Raid on bank accounts in Cyprus

[MrsJREwing]

Nearly 10% of savings will be taxed from private individuals savings, to save the banks.

tiggy - yes your first paragraph is pretty much what is happening.

The reason that the Germans are interfering is because Cypriot Govt bonds and bank bonds are owned by banks around Europe and they in turn have handed those bonds over as colateral (ie security) against loans made to them by the ECB.

If Cyprus Govt or its banks default on their bonds then German banks, French banks and bansk in many other countries and the ECB will take a loss and that will deplete their capital and that wil precipitate further bailouts around Europe until eventually the ECB has no capital left and then it will have to be rescued ultimatley by Germany. Germans will never tolerate that and the Euro will cease to exist and hence so will the EU.

The prospect of cascading defaults as banks and Govts (eg Spain, Italy, etc) topple which brings down other banks and other Govts is why Brussels, IMF, ECB and Germany (who has most to lose) are interfering.

Defaults on bank bonds and Govt debt simply cannot be allowed or it will destroy the ECB, the Euro and the EU. That is why the Cypriot people are being told to foot the bill to prevent losses across the entire European banking system from boind defaults. It is also why Ireland was told to rescue its banks and make its taxpayers fund it.

This is political crisis for the EU - not just a financial crisis for Cyprus.

To those who no more about this than me i know they are splitting bad and good banks up but my question is what buniness would ever invest in cyprus again for fear of a another money grab and also how can an economy work of its based just in cash i am reading somthing like 80% of services are now cash only

tiggytape i think the germans have an election coming up and the germans are tried aof being asked to pay yet more for bailouts when there seems to be no willing on the other counties parts i belive cyprus rejected austerity

Domjolly -you spotted the next problem facing Cyprus.

If Govts impose capital controls and grab despoists (eg as they did in Argentina in 2001) and prevent free movement of capital in and out of the country then investment collapses. It makes ordinary business transactions extremely difficult.

Firms that operate in or export to countries that have capital controls have to resort to barter trade in many cases as they cannot move money across borders.

This from the Guardian.

Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. "At the moment, supplies will last another two or three days," said Adamos Hadijadamou, head of Cyprus's Association of Supermarkets. "We'll have a problem if this is not resolved by next week."

The need for emergency aid shipments of food and fuel and medicine are not more than a fortnight away.

The UK already has sovereign land on the island of Cyprus (more than we need for our power projection requirements) - why would we 'rescue' Cyprus' banking sector for another one? (16:09 post?)

I just cant see what right mined person would ever put money in a cyprus bank again

Also there will be a run on the banks they can keep them closed till chirstmas the first day they open there will be cues round the block in my view if they were gonna do this they should have voted took the money then announed it

There trying to avoid a run on the banks not doing a very good job

It seems to be a weried game of stare outs who can hold there nerve if germany dont let cyprus make ther bed the ruling party will loose the
Elections of cyprus do this money grab there will be a run on the banks as soon as allowed apevery penny will be withdrawn from the country and a black market in cash will develop its like going bak to medival times were you get paid by coin ffs

They should of just declared bankruptcy pulled out of the eu and started a fresh because whats happing now is not much better

So they make those with large deposits lose 40%? Thus the rich will leave Cyprus and those who cannot help the poor who are poor themselves will stay.

We aren't I think supposed to have restrictions on free movement of capital in the EU. South Africa and many other countries abroad have capital movement restrictions and the UK used to but this will certainly be interesting.

I suppose the bottom line is if something looks too good to be true it is. Savers in Cyprus got 6% for say 5 tears when in the UK you were lucky to get 1 or 2% before tax. As UK base rate is 0.5% and inflation 3% in the UK your savings have already probably lost 10% in value so may be we have had our capital confiscation on savers already without people realising.

So a deal was eventually done in the middle of the night last night to allow Euro 10 billion of rescue funds to be released to Cyprus.

