Cyprus is quite a backdrop to the budget


The story of Cyprus is a cautionary tale for those who like the Euro and think the EU is getting it right.  The EU is now demanding that Cyprus finds Euro 5.8bn or 33% of her National Output as her contribution to the rescue funding the state and its banks now needs.  That would be like the EU telling the UK to find a one off tax revenue of £500 billion, almost the total tax revenue each year which we collect.

Cyprus is asked to cut her budget deficit by 4.5% of GDP in four years, sell more than 8% of her GDP by privatisations, undertake a large gold swap and raise her Corporation tax rate from 10% to 12.5%.

It just shows what can happen when a country surrenders its monetary and budgetary sovereignty to the EU. In the good days of the Euro a large banking centre developed in Cyprus. EU rules and regulations did not prevent or control that at the time, despite it being within the ring fence of the Eurozone and therefore of common interest to fellow zone members. Now it appears the banks need a major injection of new capital, and the state has to slash its borrowing quickly, to persuade the EU/IMF bank managers to lend some more.

Cyprus is saying these measures are too extreme. The tax hit on deposits is large, though of course some of that is a hit on foreigners with deposits in Cyprus. The tax rises and the budget contraints are very large. Germany and her allies are saying that of course a country in such a financial difficulty needs to contribute to its own recovery. The row is over how much, and whether such a large demand might make matters worse.

Cyprus is to the Euro as a district area in the UK is to the sterling union in terms of size. You would normally expect the centre to bail it out whilst dictating future terms. Because the Euro area preserves the fiction of independent  countries within the zone, the rest of the Euro area feel they do need to demand a  bigger sacrifice from the offending country.

The battle of Cyprus is an important one in the war over the richer parts of the Union accepting their responsibilities for the poorer parts, and in the acceptance by the poorer parts that they do need to foll0w the discipline of the strong.  Meanwhile, threatening depsoits in Cyprus is not a good idea from the wider perspective. It will undermine confidence in weak banks and weak countries elsewhere and complicate the ECB’s job of keeeping the banks liquid.

Cyprus’s banks remain closed. This is unacceptable. Normal economic activity ceases if banks cannot make money available and settle transactions.  They need to reopen the banks quickly, with a clear statement of depositors’ positions. The ECB needs to supply ample liquidity to the Cyprus banks to prevent a major run. It is almost beyond belief that people living in an advanced EU country, part of their common currency, can get to the point where they cannot undertake normal transactions through their bank and do not know how much of their money in the bank they will one day be able to withdraw. It is even worse than the many arguments and forecasts some of us made when putting the case against the Euro.


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  1. Steve Cox
    Posted March 20, 2013 at 6:25 am | Permalink

    The scale of the attempted Cypriot robbery could have been far higher. As Zero Hedge reports, “It appears that the 9.9% haircut settled-upon is a ‘good deal’ compared to the stunning 40% of total deposits that Germany’s Fin. Min. Schaeuble and the IMF demanded.”

    Now that the dictatorial EU and IMF have simply set about stealing the privately accrued wealth of lifetime savers in Europe, everyone is asking one question – who’s next?

    Joerg Kraemer, chief economist of the German Commerzbank, has called for private savings accounts in Italy to be similarly plundered. “A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product,” he told Handelsblatt.

    It takes years for moderately high inflation of (say) 3% to 6% to reduce the real value of government’s debts. However, a savings tax raid like the Cypriot one can achieve the same effect overnight. This must seem a very attractive course of action to finance ministers and central bankers in most highly indebted Western nations. The EU and IMF have released the genie from the bottle here it seems. I wonder if Messrs Osborne and King have had a long chat about it? Well, many people have been calling on Mr Osborne to take radical action in his budget. You don’t have to be in the Eurozone to be seriously concerned about this new financial innovation.

    • lifelogic
      Posted March 21, 2013 at 10:03 am | Permalink

      Indeed, Osborne just called the theft a “tax” (and send a plane of cash for the state sector people only) and where is the criticism from “heart and sole” Cameron of this undemocratic plundering and theft from EU citizens? Or comments from Clegg, the absurdly named LibDems or all the 50% Ken Clark, Heseltine tory MP types who would have had the UK in this dreadful mess too?

  2. Nina Andreeva
    Posted March 20, 2013 at 6:34 am | Permalink

    Yes and what about this? Its not just in Euroland where your money is not safe. At least the NZ Reserve Bank is open about it, though it does say that the shareholders of a failed bank will be getting hit too.

    “Mr Spencer (the Deputy Governor) said depositors’ money has never been guaranteed, apart from temporary periods, such as under the Deposit Guarantee Scheme from late 2008 to December 2011.

    “If their bank fails, depositors have always needed to understand that deposits are not guaranteed. What OBR does is facilitate a rapid and orderly resolution of a bank failure – it does not change the fact that depositors and other creditor funds are at risk.

    “Fortunately, bank failures in New Zealand are rare. The major banks in New Zealand are amongst the most highly rated banks in the world. We saw their resilience through the Global Financial Crisis.”

  3. lifelogic
    Posted March 20, 2013 at 6:37 am | Permalink

    As you say threatening deposits in Cyprus is not a good idea from the wider perspective. It will undermine confidence in weak banks and weak countries elsewhere and complicate the ECB’s job of keeping the banks liquid.

    Even from the EU’s idiot perspective it is a mad plan. Meanwhile not a hint of criticism from the coalition for all this. Osborne thinks the robbery is a “tax”. It might even be a “tax” on people with no income and no net assets.

    Doubtless we will get more drivel about what Osborne will do for us after he has left office today. What part of cut the 50% malignant and largely incompetent and 50% over paid state sector does he not understand. That and stop RBS/Natwest (not helping-ed) industry and good customers.

    • uanime5
      Posted March 21, 2013 at 12:46 pm | Permalink

      This plan was created by Cyprus, not the EU. The EU told Cyprus it needed to raise €5.8 billion and the Cypriot politicians decided to tax deposits, which would be lost if the banks collapsed.

    • APL
      Posted March 23, 2013 at 11:42 pm | Permalink

      lifelogic: “the ECB’s job of keeping the banks liquid..”

      An interesting aspect to this that I have not seen discussed many other places.

      Cypriot banks are screwed because they hold a large amount of Greek bonds, it was the ECB that refused to write these down in its attempt to prop up Greece.

      So, why is it Cyprus problem that bonds that the ECB claimed good turn out to be, what a lot of people said at the time, (low grade and loss making-ed)!

      Why is the press portraying the ECB and EU as the good guys, when they have been instrumental in bankrupting the Cypriot banks?

  4. Mike Stallard
    Posted March 20, 2013 at 6:47 am | Permalink

    Is this the crisis we have been waiting for? I heard a Cypriot last night on news night going through the utilities. I saw the Cypriots rioting. And there were lots of very angry people. The BBC report had none of the details which you have described: to them it was just a matter of people losing 10% of their bank accounts when they had apparently been promised they were safe.
    The fascinating part was at the end when the Cypriot Expert had gone through all the possibilities.
    He said “We shall have to get back to the pound”
    “What you mean the pound sterling?”
    “No, the Cyprus pound.”

