FT: Mass selloff in Eurozone bonds

[Winehole23]

Talk about buying low and selling high. Gazprom, Russia’s state-owned oil company, reportedly offered to bail out Cyprus’s troubled financial sector in exchange for exploration rights to the country’s natural gas.


Cyprus is holding a bank holiday until Thursday as it works to finalize a deal with European leaders that would rescue the country, but the tentative agreement includes a controversial provision taxing bank depositors, one that even conservative German newspapers think is a bad idea.


Hence Gazprom sweeping in with its “friendlier” rescue offer. It’s not clear if they wanted to take over the entire bailout, which would cost roughly €16 billion, or merely the depositor bail-in of €5.8 billion, but either way they’d be getting a pretty rock-solid deal: The gas reserves could be worth as much as €300 billion, though it would likely take about seven years of development to start exporting gas and collecting revenue, not to mention fears of competing claims on the reserves from Turkey.


Cyprus rejected the offer, preferring to refine the fiscal program it is negotiating with the European Central Bank, European finance ministers, and the International Monetary Fund, which will likely include some concessions from the Russian government, which made an emergency loan to the country last year.

http://qz.com/64143/gazproms-audacio...s-natural-gas/

[Winehole23]

Cyprus’s parliament rejected an unprecedented levy on bank deposits, dealing a blow to European plans to force depositors to shoulder part of the country’s rescue in a standoff that risks renewed tumult in the euro area.

Protestors cheered outside the parliament in the Cypriot capital, Nicosia, as lawmakers voted 36 against to none in favor of the proposal. There were 19 abstentions. Hammered out by euro-area finance chiefs last weekend, the deal sought to raise 5.8 billion euros ($7.5 billion) by drawing funds from Cyprus bank accounts in return for 10 billion euros in external aid.

http://www.bloomberg.com/news/2013-0...lout-plan.html

[Winehole23]

“This is not the end of the process, but instead kicks off a further round of negotiation with Moscow and Berlin,” Alexander White, a European political analyst at JPMorgan Chase & Co. in London, said in a note. “The Cypriot authorities wanted to conduct the vote so that they could reaffirm the extent of their difficulties to the Europeans.”


Cypriot Finance Minister Michael Sarris missed the ballot as he flew to Moscow to hold talks about financial assistance.

same

[Winehole23]

what's the difference between a tax on depositors and forced losses? anyone?

The deal, struck after hours of meetings here, was approved by the finance ministers from the euro zone, the 17 countries that use the common currency. It would drastically prune the size of Cyprus’s oversize banking sector, bloated by billions of dollars from Russia and elsewhere in the former Soviet Union.


The deal would scrap the highly controversial idea of a tax on bank deposits, although it would still require forced losses for depositors and bondholders.


“We have a deal,” President Nicos Anastasiades was quoted as saying by Greek media. “It is in the interests of the Cypriot people and the European Union.”


The head of the finance ministers, Jeroen Dijsselbloem of the Netherlands, said the agreement could “be implemented without delay” without a new vote by the Cypriot Parliament, which had rejected a deal last week. Lawmakers on Friday passed legislation that set the framework for the new action, he said.


“This has indeed been an arduous week for Cyprus,” he said.


He did not have exact timing for when Cyprus’s banks, which have been closed for more than a week, would reopen. Cyprus would receive the first payment of the bailout package worth 10 billion euros, or $13 billion, in early May.
Under the agreement, Laiki Bank, one of Cyprus’s largest, would be wound down and senior bondholders would take losses.


Depositors in the bank with accounts holding more than 100,000 euros would also be heavily penalized but the exact amount of those losses would need to be determined.


The plan to resolve Laiki Bank should allow the Bank of Cyprus, the country’s largest lender, to survive. But the Bank of Cyprus will take on some of Laiki’s liabilities in the form of emergency liquidity, which has been drip-fed to Laiki by the European Central Bank. That short-term financing, which the E.C.B. had threatened to cut off on Monday, is expected to continue.


Depositors in the Bank of Cyprus are likely to face forced losses rather than any form of tax. That plan, which set off outrage last week in Cyprus and as far away as Moscow, has now been dropped entirely.

http://www.nytimes.com/2013/03/25/bu...pagewanted=all

[velik_m]

http://www.washingtonpost.com/blogs/...d-worry-about/

[velik_m]

what's the difference between a tax on depositors and forced losses? anyone?

http://www.nytimes.com/2013/03/25/bu...pagewanted=all

Less equal distribution of money loss? Eg. some lose all (those above 100k), some none (those bellow 100k)?

[Winehole23]

article was a bit sketchy on the details, but I also gathered non-insured deposits would take the hit in addition to bondholders and stockholders.

[Winehole23]

Krugman puts the finger on capital controls, or rather, the lack thereof

It’s hard to imagine now, but for more than three decades after World War II financial crises of the kind we’ve lately become so familiar with hardly ever happened. Since 1980, however, the roster has been impressive: Mexico, Brazil, Argentina and Chile in 1982. Sweden and Finland in 1991. Mexico again in 1995. Thailand, Malaysia, Indonesia and Korea in 1998. Argentina again in 2002. And, of course, the more recent run of disasters: Iceland, Ireland, Greece, Portugal, Spain, Italy, Cyprus.


