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Euro Crisis 51: Is Cyprus The New “Fiscal Hamster” Of The Eurozone..?

 As the European Southern countries continue to live with the tragical consequences of the euro crisis, Cyprus is becoming the new field of fiscal experiment by Brussels. The regional and international fiscal consequneces can be really unpredictable:

Stingy News Article Link Euro Crisis: “Unfair, short-sighted and self-defeating”

IT IS not a fudge, but it is still a failure. The euro zone’s bail-out of Cyprus, which was sealed in the early hours of Saturday, did get the bill for creditor countries down from €17 billion to €10 billion, as had been rumoured. But the way it did so was somewhat unexpected. Almost €6 billion of the savings for taxpayers in euro-zone countries came from losses imposed on depositors in Cyprus’s outsize banks. A one-off 9.9% levy will be imposed on all deposits over the insurance threshold of €100,000 before banks reopen after a bank holiday on Monday. That idea had been in the air for a while, not least because a lot of those uninsured deposits came from outside Cyprus, and from Russia in particular. The politics of saving wealthy Russians with money loaned by thrifty Germans were always going to be tricky.  What had not been anticipated was a 6.75% loss for savers with deposits in Cypriot banks below the insurance ceiling. Cypriots woke up this morning to find bank branches closed to them. By the time they will be able to get at their money, it will be too late. The offer of equity in banks to replace the value of their savings is meant to be a balm but it’s not a choice they would have made. Why this decision was taken is not yet clear. The most plausible explanation is that the Cypriot government itself preferred to spread the pain rather than wipe out non-resident depositors and jeopardise its long-term prospects as an offshore financial centre for Russian and other money. Whatever the rationale, it is a mistake for three reasons. The first error is to reawaken contagion risk elsewhere in the euro zone. Depositors have come through the financial crisis largely unscathed. Now they have been bailed in, some of them in breach of an explicit promise that they can be sure of getting their money back even if a bank goes belly-up.

Euro Crisis 51

The message is that citizens are called in to pay by bail in:

Cyprus Savers Get Robbed By Eurozone Bail Out / Euro Crisis – Economic Populist

Size matters when it comes to bank bail outs and European politics.  In the most brazen bail out deal yet, the citizens of Cyprus just had their savings seized to give the money to the banks.  I kid you not. Bail In means private citizens are responsible for the bail out.  These masked terms mean anyone with over €100,000 has a whopping 9.9% of their money seized and anyone with deposits in a Cyprus bank below €100,000 is going to lose 6.75% of their savings deposited in Cyprus financial institutions.  Unbelievable.  The savings deposit seizure was announced when the banks are closed, so instead of a run on the banks, we have a run on the ATMs.  Needless to say those ATMs are limited in withdrawals and also ran out of money fairly quickly . Lockdown of Cypriot Savings was preplanned and has already taken place before the announced private deposit seizure.

Facing Bailout Tax, Cypriots Try to Get Cash Out of Banks / Euro Crisis – New York Times

In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus on Saturday, hours after European officials in Brussels required that part of a new 10 billion euro bailout be paid for directly from the bank accounts of ordinary savers.  The move — a first in the three-year-old European financial crisis — raised questions about whether bank runs could be set off elsewhere in the euro zone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined early Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered. Although banks placed withdrawal limits of 400 euros, or about $520, on A.T.M.’s, most had run out of cash by early evening. People around the country reacted with disbelief and anger. “This is a clear-cut robbery,” said Andreas Moyseos, a former electrician who is now a pensioner in Nicosia, the capital. Iliana Andreadakis, a book critic, added: “This issue doesn’t only affect the people’s deposits, but also the prospect of the Cyprus economy. The E.U. has diminished its credibility.”

Cypriots Hit by 10% Savings Tax to Pay for EU Bailout Deal / Euro Crisis-

A run on the banks in Cyprus is feared after the island’s government agreed a one-off tax of up to 10 percent on customers’ savings as part of a bailout deal with the EU. Eurozone finance ministers agreed to the unprecedented tax on bank deposits as officials unveiled a €10 billion (£8.65bn) rescue plan for the country, the fifth since Europe’s debt crisis erupted in 2009. In the Cypriot capital of Nicosia, queues tailed back from cash machines across the city as angry customers opted to withdraw their funds. Cypriots with less than €100,000 in their accounts will have to pay a one-off levy of 6.75 percent, Eurozone officials said. Those with more will lose 9.9 percent. Cypriot bank officials said depositors could access all of their money except the amount set by the levy. The levy itself will not take effect until Tuesday, following a public holiday, but action is being taken to curb electronic money transfers over the weekend.

Finally, euro crisis sends an alerting message to the Euro Zone decision centers: Where is the EU..?

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