    PS Most people trash the British Empire. I do not think Cyprus was like this under British rule.

  5. Mick Anderson
    Posted March 20, 2013 at 7:03 am | Permalink

    This should act as a reminder of two things to the EU fanatics in the Cabinet.

    The first is that the EU (and associated organisations) is not some benign power, like a loving parent looking after a child. It’s an organisation that will sacrifice any or all to achieve its ends, in spite of whatever promised have been made. The idea that people who have managed to save some of their taxed income should have it confiscated effectively by the EU is obscene. This is NOT “acceptable collateral damage”

    The second is that if you borrow money, you are beholden to the lender. This is the same as a small loan shark selling a bad debt to a bigger, nastier loan shark – the only difference is the scale. If you don’t want to be bitten by a shark, don’t swim in shark infested waters, and I resent the fact that the occupants of 10 and 11 Downing Street drag me into the pool with them.

    • uanime5
      Posted March 21, 2013 at 12:50 pm | Permalink

      If the EU isn’t benign then why would they lend any money to Cyprus?

      Regarding bank deposits the money raised by taxing them is going towards paying the debts the banks have run up; it is not going to the EU. Do try to get your facts straight.

      • APL
        Posted March 21, 2013 at 8:45 pm | Permalink

        uanime5: “If the EU isn’t benign then why would they lend any money to Cyprus? ”

        To keep the whole shooting match on the road. And most importantly to keep their gold plated expense accounts flush.

  6. Leslie Singleton
    Posted March 20, 2013 at 7:09 am | Permalink

    If it were not so serious it would be hilarious what’s going on. There are a dozen or so idiocies all at once. One can just about imagine (If one could find an acceptable way to do it) taxing wealth but bank deposits are only one piece in the wealth jigsaw. Why this should need saying I cannot imagine (except that the decision makers are fools living in a different world) but on the basis one reads about someone with millions in say shares (though could be gold or property or, in that part of the world, yachts) but nothing in the bank pays nothing whereas if he happened to be selling his shares or whatever and had the million ephemerally in cash on the particular day (last Friday I believe!) he gets it in the neck. Any other day nae bovver. Bonkers. And I do not agree that there is pretence at preserving the fiction of independent countries. If anything, it is the other way round or perhaps when it suits (as now with Cyprus) countries are to be deemed independent otherwise it is all homogenuity and light. And these people want to force us to allow them to control us. No TVM. Brexit now before their mindset pollutes us further.

    • Duncan
      Posted March 20, 2013 at 10:03 pm | Permalink

      Another, greater, idiocy is that we tolerate a banking system where private banks are able to create money – in the UK, 97% of the money in circulation is electronic, created by private banks when they make loans. In making or denying loans these banks control the cycles of inflation and deflation – e.g. house prices. They then buy at the bottom and sell at the top. Same with gold.

      When will we wake up to the fact that the issuance of money should ONLY be under the control of a truly public body, that also controls interest rates – and loans out money interest free.

    • Leslie Singleton
      Posted March 21, 2013 at 9:24 pm | Permalink

      Postscript–Did anybody, either in Cyprus of the EU, give any prior thought to the fact that Cyprus’s deposits with Greece Banks, unsurprisingly large no doubt for obvious reasons, would presumably be subject to the 75% haircuts, meaning that, as is the case, the Cyprus banks would face bankruptcy? It’s just that it all seemed to come as such a surprise.

  7. Peter van Leeuwen
    Posted March 20, 2013 at 7:15 am | Permalink

    The vote in the Cyprus parliament illustrates that EZ countries are still sovereign and not like a UK district area in relation to the UK. Even 16 EZ countries cannot force the Cyprus vote, just like Cyprus cannot force the other 16 EC countries. If Cyprus were to chose wooing the Russians in exchange for gas or continued money laundering, that is up to Cyprus. Short of all EZ countries becoming “EZ districts” the only way is to have better, commonly agreed treaties and oversight, as a dear lesson from the financial crisis. That is taking shape gradually.

    • lifelogic
      Posted March 20, 2013 at 10:25 am | Permalink

      The Euro was always Trojan horse to destroy democracy in the participating countries. One which Major tried to force the UK into against its will with the ERM.

      Labour, Libdims and half the Cameron think Tory party either cannot see this are do not care for personal reasons perhaps.

      I shall ignore all the jam after Osborne is history shortly and listen to what will happen this year. 45% is still far to high. We need easy hire and fire then fire half the state sector, cut taxes, get functional banks and cheap energy. What is needed is very simple indeed.

      • Bazman.
        Posted March 22, 2013 at 8:28 pm | Permalink

        You cannot explain what easy hire and fire is as it would be immoral and illegal, so do not write about this. You have been asked many times and are unable to provide any evidence to support your bigoted fantasy of sacking pregnant woman etc.

    • JimF
      Posted March 20, 2013 at 12:47 pm | Permalink

      The fact that this was ever conceived or put to a vote shows that the EU is fundamentally against individual liberty and is willing to be party to theft from individuals, pure and simple. I think that alone speaks volumes.

      • Peter van Leeuwen
        Posted March 20, 2013 at 8:19 pm | Permalink

        @JimF: So the IMF (of which you are part) is fundamentally against individual liberty and the Cyprus government is fundamentally against indicvidual liberty and . . . need I go on? I don’t quite understand what you’re trying to say. The EZ taxpayers are, through their governments willing to lend 10 billion, the IMF doesn’t want the total debt to be more than 100% of Cyprus’GDP and the Cyprus government doesn’t want to charge the rich depositors (more than 100.000 euro’s) more than 10%. In the end it is the Cyprus government which puts this to a vote.

      • lifelogic
        Posted March 21, 2013 at 10:05 am | Permalink

        the EU is fundamentally against individual liberty and is willing to be party to theft from individuals, pure and simple – and very incompetent too about how it does it.

        • Bob
          Posted March 22, 2013 at 11:37 am | Permalink



          Will bank safety deposit boxes be safe?

    • Brian Tomkinson
      Posted March 20, 2013 at 2:44 pm | Permalink

      Peter, You write: “The vote in the Cyprus parliament illustrates that EZ countries are still sovereign ”
      They won’t be for much longer as your beloved EU presses on with its aim of ever closer union. The EZ countries will become EZ districts. You don’t care about self-determination and self-governace but millions in this country do and we reject the EU takeover and totalitarianism.