Laiki Bank has been shut down, depositors under Euro 100k have been saved. Bondholders and uninsured deposit holders over Euro £100k may lose up to 100% of their money but the total loss will not be known until the 'bad bank' assets of Laiki have ben sold off. The remainder of the 'good bank' part of Laiki will be rolled into Bank of Cyprus. Cyprus banks will reopen as soon as possible. Much worse losses have been imposed on large uninsured depositors than originally expected.

All of the above is as it should be in a bank collapse with losses being imposed where they should be and large investors 'bailed in'.

BUT..... a lot of details still to work out and a lot of difficulties glossed over.

The Cyprus economy is likely going to shrink 20% and cause yet further defaults on loans as people lose jobs and businesses fold.

I also read rumours that Euro 1 - 2 billion of cash disappeared out of Cyprus banks last week while they were closed and it seems some depositors were allowed to remove money from Cyprus while others were trapped in by capital controls that are still in place and unlikely to be lifted for many years.

This story is not over by a long way and I cant see why anyone would leave more than Eoro 100k in ANY Euro area bank now. There will be a massive withdrawal of funds once banks reopen in Cyprus and only time wil tell if that spreads into peripheral countries like Spain and Ireland and Portugal.

Still stock markets are rallying this morning as everyone breathes a sigh of relief.

Still at least there is good news!

Three tanker loads of Liquified Natural Gas are due to dock in the UK from Qatar so at least our gas and electric won't run out this week and another one is on its way from the Carribean just in case.

This Cyprus episode shows how fragile the security of things we never think about in our lives can be torn away so quickly. The banks can close over a weekend and not reopen, the gas and electric can be threatened by a bit of cold weather.

"I also read rumours that Euro 1 - 2 billion of cash disappeared out of Cyprus banks last week while they were closed and it seems some depositors were allowed to remove money from Cyprus while others were trapped in by capital controls that are still in place and unlikely to be lifted for many years."

Now being a middle-class Brit I tend to sign and accept that some things simply are and that sometimes the system is too big to fight. But things like that are in fact enough to make me raise my pitchfork. Wtaf. :(

I heard a rumour that Elvis is still alive and works in a chip shop.

This Cyprus episode shows how fragile the security of things we never think about in our lives can be torn away so quickly. The banks can close over a weekend and not reopen, the gas and electric can be threatened by a bit of cold weather.

I agree. Money nowadays is not backed by gold like it once was. Nowadays money is merely backed by confidence. And what is happening in Cyprus shows what happens when that confidence evaporates.

We all know or at least should know that our banks don't have anywhere near the amount of money in their vaults to repay all our deposits if we all wanted them. But we all trust that we'd be able to withdraw our cash should we want to. It's akin to blind faith.

We all know or at least should know that our banks don't have anywhere near the amount of money in their vaults to repay all our deposits if we all wanted them. But we all trust that we'd be able to withdraw our cash should we want to. It's akin to blind faith.

In fact, the banks are legally entitled to 'print money' out of thin air (not backed by anything).

Money is created by creating debt. Banks lend out money they don't have to people who then have to pay back this fictitious money plus interest.

The whole thing is madness, really.

In fact if you think about it, this cycle of creating fictitious money means that the debt is equally as fictitious when the debt is held by the bank who created the money. Central banks create money and in this way they are impoverishing nation states. Is that the real reason nations face bankruptcy? and not just because they refuse to implement progressive taxation?

Central banks are printing money to buy the bonds being issued by nation states. Federal Reserve owns $1.785 trillion of US Govt debt. Similalrly, the Bank of England owns a lot of UK Govt debt and ECB owns a lot of Euro Area Govt debts.

The central bansk are facilitating Govts running up debts rather than imposing real austerity. Cyprus has reached the point though that even the ECB does not want to buy any more of its debt and neither does anyone else.

Just heard that the banks wont open for the number of two days, also heard that the branches of the cyprus banks have been open in the rest of the eu so they have no real idea how much money has been moved out

And russia is talking about punishing german and French business this is not going to end well

For all we know there might be 12 euro left

Good grief. Where did you read that?
"russia is talking about punishing german and French business"