Cypriot crisis: Will Germany's tough stance backfire?
I am blogging instead of broadcasting today as I have laryngitis. But I might still get shouty. The question people in financial markets are shouting about is: what on earth does Germany think it is doing? It triggered the Cyprus crisis and is playing hardball, rejecting the Cyprus government's latest attempt to solve it. Here is my take on what is happening.
First the facts.
Last Friday in Brussels the Germans led Eurogroup ambush of the new president of Cyprus, demanding an immediate resolution to the country's debt crisis.
They were the ones to demand depositors take losses, although at first Mrs Merkel assured them the ordinary savers would lose just 3% of their money. Then, according to a report in the Financial Times, Wolfgang Schauble, the German finance minister, upped this to 6% and 10% for those with savings above 100,000 euros — though this version of events is disputed by German CDU MP Dr Michael Fuchs, who told Newsnight on Monday it is «not our problem» how Cyprus raised the money — as long as it is raised.
This immediately nullified the explicit 100,000 deposit guarantee in the eurozone and the president of Cyprus said it would never pass through parliament.
So to focus Cypriot minds, Jorg Assmussen, the German socialist who heads the council of the European Central Bank also told them the ECB was pulling emergency funding to Laiki Bank, thus rendering it insolvent.
Moral hazard
Now, after a week of Cypriot attempts to get Russia to soften the size of the bailout, which Germany also nixed, the Germans have rejected the latest plan out of Nicosia, which would involve nationalising the country's pension schemes and also mortgaging future revenues from an oil and gas field that comes on stream in 2020.
Germany's intent in all this is, at a textual level, clear: they want to avoid creating a moral hazard, rewarding a country that has sold itself as a rule-free playground for Russians who want to keep their money offshore.
They want to insist any money lent from the European Stability Mechanism (ESM) bailout fund can be paid back on a sustainable basis, and so they need a debt write off.
In Greece this came from banks who had bought government debt; but in Cyprus few global banks were stupid enough to buy this debt, and so the money has to come from Cypriots themselves.
But there is a wider, strategic and philosophical basis to Germany's stance. First, they are engaged in a tough negotiation over the shape of a future banking union in Europe.
Once that union is in place, say Germany, Finland and the Netherlands, direct centralised bailouts of banks will be allowed: there will be effective pooling of taxpayer money within the eurozone. But…
This north European trio are insisting the new banking union cannot cover «legacy debts»: that is, from the pre-2007 crisis.
So it is logical to pursue at the same time a banking union with fiscal transfers in future, and a cleanup of the old debts with the countries responsible taking the pain.
On top of that the German public is increasingly outraged over the scale of its taxpayer exposure to what it sees as profligate peripheral countries.
So that is the principle, the strategy and the tactics of Germany.
But here is the problem: the outcome of their actions is repeatedly creating situations they do not want.
Cyprus, like Greece and Spain beforehand, creates an existential crisis for the euro. Once one country leaves, however small, the fiction that it is a permanent currency union is exposed.
In the process of imposing perfectly rational economic pain, something else is revealed.
The eurozone does not involve shared sovereignty — which is hard enough for some countries to accept under austerity pressures. In fact it has come to involve the sovereignty of the solvent nations over the insolvent nations.
Contagion
What shocked everyone, not just Cypriots, was the sudden, tactical and coercive manner in which both the IMF and the ECB attacked the incoming Cyprus government.
It was the equivalent of the cops breaking down your door at 6am: perfectly legitimate if you have the legal right to do so, but it can seem excessive.
So Germany is left with a mismatch between intent and outcome. And the outcome could get really nasty. It is not just the contagion effect on southern Europe of seeing queues at cash machines and people going bust. Or the potential «me too» effect on Greece if Cyprus leaves.
What is being presented is a choice: stay in Europe or become part of the Brics, beholden to Russia for finance, Israel for various as yet untransparent deals, remain continually at odds with Turkey and Northern Cyprus, and once your finances have recovered, sell yourself as a kind of posh nightclub to the world.
Actually, the polls are telling us, and my colleagues on the ground report, more and more Greek Cypriots are seeing this as a viable option. Given the choice between a busted euro and a vibrant, if rule-free, future in the Russian penumbra, they may choose the latter.
Israel and Iran
This FT article gives a flavour of the diplomatic and military unknowns out of a closer Russian-Cypriot relationship.
The Russian Navy could gain a Mediterranean base, but Russian intelligence would then lose the ability to mingle freely with Nato personnel, suggests the author, so it is swings and roundabouts.
I would suggest the island is currently also something of a diplomatic and intelligence battleground for Israel and Iran, so it gets even murkier.
In the end the crisis has exposed two weaknesses of modern German politics: first on economics, they don't seem able to move away from principle-driven action to outcome-driven action.
On the bigger geo-diplomacy — driving an EU member state into the arms of the Russians and sending a big sub-textual signal to other states close to Russia — it just begins to look like the Germans cannot do geo-politics.