      • Peter van Leeuwen
        Posted March 20, 2013 at 8:30 pm | Permalink

        Self determination plays at various levels, individually and collectively. Imagine a Briton who would be totally against immigration. He cannot exercise any self determination here, he has to abide by government policy. The same is true for a municipality which wants something different from the UK government. Also no self-government for this poor municipality. Does that mean totalitarianism? No. The only difference with, say me in the Netherlands (and just as against totalitarianism as you) is that for certain areas I also see a level above the national level, an EZ and EU level of which the Netherlands is part. Ourselves, being part of the EU we don’t see the EU as some foreign power, after all, we don’t suffer from island mentality.

        • James Matthews
          Posted March 21, 2013 at 1:36 pm | Permalink

          The Netherlands has about 3.5% of the EU population, so for those Netherlanders who see themselves as Dutch first and European second (presumably not including Peter) decisions taken at a European level will be overwhelmingly taken by foreigners. In these circumstances whether or not the EU constitutes a foriegn power seems a bit academic.

          We do not “sufffer” from an island mentality Peter, we just recognise who we are and do not want to be governed by others. If you are happy to be part of Greater Germany that is of course a choice you are entitled to make.

        • Brian Tomkinson
          Posted March 21, 2013 at 5:22 pm | Permalink

          It was our ‘island mentality’ that rescued your country and others from Hitler’s jackboots but many of you seem resentful.

    • Mike Stallard
      Posted March 20, 2013 at 2:57 pm | Permalink

      Commissioner Johannes Hahn (Regional Policy).
      DG Regio and the committee of the Regions with 344members.
      The EU is there before you.
      Nationalism is a dirty word now: it must end as there is more and more Europe.

  8. Leslie Singleton
    Posted March 20, 2013 at 7:30 am | Permalink

    And of course another major stone that can be thrown at the present plan is that cash on deposit may well not be part of the deposit holder’s own wealth, for instance it’s not too hard to imagine a case where the deposit holder’s cash consists of deposits placed with him by his own customers–a landlord with deposits from his tenants for instance, pretty complicated stuff, this–and which they will want back. And who knows what the situation might be deemed to be if there were a Trust. It seems that nobody even began to think this through, or if they tried they failed.

    • lifelogic
      Posted March 20, 2013 at 10:27 am | Permalink

      Indeed you might have a loan ready to buy a house just transferred to an account ready for the purchase. You may be taxing someone worth nothing net and with no income at all. Theft or fiscal slavery are the words not a bank “tax” as the foolish Osborne used.

      • Edward2
        Posted March 20, 2013 at 8:25 pm | Permalink

        I agree Lifelogic,
        A tax is something set out in a manifesto you may decide to vote for, or if you are unlucky its in the manifeso of a party you did not vote for.
        You know in every budget that there may be extra taxes needed to pay for things the Government feels are required and this is still OK as you have a chance to register you approval or otherwise in the next election.
        And you can mitigate the tax by careful alterations in your actions or at least arrange your budget to manage the effect of this extra taxation.
        But to wake up and find the EU (mainly Germany) has forced your Government to sequestrate some of your bank account is as unacceptable as it is plainly undemocratic.
        Well done the Cyprus parliament for voting this down.

    • lifelogic
      Posted March 20, 2013 at 11:14 am | Permalink

      “It seems that nobody even began to think this through, or if they tried they failed.”

      The EU are not very interested in “thinking things through” any more than mugger in the street thinks things through very much before he nicks some old lady’s handbag to get his drug fix.

      Yet Cameron and Osborne are say little they just rush a plane of cash out to look after just the state sector people, as usual.

  9. Gary
    Posted March 20, 2013 at 7:33 am | Permalink

    how is printing money any better than taxing money directly ? There is no difference in that they both take the money off savers. Printing is more dishonest, it taxes savings by stealth,by inflation. We are in for a rude shock as we gloat over Cyprus.

    • lifelogic
      Posted March 20, 2013 at 10:28 am | Permalink

      One is more gentle but both are theft.

      • zorro
        Posted March 20, 2013 at 5:09 pm | Permalink

        Printing money in these circumstances is by far the better of two evils. Although we have some inflation, trade weighted sterling is still holding its own in the light of nearly £400bn QE. There is always some hope of making up for it later, but the Cypriot solution is nothing but the enforced sequestration of funds….quite outrageous.


      • Bazman
        Posted March 20, 2013 at 6:35 pm | Permalink

        So are rent increases when the only thing that has changed is the ability to charge more.

        • Edward2
          Posted March 21, 2013 at 8:59 am | Permalink

          Baz, are you telling us that if you were renting out a property you would be charging a rent which is a lot lower than you could charge and still get tenents?

          • Bazman
            Posted March 21, 2013 at 6:15 pm | Permalink

            Does not change the fact though by me doing it.

          • Edward2
            Posted March 22, 2013 at 10:04 am | Permalink

            If you or I were landlords we would set our rents to maximise our returns, balanced against having to find tenants to pay what we were asking.
            If profits were good then others would enter the market, increase supply of property for rent and rents would then steady or even reduce.
            You think this is outrageous, but this is very different to the state suddenly deciding to pinch some of our savings.

    • MichaelL
      Posted March 20, 2013 at 11:55 am | Permalink

      Agree, specially, if as hinted at in press, Osborne gives a mandate to the Bank of England to ‘target growth’ i.e. try to inflate the debt away even more than done already. That would lead the country into a shambles.

    • Denis Cooper
      Posted March 20, 2013 at 2:50 pm | Permalink

      A lot of people would have been in for a much ruder shock if Darling hadn’t got the Bank of England to print up £200 billion and lend it to him.

      Then it would have been:

      “I’m only getting in enough money to pay three quarters of the government’s outgoings, and it’s getting more and more difficult to persuade investors to lend me enough to cover the shortfall.

      So I’m left with no choice but to do something like this –

      Cut old age pensions and welfare benefits by 25%, with immediate effect.

      Cut all public sector salaries by 25%, with immediate effect.

      Start the process of dismissing 25% of public sector workers.

      Look for public sector contracts which can be cancelled or renegotiated, and cancel or renegotiate enough of them to cut 25% off the cost.”

      But of course that wouldn’t have worked, it would have sent the economy into a tailspin with tax revenues collapsing and still insufficient despite those sudden and savage cuts to public spending.

      The dishonesty was, and still is, to keep pretending that quantitative easing was about “stimulating the economy”, when it was, and still is, about making sure that the government doesn’t run of money to pay all its bills in full and on time.

      • zorro
        Posted March 20, 2013 at 5:14 pm | Permalink

        Indeed Denis, this would have been the unavoidable reality…..particularly if we had been in the Euro. I will repeat again, and this is not an endorsement, but with nearly £400bn QE, sterling is holding its own against other major currencies…..


      • stred
        Posted March 20, 2013 at 5:50 pm | Permalink

        If the above reductions had been made at 4% compound pa., we would have been nearly there over 5 years. Add in a refusal to go ahead with daft energy policy, HS2 preparation+ other gross waste and avoiding tax increases. We would by now, have been in a position for real growth.

