www.nettime.org
Nettime mailing list archives

<nettime> FT's editorial comment on the Cyprus 'bail-out'
Patrice Riemens on Mon, 18 Mar 2013 22:02:41 +0100 (CET)


[Date Prev] [Date Next] [Thread Prev] [Thread Next] [Date Index] [Thread Index]

<nettime> FT's editorial comment on the Cyprus 'bail-out'



I've hardly ever read such a scathing editorial, but it's probably
apposite to the fact that we're now very well into the real begin of the
beginning of the end ...

Enjoy!

(difficult to xs the FT these days, pay-wall policy rulez. I retrieved it
from this site: http://fortunascorner.wordpress.com

------

FINANCIAL TIMES

17 Mar 2013 8:22pm

Europe botches another rescue

Just as the eurozone had begun to set the right course in its struggle
with an ever-mutating debt crisis, it relapsed into its old vice. Faced
with a drowning member state, instead of throwing Cyprus a lifebuoy,
leaders put a millstone around its neck.

Appearances notwithstanding, the Cyprus deal does not ?bail-in? creditors
in an orderly resolution of bankrupt banks. Instead it imposes a tax on
all depositors down to the smallest ones. However legal it may be, this
rank violation of the spirit of deposit insurance ? small savers in the EU
are guaranteed that deposits up to ?100,000 are safe regardless how
moribund their bank ? unforgiveably betrays those with the most to lose
and the least to answer for.

It is also contrary to a future European banking system in which taxpayers
are shielded from the losses of banks; investors pay for the risks they
take in a predictable order of priority; and savers can trust that
deposits up to the insurance limit are protected.
The hope of righting the eurozone?s listing ship relies on divorcing the
debt problems of a sovereign from those of the country?s banks. Last June,
the eurozone?s leaders finally acknowledged the nature of the problem.
Cyprus seemed a possible salutary test for the more enlightened approach.

With unsustainable public finances and a banking sector about seven times
the island?s annual economic output, the stark choice was between
sovereign restructuring and forcing losses on bank creditors. Choosing the
latter course was correct. But instead of restructuring broken banks at
the unfortunately necessary price of creditor losses, this package pays
the price without the benefit.

It will not take the banks into immediate restructuring. It will
apparently not bail in unsecured senior bondholders. While Cypriot banks
have very little bonded debt outstanding ? a mere ?1.7bn, as against some
?70bn of deposits ? this is still significant compared to the ?5.8bn the
deposit tax will raise. It also circumvents the legal status of claims on
bankrupt debtors in a way that hurts ordinary depositors to benefit
sophisticated investors. This is destabilising as well as morally
unconscionable.

The structure of Cypriot banks? balance sheet meant some deposits had to
be hit. But President Nicos Anastasiades? claim that there is no
alternative to the current plan is an insult to the small Cypriot saver or
business owner. Insured deposits could be protected in full by imposing
larger haircuts ? Mr Anastasiades himself suggested 60 per cent ? on
accounts above the ?100,000 threshold. Cyprus has had two years in which
to prepare legislation that could have ring-fenced small deposits (or even
all EU residents? deposits) with a matching amount of assets in an
emergency. Even now, a variant of Britain?s special resolution law could
be adopted. This is a conscious choice to make poorer people pay to help
richer ones.

The suspicion must be that Cypriot leaders are determined to salvage the
pieces of their offshore banking model, even against eurozone pressure to
shrink the sector. Like other European island states before them, the
people of Cyprus are discovering who pays to keep a metastasised banking
sector alive.

The risks for Europe are as significant. However haltingly, the eurozone
has been moving towards banking union. The European commission has also
made plans for cross-border deposit insurance and resolution schemes
including bail-in rules. The Cyprus ?rescue? throws all this into doubt.
If a deposit tax is the preferred solution, bank resilience is once again
a function of sovereign strength.

The biggest risk is political. The prescription of universal austerity
combined with kid-gloves treatment of big investors in banks is
increasingly toxic to European voters. Leaders have just added fuel to the
fire.

-----
(u can also read more from the NYT, etc on the Fortuna blog)





#  distributed via <nettime>: no commercial use without permission
#  <nettime>  is a moderated mailing list for net criticism,
#  collaborative text filtering and cultural politics of the nets
#  more info: http://mx.kein.org/mailman/listinfo/nettime-l
#  archive: http://www.nettime.org contact: nettime {AT} kein.org