Thursday, 21 March 2013
It’s what everyone had been saying privately for days: the bailout package agreed by exhausted IMF and EU officials and finance ministers in the early hours of Saturday morning had lacked any foresight related to the political consequences of demanding that people give up part of their savings.
And in a memo seen by Reuters news agency, it seems eurozone finance officials felt the same, confessing that they were “in a mess” over the Cyprus bailout debacle. In a conference call on Wednesday, they desperately tried to come up with ways to stop financial chaos enveloping other eurozone nations, possibly by insisting on strict capital controls to stop the money flooding out of Cypriot banks when they finally reopen. “The economy is going to tank in Cyprus no matter what,” notes from the call quote the Austrian official as saying. “Restrictions on capital will probably be imposed.”
It was the German representative who raised the once unthinkable: that Cyprus could become the first country forced out of the euro by economic chaos.
The response of the other officials was not recorded, but one said that emotions were running “very high”. There was even doubt in the wisdom of the markets, which in the case of Cyprus seem to be trusting the officials to come up with something. “Markets believe that we will find a solution and that we will provide more money and this might not be the case,” one official cautioned.
Iceland’s President Olafur Ragnar GRIMMSON was interviewed over the weekend (26./27.01.2013) at the World Economic Forum in Davos on why Iceland has enjoyed such a strong recovery after it’s complete financial collapse in 2008, while the rest of the Western world struggles with a recovery that has no clothes.
Grimsson gave a famous reply to the financial MSM reporter, stating that Iceland’s recovery was due to the following primary reason:
„… We were wise enough not to follow the traditional prevailing orthodoxies of the Western financial world in the last 30 years. We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing here in Europe. …“
When asked whether Iceland’s policy of letting the banks fail would have worked in the rest of Europe, Grimsson replied:
„… Why are the banks considered to be the holy churches of the modern economy? Why are private banks not like airlines and tele-communication companies and allowed to go bankrupt if they have been run in an irresponsible way? The theory that you have to bail-out banks is a theory that you allow bankers enjoy for their own profit their success, and then let ordinary people bear their failure through taxes and austerity. People in enlightened democracies are not going to accept that in the long run. …"
Э, всё ещё забавней. Я, оказывается, тоже говорю сразу о нескольких теориях эффективного рынка. В частности, эффективный рынок — это рынок, на котором любой временной горизонт зарабатывает одинаково.
Но это же нормально, смешивать разные определения, они же не выполняются одновременно — не правда ли )
www.bbc.co.uk/news/correspondents/paulmason/
Cypriot crisis: Will Germany's tough stance backfire?
I am blogging instead of broadcasting today as I have laryngitis. But I might still get shouty. The question people in financial markets are shouting about is: what on earth does Germany think it is doing? It triggered the Cyprus crisis and is playing hardball, rejecting the Cyprus government's latest attempt to solve it. Here is my take on what is happening.
First the facts.
Last Friday in Brussels the Germans led Eurogroup ambush of the new president of Cyprus, demanding an immediate resolution to the country's debt crisis.
They were the ones to demand depositors take losses, although at first Mrs Merkel assured them the ordinary savers would lose just 3% of their money. Then, according to a report in the Financial Times, Wolfgang Schauble, the German finance minister, upped this to 6% and 10% for those with savings above 100,000 euros — though this version of events is disputed by German CDU MP Dr Michael Fuchs, who told Newsnight on Monday it is «not our problem» how Cyprus raised the money — as long as it is raised.
This immediately nullified the explicit 100,000 deposit guarantee in the eurozone and the president of Cyprus said it would never pass through parliament.
So to focus Cypriot minds, Jorg Assmussen, the German socialist who heads the council of the European Central Bank also told them the ECB was pulling emergency funding to Laiki Bank, thus rendering it insolvent.
Moral hazard
Now, after a week of Cypriot attempts to get Russia to soften the size of the bailout, which Germany also nixed, the Germans have rejected the latest plan out of Nicosia, which would involve nationalising the country's pension schemes and also mortgaging future revenues from an oil and gas field that comes on stream in 2020.
Germany's intent in all this is, at a textual level, clear: they want to avoid creating a moral hazard, rewarding a country that has sold itself as a rule-free playground for Russians who want to keep their money offshore.
They want to insist any money lent from the European Stability Mechanism (ESM) bailout fund can be paid back on a sustainable basis, and so they need a debt write off.
In Greece this came from banks who had bought government debt; but in Cyprus few global banks were stupid enough to buy this debt, and so the money has to come from Cypriots themselves.
But there is a wider, strategic and philosophical basis to Germany's stance. First, they are engaged in a tough negotiation over the shape of a future banking union in Europe.
Once that union is in place, say Germany, Finland and the Netherlands, direct centralised bailouts of banks will be allowed: there will be effective pooling of taxpayer money within the eurozone. But…
This north European trio are insisting the new banking union cannot cover «legacy debts»: that is, from the pre-2007 crisis.
So it is logical to pursue at the same time a banking union with fiscal transfers in future, and a cleanup of the old debts with the countries responsible taking the pain.