        • Denis Cooper
          Posted March 21, 2013 at 5:09 pm | Permalink

          I think in those terms the rate at which the budget deficit has been shrinking is a bit below 3% a year, ie it was about 25% of spending and now after three years or so it’s about a third less or about 17% of spending. It’s difficult to be quite sure with so much double talk going on all the time, but anyway even that lower rate of shrinkage of the deficit has cancelled out almost all of the natural recovery in the economy and now it seems that it can’t be continued.

      • sm
        Posted March 21, 2013 at 1:20 am | Permalink

        QE also should have been used to reduce debt levels of the population directly as proposed by Steve Keen.

        Why not?

        The banks would have needed to shrink to a competitive level very quickly.They could have been forced & helped to recapitalize/default.

        Distributions, bonuses and wage increases by banks should/would have been prohibited/impossible in the interim.

        Protecting the real purchasing power of money should have been the only constraint.

        It really is time to remove private banks ability to create money out of thin air – particularly for critical infrastructure funded by tax.

        Note: Whichever nuke we go for fund it directly – print it – but pay no more than coal equivalent.

        Maybe we will soon see rationing/barter in Cyprus.

        The deadly embrace of politicians and bankers continues, deadly for their populations i mean. Hopefully we will see another Icelandic solution.

        • Denis Cooper
          Posted March 21, 2013 at 5:24 pm | Permalink

          Why not?

          Because if the Bank creates new money and it is used to help debtors then later all taxpayers in the population will be expected to repay the Bank at least enough to stop it going bust and meanwhile all consumers will have to suffer the extra price inflation caused by the creation of the money.

          You’d be asking taxpayers and consumers who avoided getting themselves into excessive debt to bail out those who were less prudent, and that would set a terrible precedent.

    • Jon
      Posted March 20, 2013 at 8:23 pm | Permalink

      One will create a huge exodus of money out of Mediterranean banks.

  10. Andyvan
    Posted March 20, 2013 at 7:37 am | Permalink

    It is not only unacceptable to close the banks it is also unacceptable to steal privately owned assets, in this case cash, to make good losses incurred by reckless banking and profligate public spending. Time and again bankers and politicians raid private citizens, first by bailouts, now by outright stealing.
    This is just a forerunner to more thefts by decree across the western world and could well lead directly to runs on banks. I for one would not keep any more money in one than I need to pay immediate bills and this outrage should everybody to think very carefully about what would happen when our banks just shut and cash dispensers stop working (we’ve already had a couple of practice runs at that).

    • Mark W
      Posted March 20, 2013 at 5:35 pm | Permalink

      You can put money in a bank and avoid this risk too. In fact with the derisory savings rates combined with tax on interest I recommend it.

      Withdraw your cash savings from your bank. Put it in a box then have it placed in a safety deposit box in the bank. Think about it. If people en masse did this the banks would run out of money to lend, the government would lose savings income tax and you would be worse off to the tune of the deposit box hire. That’s minimal but the bank isn’t ripping me off any longer. Net interest is piffle against inflation but the government can’t touch it.

  11. alan jutson
    Posted March 20, 2013 at 7:39 am | Permalink

    Looks like Cyprus is going to have to sell off some of its assets.

    Press reports suggest its gas reserves may be going in the direction of Russia.

    Could never understand why Countries get lent huge amounts of money with no penalty for default.
    If no penalty for default why change the mode of operation, just kick it into the long grass and then ask for more, why be unpopular !!

    I see back at home here Banks are now asking profitable Companies to substantiate their overdraft requirements.
    The great clawback continues, and future growth and further investment will be strangled as Companies fear a request for repayment on demand from their Banks and thus reduce stock and hoard cash.

    Either the Chancellor is not aware of what is going on, or is blind to it.

    Aware that the Government cannot control who Banks lend to, and indeed they should not (as they do not know the risks involved), but what about all this cheap money that was available to the Banks from the Bank of England specifically to lend out to business, where has this gone, or has it just been used by the Banks to push up their reserves.

    Me thinks this budget may be interesting, but will fall well short of what is really required.

    Time to cut the long grass so the pitch is once again playable, in order to stand a chance of getting a good result.

    Who’s got the lawnmower ?

  12. Boudicca
    Posted March 20, 2013 at 7:44 am | Permalink

    Let’s not forget that – amongst others – Lord Heseltine, Ken Clarke and a host of other so-called Conservative MPs wanted the UK in the Eurozone and in the case of Heseltine, apparently still do.

    The UK Government of the time could have prevented the castastrophe that is overwhelming southern Europe by refusing to ratify the Maastrict Treaty. But instead, they deposed the Prime Minister who would have prevented it, in order to install one who would sign.

    And we should trust this Party …………! Why?

    • Denis Cooper
      Posted March 20, 2013 at 2:52 pm | Permalink

      Yes, Major had a veto and he should have used it.

    • Mark W
      Posted March 20, 2013 at 5:40 pm | Permalink

      There was a brief news clip yesterday of our greatest prime minister in action. Even the way she used the word ‘socialist’ as derogatory term was pure class. Nov 1990 was a sad time

      • Leslie Singleton
        Posted March 24, 2013 at 1:58 pm | Permalink

        MarkW–Yes, personally I cannot forget her put down of somebody talking about what he saw as the Liberals’ guts (cannot remember the exact context). Anyway, she paused very briefly and then very quietly said “Guts? The Liberals??” and moved on. And one now learns that Clark prevaricated on the Falklands at the crucial point, not wanting us to go, treating the whole thing as a joke and in general being unsupportive of her. No surprise really. It’s a wonder he didn’t resign and stay resigned afterwards, if not before.

        • Leslie Singleton
          Posted March 24, 2013 at 2:00 pm | Permalink

          Corrigendum–Omitted ‘e’ from end of Clarke in error.

  13. Ben Kelly
    Posted March 20, 2013 at 7:53 am | Permalink

    This should be another nail in the Euro coffin. It will not be due to vested interests and political dogma.

    Economies around the world need a reboot, businesses must fail and house price must fall, this is the way of capitalism. Return to a form of the gold standard where money can not be created out of thin air and aim for self sufficiency (through trade if necessary). Thr wealthy will still be wealthy when the chips fall and the poor will still be poor, the disparity will have changed that is all.

    Reboot and move on.

    • lifelogic
      Posted March 20, 2013 at 10:30 am | Permalink

      One assume Ken Clark, Cameron and the Libdems will still wants to join it in their heart and soles!

      • Mark W
        Posted March 20, 2013 at 5:42 pm | Permalink

        In fairness Ken Clarke and the LibDummies are honest about their love of all things EU.

  14. Robert K
    Posted March 20, 2013 at 7:56 am | Permalink

    Arbirtary levies on bank deposits will surely cause a run on those banks and thus amplify the already considerable problems Cyprus faces. Without despositors, the banks will first become insolvent and then go bust. Hardly what the EU wants, you would think.

