Homeless in Arizona

Cyprus deposits grab shocks savers across Europe

I wonder if Arizona Congresswoman Kyrsten Sinema helped the rulers of Cyprus come up with this plan.

When it comes to taxing and spending I don't think Kyrsten Sinema has ever seen a tax she didn't love, and the idea of YOUR bank account also being the government's bank account is something that probably would make Kyrsten Sinema drool.

Source

Cyprus deposits grab shocks savers across Europe

By Menelaos Hadjicostis Associated Press Mon Mar 18, 2013 2:13 PM

NICOSIA, Cyprus — A plan to seize up to 10 percent of people’s savings in the small Mediterranean island nation of Cyprus sent shockwaves across Europe on Monday as households realized the money they have in the bank may not be safe.

A weekend agreement between Cyprus and its European partners called for the government to raid bank accounts as part of a €15.8 billion ($20.4 billion) financial bailout, the first time in the eurozone’s crisis that the prospect of seizing individuals’ savings has been raised.

Facing outrage, Cypriot authorities delayed a parliamentary vote on the seizure and ordered banks to remain shut until Thursday while it tries to modify the deal to reduce the hit on people with small deposits.

Several hundred protesters gathered outside the parliament building, with some chanting “thieves, thieves” and “people wake up, they’re drinking your blood.” One demonstrator dumped sheep wool and animal feces in front of a line of police officers guarding the entrance. Protesters later marched onto the presidential palace.

“It’s a precedent for all European countries. Their money in every bank is not safe,” said lawyer Simos Angelides.

In order to get €10 billion ($13 billion) in bailout loans from international creditors, Cyprus agreed to take a percentage of all deposits — including ordinary citizens’ savings. The surprise deal stoked fears that deposits in other countries could be targeted.

Financial stocks fell sharply across euro, as did the euro, even though the Cypriot economy accounts for only 0.2 percent of the combined output of the 17 European Union countries that use the currency.

“The damage is done,” said Louise Cooper, who heads financial research firm CooperCity. “Europeans now know that their savings could be used to bail out banks.”

The Cypriot government is now trying to modify the terms of the original plan and in particular to get a better deal for small savers with less than €100,000. The weekend deal foresaw a one-off charge of 6.75 percent on those savings, rising to 9.9 percent for those above the €100,000 mark.

While trying to make the package more appetizing for those with low savings, the government has to make sure that the total raised remains the same at €5.8 billion.

One solution doing the rounds is to make the tax more graduated: placing a one-time 3 percent levy on deposits below €100,000, rising to 15 percent for those above €500,000.

Another alternative pitched by European Parliament President Martin Schulz is exempting savings up to €25,000 from the tax. Schulz is also a member of Germany’s opposition Social Democrats.

Still, the government has a battle to get a majority in the 56-member Parliament after some 25 lawmakers from communist AKEL, socialist EDEK and the Green party said they would vote down the levy that they have criticized as disastrous. Even center right party DIKO, a government ally which holds eight seats, is wavering over its support.

Any modification to the deposit seizure must be approved by the other finance ministers in the eurozone — who will hold a phone conference later Monday — before the Cypriot parliament can vote on it.

The stakes are high for the country of a million people, because a rejection of the package could see the country go bankrupt and possibly out of the common euro currency. Officials also fear a run on Cypriot banks no matter which way the voting goes, though immediate consequences for other eurozone countries are limited.

The decision by Cyprus’ 16 partners in the eurozone and the International Monetary Fund marks a significant shift in the way the debt crisis is being addressed. It is the first time that savings have been touched in a financial bailout. While it is not expected to cause a run on banks in Italy or Spain, it may make savers more likely to withdraw their funds.

“This sets a worrying precedent for Spain and Italy, but doesn’t make widespread bank runs imminent,” said Dario Perkins, an analyst at Lombard Street Research.

Cypriot authorities said they had no choice in the matter.

“I believe (the levy) was a bad idea but they imposed it on us,” Cypriot Finance Minister Michalis Sarris said Monday.

Cyprus’ government spokesman, Christos Stylianides, accused eurozone countries of using “blackmail tactics” by insisting that if Cyprus did not raid savings accounts, it would have to immediately shut down the country’s top two lenders.

White House press secretary Jay Carney declined to comment on Cyprus’ savings grab. “We’re obviously monitoring the situation right now,” Carney said.

One of the main reasons given for the raid on deposits is that Cyprus’ banks, which are in deep trouble after taking huge losses on bad Greek debt, are eight times the size of the economy. The Cypriot government would be unable to pay back the amount of loans it would need to rescue the banks.

Another reason for the raid is that Russian money accounts for a large part of the banks’ deposits. An estimated €20 billion ($26.17 billion) of Russian money sits in Cypriot banks, part of it thought to be linked to money-laundering. European officials were loathe to give Cyprus bailout loans to protect those Russians’ savings.