On top of that the German public is increasingly outraged over the scale of its taxpayer exposure to what it sees as profligate peripheral countries.
So that is the principle, the strategy and the tactics of Germany.
But here is the problem: the outcome of their actions is repeatedly creating situations they do not want.
Cyprus, like Greece and Spain beforehand, creates an existential crisis for the euro. Once one country leaves, however small, the fiction that it is a permanent currency union is exposed.
In the process of imposing perfectly rational economic pain, something else is revealed.
The eurozone does not involve shared sovereignty — which is hard enough for some countries to accept under austerity pressures. In fact it has come to involve the sovereignty of the solvent nations over the insolvent nations.
Contagion
What shocked everyone, not just Cypriots, was the sudden, tactical and coercive manner in which both the IMF and the ECB attacked the incoming Cyprus government.
It was the equivalent of the cops breaking down your door at 6am: perfectly legitimate if you have the legal right to do so, but it can seem excessive.
So Germany is left with a mismatch between intent and outcome. And the outcome could get really nasty. It is not just the contagion effect on southern Europe of seeing queues at cash machines and people going bust. Or the potential «me too» effect on Greece if Cyprus leaves.
What is being presented is a choice: stay in Europe or become part of the Brics, beholden to Russia for finance, Israel for various as yet untransparent deals, remain continually at odds with Turkey and Northern Cyprus, and once your finances have recovered, sell yourself as a kind of posh nightclub to the world.
Actually, the polls are telling us, and my colleagues on the ground report, more and more Greek Cypriots are seeing this as a viable option. Given the choice between a busted euro and a vibrant, if rule-free, future in the Russian penumbra, they may choose the latter.
Israel and Iran
This FT article gives a flavour of the diplomatic and military unknowns out of a closer Russian-Cypriot relationship.
The Russian Navy could gain a Mediterranean base, but Russian intelligence would then lose the ability to mingle freely with Nato personnel, suggests the author, so it is swings and roundabouts.
I would suggest the island is currently also something of a diplomatic and intelligence battleground for Israel and Iran, so it gets even murkier.
In the end the crisis has exposed two weaknesses of modern German politics: first on economics, they don't seem able to move away from principle-driven action to outcome-driven action.
On the bigger geo-diplomacy — driving an EU member state into the arms of the Russians and sending a big sub-textual signal to other states close to Russia — it just begins to look like the Germans cannot do geo-politics.
И дивен он
Одни долги (
— Да ни хрена, их можно просто обесценить инфляцией.
Народ пытается поставить на то, что эти мрачные клоуны должны о чём-то договориться.
Вот только ни хрена они не договорятся.
Eurozone finance ministers admit being in a mess
Charlotte McDONALD-GIBSON
Thursday, 21 March 2013
It’s what everyone had been saying privately for days: the bailout package agreed by exhausted IMF and EU officials and finance ministers in the early hours of Saturday morning had lacked any foresight related to the political consequences of demanding that people give up part of their savings.
And in a memo seen by Reuters news agency, it seems eurozone finance officials felt the same, confessing that they were “in a mess” over the Cyprus bailout debacle. In a conference call on Wednesday, they desperately tried to come up with ways to stop financial chaos enveloping other eurozone nations, possibly by insisting on strict capital controls to stop the money flooding out of Cypriot banks when they finally reopen. “The economy is going to tank in Cyprus no matter what,” notes from the call quote the Austrian official as saying. “Restrictions on capital will probably be imposed.”
It was the German representative who raised the once unthinkable: that Cyprus could become the first country forced out of the euro by economic chaos.
The response of the other officials was not recorded, but one said that emotions were running “very high”. There was even doubt in the wisdom of the markets, which in the case of Cyprus seem to be trusting the officials to come up with something. “Markets believe that we will find a solution and that we will provide more money and this might not be the case,” one official cautioned.
Grimsson gave a famous reply to the financial MSM reporter, stating that Iceland’s recovery was due to the following primary reason:
„… We were wise enough not to follow the traditional prevailing orthodoxies of the Western financial world in the last 30 years. We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing here in Europe. …“
When asked whether Iceland’s policy of letting the banks fail would have worked in the rest of Europe, Grimsson replied:
„… Why are the banks considered to be the holy churches of the modern economy? Why are private banks not like airlines and tele-communication companies and allowed to go bankrupt if they have been run in an irresponsible way? The theory that you have to bail-out banks is a theory that you allow bankers enjoy for their own profit their success, and then let ordinary people bear their failure through taxes and austerity. People in enlightened democracies are not going to accept that in the long run. …"
Вот, попробую к вам завернуть.
Присутствовать могу только в режиме телеконференции. А кстати стильный вариант — в виде телеконференции с лыжни.
Заметим, что несмотря на всю абстрактность, блог оказался очень в тему — вот она, коррекция. Фрактальность.
Но это же нормально, смешивать разные определения, они же не выполняются одновременно — не правда ли )