  15. Jerry
    Posted March 20, 2013 at 8:13 am | Permalink

    The EU is playing a very dangerous game with Cyprus, this could be the straw that breaks the camels back, Cyprus is another Iceland – they might actually have more to loose from capitulating to the eurocrats than simply defaulting or seeking rescue from outside of the EU/IMF (such as from Russia). Are we going to see the first country to tumble out of the Euro, the EU and possibly the influence of the west?…

    As for our own budget, I predict either a utterly boring budget or a real foot-stamping, order papers waving budget – why, because so little has been lea… sorry, pre announced to the media!

    • Mark W
      Posted March 20, 2013 at 5:55 pm | Permalink

      Oh well, we agree on something today.

  16. Richard1
    Posted March 20, 2013 at 8:28 am | Permalink

    There are 2 choices: 1) the ECB provides unlimited liquidity, banks are restructured and the EU effectively takes over the government of Cyprus – imposing tax rises, spending cuts etc; or 2) Cyprus leaves the Euro (& if need be the EU, taking a Norway-type status), banks and sovereign debt are restructured and the people of Cyprus decide what sort of government and policies are most likely to offer them a chance of recovery. If, as part of this, there is a default on Euro-denominated sovereign debt, there will then be a sharp fall in the prices of Eurozone bonds issued by other weaker countries, leaving them in the position of wondering whether to follow option 2) also.

  17. AJAX
    Posted March 20, 2013 at 8:31 am | Permalink

    No advocacy of Cyprus getting out of the EU & ditching the Euro, getting their £ back & joining EFTA, just 1 of keep propping the EU up by flooding it with German taxpayers’ resources & keep Cyprus trapped within it.

    Interesting strategic position from a purported “Eurosceptic”.

    • zorro
      Posted March 20, 2013 at 5:21 pm | Permalink

      To be fair to John, I think that he is trying to articulate the implied ‘logic’ of the federal argument of the federal state supporting or bailing out the region, or not as the case appears to be here…….. I doubt that he has joined forces with Clark/Heseltine overnight.


  18. Acorn
    Posted March 20, 2013 at 8:32 am | Permalink

    Cyprus should have seen this coming, the ECB has been saying that “negative interest rates” were on the menu. European Central Bank Vice President Vitor Constancio said so back in February. Cyprus was an ideal candidate, small enough that is, for a test case to judge reaction across the Eurozone.

    The tax hit on deposit accounts is the equivalent of a one off negative interest rate; perfectly possible for ECB or any central bank to do this annually. The Bank of England does it differently by having low central bank interest rate (plus QE), with high inflation (aided by depressing the currency); yielding a constant, negative interest rate of about 2.5 %, instead of a Cyprus single (so far) 7 – 10 %.

    The ECB/EU/IMF austerity plan is the exact opposite of what Cyprus needs, as a user of someone else’s currency. If I were them I would sell oil leases to the Russians as collateral; adopt the Ruble and tell the EU to piss off. Or, lease southern Cyprus to the Turks?

    Meanwhile, I wait to see how much more spending power Osbo’s austerity penance will take out of the UK economy today; triple dips all round I say.

    PS. If anyone is flying to Cyprus this week, there are a few x-pats would like some cash notes. Euro; Dollars or Ponds Sterling will do nicely. 😉 .

    • Acorn
      Posted March 20, 2013 at 10:49 am | Permalink

      Some of my favourite quotes on the wires on this Budget Day.

      FED Chairman Bernanke. “But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

      Interviewer Pelley asks Bernanke: “Is that tax money that the Fed is spending?” Bernanke replied, reflecting a good understanding of what we call central bank operations (the way the Fed interacts with the member banks):

      “It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.”

      Robert Reich; former Clinton Secretary of Labour. “The biggest problems we face are unemployment, stagnant wages, slow growth, and widening inequality — not deficits. The major goal must be to get jobs and wages back, not balance the budget.”

      “The government’s finances are not at all like a household’s. In fact, it’s when American families can’t spend enough to keep the economy going, because too many of them are unemployed or underemployed and have run out of money, that government has to step in as spender of last resort — even if that means taking on more debt. If government doesn’t fill the spending gap, an economy can collapse into deeper recession or depression, pushing unemployment far higher. Look at what austerity economics has done to Europe.” [and] “Republicans want Americans to believe government budgets are like family budgets that must be balanced because the analogy helps their ideological aim to “drown the government in a bathtub,” in the memorable words of their guru, Grover Norquist.” (HT: Billy Blog)

  19. colliemum
    Posted March 20, 2013 at 8:45 am | Permalink

    The plan of literally grabbing money from bank deposits while the banks are closed has been voted down in Cyprus, but the fact remains that this proposal has shown an unacceptable new step in the attitude of EU finance ministers towards the people: take their money to save banks. This marks a breach of trust: if governments can even propose to take money from private accounts, parliamentary placet nor not, then what guarantee is there that other assets will not be taken at some other stage? None.

    Why is it that governments and especially the EU are so cavalier towards those who have worked, paid their taxes, saved a bit and put their savings into a bank deposit instead of burying it in the back garden?
    I think they show the very disturbing attitude of a socialist Nomenklatura, who is extremely well provided with everything while the people and what they own and have worked for are seen as so much ‘resources’ which are of course available for disposition by the Nomenklatura.

    Even though the Cyprus parliament has rejected this money grab, the fact that it was even proposed will have repercussions for all governments: who will trust them not to do the same?
    It is btw false to compare this with the stealth grab of governments by QE, inflation and low interest rates. In this case, all are affected in the same way. In Cyprus’ case, only a part of the population would have been affected, with no recourse: once their money is gone it’s gone.

    I hope this was the final straw which breaks the €-camel’s back!

  20. Iain Gill
    Posted March 20, 2013 at 8:52 am | Permalink

    My Dad got medals from the Queen for sticking his neck on the line in Cyprus, and I had lots of friends from Cyprus at my university. So I have a soft spot for the place.

    The Cypriot people are a bit like a lobster placed straight into boiling water and screaming, the rest of us are in water warming up so slowly we don’t notice it but it will end up cooking us just as thoroughly.

    The system is just being held together with sticking plasters.

    Me personally what would I do? Probably just ban all state borrowing, force 5% of each national debt to be paid off each year, force immediate severe medicine. But its never going to happen that way is it.

    • Kenneth
      Posted March 20, 2013 at 12:06 pm | Permalink

      I agree. We should allow the inevitable depression to happen now rather than this prolonged water-treading.

      Yes, we will lose some structural capacity but along the way we will also lose the weakest players and come out stronger with structural capacity being rebuilt.

      However, in order to achieve this we must urgently rid ourselves of eu rules and regulations which makes this unachievable.

      Whichever way, the government must urgently cut public spending. I really despair when I hear that £2.5 billion in savings on departmental budgets will be frittered away on more quangos.

    • A different Simon
      Posted March 20, 2013 at 9:15 pm | Permalink

      Iain Gill ,

      “Me personally what would I do? Probably just ban all state borrowing, force 5% of each national debt to be paid off each year”

      As soon as you started to make headway the goalposts would be changed .

