Cyprus Developments Today

As you read the following post, pay attention to what is not said. We point out the following phrase as it relates to from where the money will come-- "The remainder of the money will come from tax increases and privatizations."  This is where the real damage to the average Cypriot will occur. 

There have been rumors that the "privatizations" will come from taking over their pension system. We have not confirmed this but it would make sense. The government is searching everywhere to find money and these Euros are a great source. 

Of course, there will be big increases in taxes, again, this is a foregone conclusion. The leaders need money and the people are the only place they can go. Cypriots can expect taxes to go up significantly. Cyprus has to come up with 5.8 billion Euros on their own so the pension system and massive tax increases are about the only way to do that. Of course, they could sell themselves to Turkey, but we doubt that would be welcomed by most Cypriots.

The biggest damage will be the seizure of all funds over the magical 100,000 Euro limit. How much they will steal is hard to know, however, we would guess that the 4.2 billion Euro figure will be through this confiscation. Do you think that Cyprus will ever again be a banking center?  Very doubtful!

The greatest damage to world banking is that now every person who has money in a bank knows that their funds could magically disappear if that bank gets in trouble.  This is frightening for the average Joe or Jane, wherever they live.  We suspect that as the Euro zone keeps failing, the damage done will be immense, maybe great enough to start a world wide recession or depression.

There will be other developments that come out in the days ahead and we will keep you posted.

Conservative Tom

CYPRUS HAS BEEN BAILED OUT: HERE’S WHAT YOU NEED TO KNOW

Mar. 25, 2013 7:43am Jonathon M. Seidl

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BRUSSELS (TheBlaze/AP) — Authorities from Cyprus and the so-called troika of international lenders – the European Commission, the European Central Bank and the International Monetary Fund – reached agreement on a bailout loan for the country of up to 10 billion euros. A look at key parts of the deal:

-The agreement doesn’t need to be voted on by the Cyprus parliament, explains Business Insider.

-Cyprus had to come up with 5.8 billion euros somehow to secure the bailout.

-Depositors in the country’s second-largest bank, Laiki, with accounts of more than 100,000 euros will lose an unspecified amount of their money. The move is expected to yield 4.2 billion euros overall – or most of the needed amount.

-Reuters describes it as a “raid” on those above-100k euro accounts:

Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki’s debts and recapitalize Bank of Cyprus through a deposit/equity conversion.

The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros, Eurogroup chairman Jeroen Dijssebloem said.

-This is what depositors with more than 100k euros reportedly saw when they logged in to the UK version of the Laiki bank website (from Twitter user Tukxi Piaggio Ape):

(Twitter user Tukxi Piaggio Ape)

-The remainder of the money will come from tax increases and privatizations.

-Cyprus had to agree to restructure its banking sector, which is unusually large for the size of its economy.

-Laiki will be dissolved at once and split into a “good bank” and a “bad bank.” The “good bank” portion of Laiki will be folded into the largest bank, the Bank of Cyprus.

-CNBC says Russian investors lose big.

-Citi (via Business Insider) explains that this sets a very bad precedent for the future:

We would expect the EUR to be trading lower by the end of the NY day. The reason is that the Cyprus crisis has opened up some precedents that will make investors more worried about how future euro zone crises will evolve and does nothing to enhance growth, and if anything brings back the Germany that can say ‘no’ to just about everything. So we think that the EUR will have trouble regaining 1.31 and will probably drift below 1.30 in the course of time. It is not a first-order negative for the euro but adds to the baggage it will carry in future crises.

[...]

It makes the euro zone more susceptible to bank deposit runs in the event that banks come under question. This may make any future bank-related crisis more intense. The fact that deposit insurance was called into question so casually will make other depositors wary of policymaker assurances that they would not behave similarly. It told depositors that policymakers could act that way if they wanted to. The German FM’s comments that deposit insurance does not apply to levies and is only as good as the sovereign backing the insurance will be remembered at the next crisis. So now we have a deal that does not involve repudiating deposit insurance or imposing a levy on deposits  — yet is has managed to raise fears of deposit insurance repudiation and deposit levies down the road.

-Zero Hedge points out that it’s not all roses and tulips now:

UBS’ conclusion: all in all, turbulence from the Euro crisis is not over. Let us not forget that Italy still does not have a government and the German national parliament will have to give its seal of approval on Cyprus as we await more bailout details.