German Chancellor Angela Merkel needs to win support for a Cypriot bailout in Parliament amid widespread skepticism in the country over whether Cypriot authorities have done enough to combat money laundering.

“It is good that the Cypriot government, the Cypriot parliament, are now taking more time to reach a better solution,” Germany’s Vice Chancellor Philipp Roesler told reporters in Berlin. “But it is important to us that the overall volume is achieved all the same.

Stocks falter following Cyprus’s bailout plan

Stocks falter following Cyprus’s bailout plan

By Steve Rothwell Associated Press Mon Mar 18, 2013 1:59 PM

NEW YORK — Stocks closed lower on Wall Street as investors worried that a controversial proposal to seize money from depositors in Cyprus could set off another bout of anxiety over Europe’s shared currency.

The Dow Jones industrial average fell 62.05 points, or 0.4 percent, to 14,452.06 Monday. It had plunged as much as 110 points in the early going, briefly turned positive in the afternoon then fell back again in the last hour of trading.

The Standard & Poor’s 500 fell 8.60 points, or 0.6 percent, to 1,552.10 The Nasdaq composite dropped 11.48 points, or 0.4 percent, to 3,237.59.

European markets recovered most of an early slide and closed with modest losses. Yields on government bonds issued by Spain and Italy edged higher and the euro fell to a three-month low against the dollar.

The market rally that has pushed the Dow to record levels this year has been punctuated by concerns about the euro-region’s lingering debt crisis. The Dow fell 1.6 percent Feb. 25, its biggest wobble this year, after elections in Italy threw the country into political paralysis, endangering crucial economic reforms.

“Europe has got problems,” said Uri Landesman, president of Platinum Partners, a hedge fund. “You could get more stuff like this and the market isn’t priced to handle that.”

A weekend agreement between Cyprus and its European partners called for the government to raid bank accounts as part of a €15.8 billion ($20.4 billion) financial bailout, the first time in the euro zone crisis that the prospect of seizing individuals’ savings has been raised. The measures are stoking fears of bank runs in the other 16 nations that use the euro.

Cypriot authorities, facing an uproar, delayed a parliamentary vote on the seizure and ordered the country’s banks to remain closed until Thursday while they try to modify the deal to lessen the impact on small depositors.

Markets in Europe and Asia also fell during early trading, before retracing some of their losses later in the day. Germany’s DAX index dropped 0.4 percent and Spain’s main stock index shed 1.3 percent. Indexes in Britain and France each lost 0.5 percent.

The euro fell almost a penny against the dollar to $1.2954, touching its lowest level in three months. Gold climbed $12 to $1,604.60 an ounce.

The U.S. stock market’s reaction to euro zone developments has become more muted over time.

The Dow slumped more than 8 percent last year between May 1 and June 1 on concerns that Spain and Italy would be dragged into Europe’s debt crisis. While the Dow initially dropped last month in reaction to the Italian election results, it has since gained 4.6 percent. Likewise the market recovered much of the early loss Monday prompted by Cyprus’s bailout deal.

The yield on the 10-year U.S. Treasury bond, which moves inversely to its price, fell to 1.96 percent from 1.99 percent as investors moved money into low-risk investments. Yields on bonds issued by Spain and Italy, the two most vulnerable large European economies, rose but only slightly. Spain’s benchmark 10-year yield rose to 4.97 percent from 4.91 percent, and Italy’s rose to 4.57 percent from 4.55 percent.

The stock market’s resilience suggests that traders consider the Cyprus situation to be contained for now, said Quincy Krosby, a market strategist for Prudential. The threat of rising volatility may also deter the Fed from thinking about ending its economic stimulus program. The central bank starts its second two-day policy meeting of the year Tuesday.

“Absent the Cyprus flare-up, the markets were slowing a bit and it looked as if investors were digesting the gains and waiting for the next catalyst,” said Krosby.

Financial stocks were the biggest decliners in the S&P 500. Investment bank Morgan Stanley fell 60 cents, or 2.5 percent, to $22.99. Citigroup dropped $1.02, or 2.2 percent, to $46.24.

Goldman Sachs said Monday that it had lifted its end-of-year target for the S&P 500 to 1,625 from its previous target of 1,575. The investment bank is forecasting that the U.S. economy will grow 2 percent this year and 2.9 percent next year. It also predicts that corporate deals and dividend payments will increase.

Deutsche Bank also said Monday it was lifting its year-end prediction for the S&P 500 to 1,625 from 1,600, forecasting an upturn in business spending.

Among other stocks making big moves:

— Schlumberger dropped $3.06, or 3.9 percent, to $76.34 after the oilfield services company said that its first quarter activity was below its expectations as customers reactivated fewer rigs than forecast.

— Boeing fell $1.25, or 1.4 percent, to $85.18 after archrival Airbus signed its biggest deal of all time on Monday. The European plane maker won an order from Indonesia’s Lion Air worth 18

More on the Cyprus "bank account tax"

Could tiny Cyprus trigger collapse of the Eurozone?