      The global elite would start milking you as soon as you started to recover by raising the interest on your debts .

      It’s all about control and the globalists will never allow the UK to be debt free .

      Look at tax on fuel . Mr Osborne reduced it a bit today but if you wanted your economy to grow you would slash it which would make the overall pie bigger which would mean you wouldn’t have to tax it so hard .

  21. Graham C
    Posted March 20, 2013 at 9:01 am | Permalink

    The cynical nature of politicians nevers ceases to amaze.

    This bailout is a drop in the ocean in EU terms but – as elections loom in Germany – they deliberately use the Cypriot situation to tell all the voters at home how tough they are.

    Where are all the big names – Merkel,Hollande etc. The quietness is almost deafening as they wait for the panic to abate after pulling the strings behind the scenes.

    They have set confidence in the banks (all banks) back 5 years with 1 stroke and when the banks do open in Cyprus there will be a major rush to withdraw.

  22. Brian Tomkinson
    Posted March 20, 2013 at 9:15 am | Permalink

    The genie is out of the bottle. The EU, ECB and IMF demanded this payment be taken by a tax on savings driving a coach and horses through the 100,000 euro guarantee on savings. This has failed only because of the outcry from the Cypriot people forcing their politicians to reject it but it shows vividly the mendacious duplicity of those institutions. Perhaps Russia will provide the financial support to Cyprus now. The euro is a means to an end – political union in the EU. It is a disaster for the people in the member states who are slowly awakening to the realisation that they have become subjegated by a foreign power. The outlook is bleak in many countries as a direct result of this coup d’etat and those responsible for it should be punished severely in just the same way as they clamour and assist in deposing rulers of other countries around the world. Just why you can remain in a party that wants to stay in this organisation is beyond me.

    • uanime5
      Posted March 20, 2013 at 2:09 pm | Permalink

      I suspect that Cyprus wanted to tax all bank deposits, rather than just those over €100,000 which wouldn’t be protected if the banks collapsed, simply so they could reduce the amount they have to tax accounts with more than €100,000.

      • A different Simon
        Posted March 20, 2013 at 9:18 pm | Permalink

        This has been on the cards for weeks and was reported in the Sydney Morning Herald on 07th March .

        The unjust thing is that anyone with any sort of financial astuteness would have got their money out .

        The only people being hit are those who weren’t financially savvy enough to see it coming .

        This is how the global elite work .

    • Denis Cooper
      Posted March 20, 2013 at 6:38 pm | Permalink

      Reported here:

      that originally Germany and the IMF wanted a 40% levy.

  23. D K McGregor
    Posted March 20, 2013 at 9:25 am | Permalink

    I would be interested in your views as to where Cypriot banks went wrong and where all the money now being demanded from the depositors is going. I.e the money trail.

    • Jon Burgess
      Posted March 20, 2013 at 7:12 pm | Permalink

      I’d expect that the money will be finding it’s way outside of the Eurozone – to those havens of stability and security the British overseas dependencies, Switzerland & Singapore. Anywhere but contimental Europe. (Freudian slip).

  24. Andy
    Posted March 20, 2013 at 9:46 am | Permalink

    I’m afraid even if there is ‘a statement of depositors’ positions’ the damage has already been done. There is no reason whatsoever to keep one cent in Cyprus, Greece, Spain, Italy and possibly even France. In a long litany of stupidity from the EU this really was amazing.

  25. oldtimer
    Posted March 20, 2013 at 9:47 am | Permalink

    This a very clear summary of the mess in Cyprus and the EZ.

    Over at CityAM Andrew Lilico makes the point that deposits at banks are, in fact loans to the fractional banks. As such they are clearly at risk if the bank fails. He points out that until the mid 1980s there were savings banks, such as TSB, that were 100% backed by government bonds or cash. One solution he suggests is to create 100% backed, 100% insured “storage deposits” alongside uninsured fractional reserve “investment deposits”. Of course, part of the outrage in Cyprus was directed at the failure to uphold the deposit insurance scheme terms everyone thought were in place – and the fact that bond holders were let off scot free.

    In one measure of the decline in economic activity, car sales in Europe dropped by over 10% in February.

    • stred
      Posted March 20, 2013 at 11:13 am | Permalink

      R4 interviewed a professor advising the EU this morning and his dismissal of the rights of holders of accounts over E20k was interesting. He seemed to lump the businesses and savers with deposits under the E100k guarantee into the same category as the larger accounts. Also, it appears that there was prior knowlege of the move, available to some account holders, as large movements took place and the £ strengthened. There should be an investigation into currency transfers from these banks.

      Similary, the decision to let bond holders off and not invoke the guarantee insurance should also be investigated. The actions so far are very whiffy and could amount to a very large attempted, or possibly sucessful, theft.

      • stred
        Posted March 20, 2013 at 6:01 pm | Permalink

        ‘there was’- change to ‘may have been’. Also ‘theft’ from ordinary account holders. We can’t be too careful under the Charter. A third person from the EU might complain and it could be retrospective.

        PS. I am ill again and watching tv at home. Your and D.Davis’s speeches were the most interesting and intelligent. The rest was obvious waffle.

      • A different Simon
        Posted March 20, 2013 at 9:21 pm | Permalink

        Stred ,

        It was reported in the Sydney Morning Herald on 07th March , a week before it happened .

        Anyone financially astute had already got their money out . The only people being punished are plebs .

    • Denis Cooper
      Posted March 20, 2013 at 3:06 pm | Permalink

      A bank could still fail even if it only ever invested depositors’ money in gilts.

      Gilts are a safe investment insofar as the Treasury will pay what it has promised during the life of the gilt and on its final redemption.

      But they are not so safe for anyone who might find themselves short of cash before they mature and so has to sell them in the market.

      If enough of the depositors wanted their money back all at once then the bank could find that the proceeds from selling the gilts fell short of what was needed, depending on the prices when they were bought and sold.

  26. English Pensioner
    Posted March 20, 2013 at 10:04 am | Permalink

    A tax on savings will surely cause everybody to withdraw savings and keep it as cash. A “one-time” tax could become a “two-time” tax, and the old saying “once bitten, twice shy” applies.
    People in other countries such as Spain/Italy/Greece will probably have already started wondering already whether their government could impose a similar tax, and could start to withdraw their money in turn. This could cause a run on the banks which wouldn’t be confined to a single country. The result is that the banks will have even less cash available for investment causing the economies to decline still further.
    And if it did happen in any of the larger countries, many people here in Britain could start to think the same way and any one with significant savings would be looking for a safer place to put them. This would certainly happen if Vince Cable got anywhere near the levers of power, A Savings Tax would go very well with his Mansion Tax, after all why should the rich who live in ordinary houses “get away with it”?

