Κυριακή 17 Μαρτίου 2013

The depositor haircut: German exit visa or just plain stupidity?


When I first heard of the bailout ‘solution’ for Cyprus late Friday morning, my first inclination was not to believe it. But then I remembered a conversation with a Madrid source earlier in the week (it was about the Wolfgang Schäuble v Mario Draghi dogfight) and went back to him late Friday afternoon just to check my memory of the conversation was correct. It was: he’d more or less said that it was a fight between two people on mad missions – respectively, to control European fiscal management according to German needs, and to ensure that nothing and nobody would get in the way of the euro’s survival.

On the Greek haircut question, Draghi illegally subordinated the private bondholders. Now it was Brussels-am-Berlin’s turn to subordinate the depositors in Cypriot banks. My own guess here is that Draghi knew precisely how dumb the Schäuble idea was for Cyprus (at one point in the debate, the German Finance Minister demanded depositors be wiped out to the tune of 40%) and decided to let him make an idiot of himself. So quickly were Draghi’s expectations of a bank run shared by the media, by early Saturday morning Olli Rehn was hastily promising a press conference that there wouldn’t be a repeat anywhere else in the eurozone of the tax on bank deposits that was imposed as part of Cyprus’s aid programme.
However, other interpretations are possible. Even in Berlin – even within the CDU, even in the Chancellery – nobody is entirely certain whose side Wolfgang Schäuble is really on. There are those who think he secretly supports the Bankfurt hardliners who want out of the euro. Others see him as a control freak with an unquenchable desire to run Europe’s fiscal system. A Frankfurt contact told me recently, “I’d guess that Schäuble’s plan is to slam the ECB and thus keep German losses in Cyprus to a minimum.” Based on what he wanted from the Cyprus bailout, that sounds like an increasingly accurate perception.
But does he really want to keep the euro, or did he set out to insist on doing something profoundly stupid over Cyprus in order to hasten the end of the euro….and get out with minimal damage to Berlin?
And here’s another angle: the bank run in Cyprus actually began a week ago, when Russian money began shipping out fast. Did Berlin tip Putin off as to what was about to happen?
cypriottractorThis picture was sent to me from outside a Cypriot bank today. It displays more than panic: the large vehicle featured is clearly set up to ram the bank if it looks like farmers can’t get their money out. On Tuesday morning, the banks will open in Cyprus and there will queues to withdraw money round the block. Cyprus’s own finance minister dismissed the idea of a depositor haircut only a few days ago saying  “Really and categorically – and this doesn’t only apply in the case of Cyprus but for the world over and the euro zone – there really couldn’t be a more stupid idea.”
Wolfie not only had the stupid idea, he also sold it to the others in the room. This is how crazy and/or Machiavellian things get when the endgame is just around the corner.
As to what will happen in the rest of ClubMed when their banks open, as Karl Whelan wrote in Forbes yesterday, ‘Now that people know that a depositor haircut is part of the European toolkit for dealing with banking problems, why would you sit around and wait for it to happen to you? This decision has the potential to trigger a full-scale bank run across the euro area, and such an outcome could place in question the continued existence of the euro as a common currency.’
But Whelan himself admits nothing might happen. However, he does acknowledge that the decision to tax all deposits below €100,000 shows that ordinary Cypriots are going to be hit very hard….and that this wasn’t just an attempt to shave the heads of Russian gangsters.
All I can say is that I was going to put a large six-figure sum into a eurobank next week to hedge against Sterling being openly massaged down the toilet in value. Now I’m going to put it into Dollars outside the eurozone. It seems to me that having torpoedoed the long-term bond market in Europe, the Eunatics have cast huge doubts over their willingness to guarantee deposits in the ezone banking system. Whether this is madness inflicted by angry Gods or catalysts thrown onto the fire by wily Germans is anyone’s guess. Either way, investors won’t be impressed.
more at http://hat4uk.wordpress.com/tag/cyprus-bailout/

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