Currencies  |  March 18, 2013 13:55:05

Cyprus: more unique European

Depositors to saving banks

Details rescue Cyprus, which came at the weekend, they brought one huge surprise. It is not that the country received assistance in a volume of 10 billion euros and not the originally expected 17 billion euros, but that the rescue must be involved also depositors of banks. Up to 5.8 billion euros is expected to obtaining a one-time taxation cyperských deposits to banks. Under the terms of the agreement, which still sfinalizované or, should depositors with accounts to 100 thousand. euros to pay the tax at the rate of 6.75% deposit and then depositors with savings of over 100 thousand. Euros should be taxed at a rate of 9.9%.

Such an agreement must pass cyperským parliament, which is currently very complicated task, since President Nico Anastasiades has only 28 deputies out of 56, so he lacks one vote to help asserted conditions.

The reason why Cyprus needs rescue, its huge financial sector, whose assets constitute up to eight times the GDP of island economies. The financial sector is currently in huge problems in view of the bad loan especially Greece. If banks should redeem government debt ratio would have exceeded the level of 145% of GDP, according to IMF's unsustainable situation and under these conditions not wish to participate in the rescue fund.

To compensate for this rescue using internal resources, I mean bail-in, Cyprus offers depositors the bank's shares, which to saving and also behold the bonds whose proceeds should be tied to natural gas, the deposits of which are located in the island. Catch a stake in the banks, which would otherwise bankrupt and also shares extraction of natural gas, which can bring the fruit of decades, it is not very tempting.Therefore, it is not what Čudová that up to 70% saving rejects Cypriots.

We're sorry about Cyprus did not have another option. Exam help of Russia or Said, but should the Brussel decided to strike across country from ECB liquidity and ultimately the sake of casting capital had to leave the country and devalue the euro area can be 60%, it would mean for savers far higher losses.

The German plan was according to market reports for haircut at 40% of the depositors of over 100 thousand. euro, saving small depositors, who wanted to nationalize part of the IMF everything above that level. Cyprus because he would not offend Russia, Anastasiades finally landed that haircut will apply to all, even though in varying amounts.

No nationalization, but the tax

The current deposit strata is called a tax respectively. drainage and no seizure of property, as it can land 100% of the population outside Brussels and Berlin. Defenders say that tax that the state regularly taxing our assets or income. You only taxed assets Cypriots, who had saved in banks. But it is really that simple?

People consider bank deposits as a tool to preserve their face value. There is a good reason for it: the protection of deposits, which applies in the countries of the EU to 100 thousand. euros. State had ruled that the depositors in this high protection against the dangers arising from the procedure too risky banks. While the bank goes bankrupt, you will get your money back.

European bureaucrats to decide but now for a different solution. Money bankers preserve months ago, but did not protect them by fiscal prior to its own interests. Simplification: State to protect against evil bankers, no real problems will come when, the State he shall take one hand and the other hand depositors money is returned to the same backward bankárom. The beautiful, simple and pat Berlin and Brussels.

Perhaps the most interesting in the whole rescue is that depositors who bear the losses, holders of senior debt securities as well as shareholders been circumvented without any scratches.

Run on banks can have huge consequences


Returning to the question but backward deposit in banks and their safety. Across the euro area certainly took depositors in savings banks as safe and, accordingly, also all správali.Deposits had minimal interest and their banks often used for short-term financing. What but this step can cause? Just to depositors realize that their money in banks are no longer safe. Currently so we may be on the threshold of a large event which affects the long term situation on the financial markets.

How does will maintain depositors in countries such as Greece, Spain, Portugal or Italy? Will look at how the state takes their money? Part of them, and this is certainly not decrease liquidity in banks may not have the very negative consequences. To date, the shares had tried to rescue depositors shy away.

Bank levies are never a good solution

Tax on bank deposits but has been in history used multiple times. In July 1992 an Italian socialist Prime Minister Giuliano Amato introduced a one-time tax on deposits in a volume of only 0.6%, well after many years, she supported the distrust towards the Finance sector. In 1936, Norway decided to zdaniť deposits, but the result was an immediate stampede of capital. Latin American countries will also be decided in the 90-ies years to resolve the problems of the financial sector through taxation of the deposit as well as the conversion of foreign currencies into domestic currency, but even these steps have led to the imposition of capital controls that limited capital was cast. Cyprus but such control does not have a single, preventing totálnemu capital flight, are bank holidays, which are now in the country.

Cyprus: Just an additional unique

Cyperských depositors in banks got from the new president promises to peniazom to them, nothing happens, even at the beginning of March: Any consideration in connexion with the haircut is not acceptable.

As we see, the politicians it relatively quickly broken. When it did not hesitate to do that now, what is the prospect what it neurobia this later? EU Commissioner Olli Rehn said that cyperská rescue is unique. Be not rescue Greece, but also associated with haircutom unique? Should not be such rescue Anglo Irish Bank, which was eventually nationalized or simply nationalized Dutch bank SNS Reaal or collapse Danish bank Amagerbanken, where even depositors bearing the losses with bond holders? In the euro area are all unique, how long is it does not do it again.

What is therefore needed to know about the cyperskej rescue? The simplicity that depositors at banks from now you can not be sure that the state, which has to protect their deposits, im one of them is neukrojí. And also behold that dictate conditions will be the one who has the money. In this case Germany, which are not intimidated by concerns about the collapse of Cyprus and insisted that they pay depositors Russian and then the taxpayers of Germany. That, what will be the consequences of this decision is to become aware until much later.

Author: John Benaki | TRIM Broker, as | Trading on exchanges TRIM Broker

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