    • Roger Farmer
      Posted March 20, 2013 at 10:49 am | Permalink

      As a small indication of how people are thinking and acting, five years ago you could buy a Ferrari Dino 246 circa 1973 for around £50,000. Now I see one advertised at well over $300,000 dollars. It would seem a better place to have put your money in 2007 and think of all the fun you might have had.

  27. Roger Farmer
    Posted March 20, 2013 at 10:05 am | Permalink

    Question is, do you think the non elected bullying beaurocrats of Europe have learnt anything from the Cypriot Parliament rejection of their proposal. If you take the precedent of referendum votes in various EU countries I imagine that these beaurocrats will keep pushing. In one way I can understand the way they are thinking because they know they cannot afford to bail out countries like Italy, Spain, and Portugal without printing vast amounts of euros. History tells us why the Germans in particular do not like this because it leads to inflation and they know better than anyone what the result of that can be.
    The Cypriot Government should revert to the Cypriot Drachma on a one for one basis and then deflate until a natural balance is reached, say minus 30%. In the longer term this would boost their tourist industry and anything they export.
    Naturally the EU beaurocrats would hate this because it would be the first visible crevasse in their unsustainable dream. Were it seen to work there would be a queue of other southern economies wishing to do the same. In fact elements in these countries are begining to think along these lines already.
    I live in Europe and applaud the initial desire to form a commercial union to avoid the conflicts of the past century. However, politicians as ever, wished to strut on a stage of USA proportions and commercial integration was too slow for them. In creating the euro and pushing for complete integration they have created a financial monster they cannot sustain. This has happened to the detriment of millions of their citizens and will continue until the markets say enough is enough, or civil unrest developes to the extent that countries become ungovernable. Better they have a civilised currency breakup now and set the path for individual nation state recovery than descend into chaos.
    I would be very interested to hear how you, John, read the situation. Particularly as you have a better feel than me for the banking implications of such a solution.

  28. Epigenes
    Posted March 20, 2013 at 10:22 am | Permalink

    These events have almost certainly damaged the Cypriot banks beyond repair. Who now will deposit money in them? There will be a bank run when they open, although I suspect there will be limits imposed on how much any depositor can withdraw. Electronic txfers have been blocked already. Contagion is bound to follow with Spain, Portugal and Italy in the vanguard. The good folk of Europe will be putting their money outside the reach of the Eurozone

    This is a politically and economically disastrous. I hope this expedites the collapse and destruction of the entire EU apparatus.

  29. Martin
    Posted March 20, 2013 at 10:37 am | Permalink

    Isn’t the Sterling area a bit like the Euro zone?

    We have in addition to Great Britain & Northern Ireland – assorted Channel Islands, Isle of Man , Gibraltar and the Falklands.

    Who supervises their banks?

    Who would pay for a bail out if heaven forbid one of these got into difficulties?

    • stred
      Posted March 20, 2013 at 6:09 pm | Permalink

      Anybody know whether HMG would be responsible for helping sort out problems with a British bank and possibly semi-owned by it, operating offshore Euro accounts in Gibraltar, CIs or IOM?

    • Jon Burgess
      Posted March 20, 2013 at 7:18 pm | Permalink

      The Channel Isles and IOM have a similar degree of investor protection as the rest of the UK as far as I know, and if anything they set themselves up to be seen as being as well regulated as possible, in response to the usual jibes from others of their ‘tax haven’ status.

      The Isle of Man and Channel Isle are independent of the UK, so they have their own local regulators; in other words the UK is not responsible for their banks/insurance companies and any losses they may leave behind if they go bust.

  30. Antisthenes
    Posted March 20, 2013 at 11:33 am | Permalink

    There is something of déjà vue about this euro-zone crises in as much it was muddled headedness and bad leadership that one hundred years ago almost precisely that lead to another European conflagration that eventually encompassed the whole world in 1914 WWI . As things are going 2014 may see yet another momentous event the total collapse of European banks and the bankrupting of many states that will have a world wide knock on effect. As in 1914 war was unstoppable because of rigid train time tables now in 2014 a financial Armageddon is also unstoppable because of a rigid adherence to maintaining the single currency at all costs.

  31. Tad Davison
    Posted March 20, 2013 at 11:34 am | Permalink

    I can’t help but think back a few months to when the so-called ‘experts’ at that most trusted of broadcasters – the BBC – told us the Euro crisis was over. Well if people are foolish enough to trust their judgement, there’s no hope for them. I think there will be more of this to come, so forgive me if I don’t take everything the BBC says as gospel.

    Another point, why are the proponents and supporters of the Euro, and by extension, further political integration, so conspicuously silent at this time, and should not these same BBC journalists be pressing them hard for their views?

    It has been proven time and time again, that the EU is just an expensive bureaucratic nonsense, and I am at a loss to understand why people like Clegg, Moribund, Clarke and Heseltine still persist with their push towards an ever-closer union. The facts are laid bare before them, yet they won’t accept the truth, so how can we possibly have any faith in their judgement either?

    This is a massive open goal for any Euro-sceptic, so that poses yet another question. If Cameron is truly Euro-sceptic, why doesn’t he take advantage of it, and demolish their arguments once and for all?

    I think we all know the answer to that one don’t we!

    Tad Davison


    • Lindsay McDougall
      Posted March 21, 2013 at 11:27 am | Permalink

      Do you remember David Cameron’s attitude when John Major and Norman Lamont got into a spat over Europe? Norman asked a very important question on Europe in the Commons. Both Major and Hurd treated him with supercillious contempt and didn’t answer the question. As a result, Norman supported Labour’s No Confidence motion. David Cameron was heavily critical of Norman, not of Major and Hurd.

      That’s why I am suspicious of David Cameron as a Eurosceptic.

      Following David Cameron’s recent speech on negotiating a new relationship with the EU, John Major pooh poohed it, saying that he will get very little of what he wants and that he shouldn’t worry about it too much. Spoken like a true Europhile. We shouldn’t be surprised. John Major prattled on about England being defined by ‘warm beer, cricket on the village green and old maids cycling through the mist’, having given away huge chunks of our Sovereignty in the Maastricht Treaty, which he could have vetoed.

      Sorry, folks, but we are not going to tolerate another 1974/75 stitch up. The negotiating position and our ‘bottom’ line must be in the next Conservative Party manifesto.

    • uanime5
      Posted March 21, 2013 at 1:11 pm | Permalink

      The euro crisis occurred when people were worried that the euro would collapse because the debts of large countries, such as Spain and Italy, meant they were too big to bail out. However a deal was reached and these countries didn’t collapse.

      Despite all the hype about contagion Greece was never going to bring down the euro even if it crashed out the euro because it was one of the smaller economies. Cyprus is smaller still and has no chance of causing a euro crisis.

      So the euro crisis is over and has been over for some time. Just because you don’t like this Tad doesn’t mean that the BBC or the EU has lied to anyone.