What’s the common theme in these episodes? Conventional wisdom blames fiscal profligacy — but in this whole list, that story fits only one country, Greece. Runaway bankers are a better story; they played a role in a number of these crises, from Chile to Sweden to Cyprus. But the best predictor of crisis is large inflows of foreign money: in all but a couple of the cases I just mentioned, the foundation for crisis was laid by a rush of foreign investors into a country, followed by a sudden rush out.


I am, of course, not the first person to notice the correlation between the freeing up of global capital and the proliferation of financial crises; Harvard’s Dani Rodrik began banging this drum back in the 1990s. Until recently, however, it was possible to argue that the crisis problem was restricted to poorer nations, that wealthy economies were somehow immune to being whipsawed by love-’em-and-leave-’em global investors. That was a comforting thought — but Europe’s travails demonstrate that it was wishful thinking.


And it’s not just Europe. In the last decade America, too, experienced a huge housing bubble fed by foreign money, followed by a nasty hangover after the bubble burst. The damage was mitigated by the fact that we borrowed in our own currency, but it’s still our worst crisis since the 1930s.

http://www.nytimes.com/2013/03/25/op....html?hp&_r=1&

[Winehole23]

The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, announced that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.

http://www.telegraph.co.uk/finance/f...one-chief.html

[Winehole23]

According to the Telegraph the Kremlin is considering freezing German assets in Russia as payback for the bailout deal.

Read more: http://www.digitaljournal.com/articl...#ixzz2Oa7bwX7I

[TDMVPDPOY]

Read more: http://www.digitaljournal.com/articl...#ixzz2Oa7bwX7I

without the bailout, cyprus would go broke and all those russian depositers would be pissed, the bailout didnt help either...

freezing german accounts dont do anyway

[Winehole23]

As in USA, the very richies in Cypriot banks are criminals, too.

as usual, the reality is a bit more complicated:

Cyprus is often talked about as a money laundromat for ill-gotten Russian money, and as a tax shelter, but the more accurate description is probably “haven.” Some of Russia’s wealthiest tycoons have money stashed in Cyprus, but so do people from the humble ranks of Russia’s many, many millionaires, not to mention droves of the merely upper-middle class. (The big dogs have their money all over the world—Isle of Man, Switzerland, London real estate, the Cayman Islands—but Cyprus is the starter haven, the gateway to the world of offshore accounts.) The reason, as former Russian finance minister Alexei Kudrin explained, is simple: Cyprus was once an English colony, which means that it has English law, which the Russians revere for its ability to fairly settle business disputes.¹ Not only is Cyprus an Orthodox Christian country, with an alphabet from which Cyrillic was derived, it is also a place with rule of law and a functioning, independent court system. Russians do not have this at home, where money or property can be yours one day, and someone else’s the next, without any legal recourse. So yes, money gets laundered in Cyprus, but money is also kept safe there from other Russians, specifically those working in the Russian government.

http://www.newrepublic.com/article/1...uld-buy-friend

[TDMVPDPOY]

french wankers earning 1m or more to be taxed at 75% lol socialism es

[velik_m]

as usual, the reality is a bit more complicated:

http://www.newrepublic.com/article/1...uld-buy-friend

Those poor russian "middle class" millionares, how will they feed their family, my heart bleeds for them...

They didn't have the money in cyprus because of court system or religion or their wine, they had it there, because it was a tax haven. Greedy people got screwed, cry me a river...

[Winehole23]

I'm not crying. depositing money in a bank isn't without risk. but characterizing everyone who lost money as a crook or a greedy person is simplistic.

[CosmicCowboy]

Setting this precedent in Cyprus could destroy the banks in Spain and Greece.

[boutons_deux]

french wankers earning 1m or more to be taxed at 75% lol socialism es

US wankers were taxed about that level until 1960, and at 90% in the 1940s. Capitalism, es

[CosmicCowboy]

US wankers were taxed about that level until 1960, and at 90% in the 1940s. Capitalism, es

Nobody paid those tax rates moron. The high rates were offset by generous deductions and credits.

[velik_m]

I'm not crying. depositing money in a bank isn't without risk. but characterizing everyone who lost money as a crook or a greedy person is simplistic.

I'm sorry, but anyone that moved his money to Cyprus did so because of greed.

[Winehole23]

ok

[TDMVPDPOY]

I'm sorry, but anyone that moved his money to Cyprus did so because of greed.

lol russians

[Th'Pusher]

Nobody paid those tax rates moron. The high rates were offset by generous deductions and credits.

While that's true, the paid much higher effective federal tax rates than they do now...in the 50% range.

[CosmicCowboy]

While that's true, the paid much higher effective federal tax rates than they do now...in the 50% range.

Only if they were stupid. There was a thriving tax shelter industry with multiple ways to avoid paying taxes.

[Th'Pusher]

Only if they were stupid. There was a thriving tax shelter industry with multiple ways to avoid paying taxes.

Wait, are you saying top earners paid a lower effective tax rate on average than they do today?

[Winehole23]

CC spouts off. Giving support for his own opinions he's not so great at.

Assuming his own premises are correct generally suffices. If you call him on it he'll usually just call you names.