By Carol J. Williams

March 20, 2013, 2:00 a.m.

It’s being marketed as a one-time tax -- a civic donation to the nation’s financial stability. But the people of Cyprus know it by another name: expropriation.

A government plan to siphon as much as 10% from individual bank deposits to co-finance a bailout went down in flames Tuesday with not a single one of the island’s 56 lawmakers voting in favor.

It’s back to Square One on Wednesday in devising a plan to pony up the $7.5 billion demanded by European central bankers in exchange for $13 billion from Eurozone partners to help Cyprus avert bankruptcy and expulsion from the euro common currency club. Without the bailout, Cypriot President Nicos Anastasiades warns, Cyprus will face “indescribable misery.”

That tiny Cyprus, with fewer than a million people and less than 0.2% of the Eurozone economy, could pose any real threat to the euro’s future would have been laughable a few years ago. But as the currency’s lurch from crisis to crisis continues through a fourth year, economists caution against underestimating the potential damage should Cypriots stand firm on their rejection of conditions for continued Eurozone membership.

Anastasiades is still haggling with Eurozone political leaders in hopes of knocking down the “bail in” figure. Cypriot Finance Minister Michalis Sarris is also sounding out his counterpart in Moscow on extension of a 2011 loan and a push for even deeper investment into the island’s financial welfare.

But economists say they doubt either the “troika” of international finance institutions negotiating a bailout with Cyprus or authorities in Moscow are likely to alter their positions. In that case, Cyprus would then be confronted with a choice of caving in to the deposit tax or facing a life outside the Eurozone.

Time isn’t on the side of the Cypriots. Banks closed Friday and won’t open until the bailout issue is resolved, to prevent a run on deposits. Anger is mounting in the streets of Nicosia, despite Tuesday’s decisive vote, over the very notion of the government seizing personal savings.

“It’s just amazing that we’ve gotten to the point where such a little country is making such big waves. It tells you something about the state of the world,” said Keith Savard, senior managing economist for the Milken Institute in Santa Monica. “I’m not convinced that if Cyprus goes that everything else will be fine, that its departure from the euro will be only an asterisk in history. It’s just not clear that’s the case, and that’s the worry.”

While the $22 billion Cyprus needs to bail out its banks and government finances is “pocket change” at the European Central Bank, Savard said, political considerations like elections in Germany later this year have compelled Eurozone leaders to tighten their fists.

No other troubled Eurozone member has been asked to dip into private bank holdings in exchange for bailout funds. Cyprus likely drew the unusual demand to avoid any appearance of Eurozone taxpayers being asked to compensate Russian oligarchs’ losses. At least a third of Cypriot bank deposits are held by Russians, and some of that $30 billion, though not all, is suspected to be proceeds from corruption or criminal enterprise.

Imposing a graduated levy on bank holdings would have hit the foreign high rollers hardest. As proposed by the government, deposits of less than $26,000 would have been exempt from the levy. Those between $26,000 and $130,000 would have been tapped for 6.75%, and accounts upward of $130,000 would have seen nearly 10% confiscated.

What remained unclear after Tuesday’s vote -- 36 to 0, with 19 abstentions and one absence -- was whether proposals to shift the burden even higher up the economic scale would be successful. Neither is it clear whether Cypriots are willing to abandon their euro membership rather than take the savings hit.

Economists warn that skimming private accounts violates Eurozone deposit guarantees and could spook depositors in other countries with troubled banks. There is also fear that European lenders may raise borrowing rates if they see Cyprus leaving the Eurozone and setting an example for Greece and others to follow.

“I think this represents a dangerous precedent. I would not rule out the possibility that this would be repeated elsewhere,” Uri Dadush, director of the International Economics Program at the Carnegie Endowment for International Peace, said of the deposit tax. “It’s a very, very dangerous course.”

Dadush criticizes what he sees as short-sightedness on the part of Europe’s central bankers in holding back the Cyprus bailout, which has triggered market sell-offs across the continent and an accelerating decline in the euro’s value.

“The reality is that they have saved themselves perhaps 5 or 6 billion euros in loans to Cyprus that they might not have gotten back, but they are now suffering the consequences of hundreds of billions of euros being wiped off the value of equities worldwide,” Dadush said.

Mark Weisbrot, co-director of the Center for Economic and Policy Research, predicted that the “troika” -- the European Commission, the ECB and the International Monetary Fund -- would work out a more acceptable alternative for Cyprus than the deposit tax.

“They’re not going to let the whole Eurozone fall apart over this little bit of money,” Weisbrot said.

He pointed to ECB chief Mario Draghi’s assurances last summer that the bank would do “whatever it takes” to ensure the Eurozone’s integrity.

The Milken Institute’s Savard is less confident about that promise, pointing to the lack of progress on creating a European banking union or holding Eurozone members to commitments to cut deficits and reduce spending.

“If Cyprus does go, this will really force the ECB to do more than say words,” he said. “And I’m not sure they are willing to do this.”