-dependent economy requires such nations to buy German goods."

    It seems that Hitler's dream of dominating Europe have been realized except that the conquest was not achieved militarily, as he expected. It was achieved financially and politically by a very clever group of elitist globalists taking advantage of a population of uninformed and misinformed denizens. Ironically, these intellectual elitists are about to inflict even more catastrophes on the residents of EU member nations than Hitler did with his armies. Socialists always destroy nations, societies and people. What differs in different times and places is their methodology: war in one case, famine in another, gulags in some, financial bailouts in others. SOCIALISM WILL PRODUCE THE ANNIHILATION OF THE HUMAN RACE! THAT IS ITS DESTINY BY VIRTUE OF ITS INSANITY!