      • Edward2
        Posted March 22, 2013 at 10:09 am | Permalink

        I admire your optimism Uni,
        I hope tyopu are right that “the Euro crisis is over” but if the nations you mention do not get some growth going and reduce their unemployment levels and further reduce their public spending than another crisis will happen.
        Its over…for now.

  32. Kenneth
    Posted March 20, 2013 at 12:09 pm | Permalink

    The problem is that, no matter how much they back-peddle, the principle of confiscating depositor assets has now been established. This will un-nerve anyone with cash savings.

    I hear that some companies are sitting on cash piles. Maybe time to buy bullion instead.

  33. James Reade
    Posted March 20, 2013 at 12:20 pm | Permalink

    So who are these people who think the euro and EU gets everything right? Can you point them out to me? If you can find somebody who genuinely believes a government gets everything right and never makes mistakes (like, say, joining the ERM), I’ll show you a deluded fool.

    What’s happening to Cyprus is tragic, incomprehensible and bizarre – but it’s not some natural consequence of being part of a common market or even being part of a larger currency area. It may be one particular currency area is being particularly badly run at the moment, but that doesn’t therefore mean all currency areas are bad – nor does it mean all those run by people on the continent are bad and those run in the British Isles are somehow good.

    The last time I checked, if I wanted to buy something on the continent using my savings I had in a bank here since, say, 2007, I’d find I could afford a fraction of what I used to be able to afford there – funnily enough, similar kinds of magnitudes to those now being talked about for Cyprus.

    And of course, there are those who suggest we should have defended the value of the pound. Which would have just shifted the cost on to some other segment of British society other than the savers you so often lament for on here. Maybe it would be right that borrowers were further hit – perhaps that would be more moral. But we wouldn’t have avoided the costs somehow.

    • Richard1
      Posted March 21, 2013 at 1:24 pm | Permalink

      You are wrong. What is happening in Cyprus is perfectly comprehensible and is a consequence of the Euro. Cyprus’s banks are bust largely as a result of losses on Greek sovereign debt. There are losses on Greek sovereign debt because Euro membership enabled left-leaning Greek governments to borrow and spend at amounts and prices which the markets would not have allowed them to do without the Euro. The govt spending in Greece turned out to be largely wasted and not to generate sustainable growth (no suprise there to those of us who reject arguments for such policies in the UK), and so we have the crisis we do in Greece. The Cyprus crisis is attributable absolutely to the existence of the Euro and to neo-keynesian policies in Greece over the last 10 years.

  34. David Langley
    Posted March 20, 2013 at 12:20 pm | Permalink

    If Cyprus was holding vast amounts of Russian money and other foreign deposits in its banks and then lending it out as usual for a profit. Why have they gone bust? The Island is a tourist hotspot, and with good income from Troops and our government should be in the best of health. Why are they Bust and needing largesse from the EU dictators.

    • cosmic
      Posted March 20, 2013 at 5:08 pm | Permalink

      Largely because of investment in Greece and Greek bonds entered into on grounds of ‘solidarity’. There’s also a chunk of bad loans arising from a property boom.

    • uanime5
      Posted March 21, 2013 at 1:13 pm | Permalink

      Their banks ran up huge debts and these banks make up a large part of Cyprus’ GDP. So if the banks fail they’ll take a large part of the economy with them.

    • APL
      Posted March 25, 2013 at 8:02 am | Permalink

      David Langley: “Why have they gone bust?”

      They’ve gone bust because they are holding huge amounts of Greek debt, which the ECB claimed insisted was ‘money good’ but turns out – to nobody’s surprise to be worthless.

      What that says for the ECB balance sheet is anybody’s guess.

  35. REPAY
    Posted March 20, 2013 at 12:58 pm | Permalink

    Why is it we here so little about the IMF taking over the UK’s economic policy and finances back in the 1970’s? Most references to UK recent history begins with references to the Thatcher period “cuts” and the destruction of UK manufacturing etc. as though these were deliberate policies…no backdrop of the strike ridden 1970’s is ever given. Perhaps I listen to the BBC too much.

  36. TrevorC
    Posted March 20, 2013 at 1:06 pm | Permalink

    The Cyprus financial crisis is simply and easily solved.

    Cyprus has huge oil and gas deposits awaiting development. George Osborne should advance Cyprus Government the Euro 20bn it needs to refinance its banks in exchange for 100 years’ controlling, access-lease on all of the Cypriot oil and gas reserves. We could offer to put BBC’s Stephanie Flanders in as economics adviser as part of package.

    It’s not as if Cyprus actually needs a lot of heating fuel and the island has the potential to develop extensive solar power for its electricity requirements. Why are waiting until we are gazummped by Putin and GazProm.

    • Denis Cooper
      Posted March 20, 2013 at 6:46 pm | Permalink

      Or he could advance £17 billion electronically, plus enough sterling banknotes to put into circulation on the island to replace the euros, all provided courtesy of the Bank of England, on the same terms as you state but also with Cyprus moving to the British pound temporarily before moving back to the Cyprus pound once the practical arrangements had been made.

      But he won’t.

  37. PaulDirac
    Posted March 20, 2013 at 1:06 pm | Permalink

    Cyprus is a worse case than Greece and probably deserves to be kicked out of the zone.
    They are a money laundering capital of the Eurozone, been governed by an elected Communist party for many years, which was even more flagrantly irresponsible than (word left out ed) Brown.
    Why should the EZ citizens be responsible for this unreasonable irresponsible behaviour?
    Let the Russians pick the tab for their dear friends.

    • Edward2
      Posted March 20, 2013 at 8:32 pm | Permalink

      Paul, when you say “why should EU citizens…etc”
      Well its the effect of the Euro currency and the failure of the EU’s regulatory bodies that has led to the problems Cyprus faces.
      Cyprus prior to the Euro had a nice little economy, as did Greece.

  38. Peter Davies
    Posted March 20, 2013 at 1:51 pm | Permalink

    You just couldn’t make it up – this is like something out of a movie.

    I don’t want to sound like a UKIPer but the whole EZ thing is nothing but an omni shambles. The size of the economy may be tiny but the way they have dealt with it is absurd and will more than likely lead to the whole thing breaking up.

  39. margaret brandreth-j
    Posted March 20, 2013 at 2:04 pm | Permalink

    So far in the budget debate I have only heard comments which could be applied to all parties at every change of parliament and term of government. The fear factor, the negative performance attack , the belief of the proselytes or anti followers: there is nothing specific.

  40. uanime5
    Posted March 20, 2013 at 2:15 pm | Permalink

    The EU is now demanding that Cyprus finds Euro 5.8bn or 33% of her National Output as her contribution to the rescue funding the state and its banks now needs. That would be like the EU telling the UK to find a one off tax revenue of £500 billion, almost the total tax revenue each year which we collect.

    You’ve forgotten that the EU’s bailout is worth €10 billion; nearly double what Cyprus is raising. So it’s like the UK being given a £790 billion bailout if they raise £500 billion.

    It just shows what can happen when a country surrenders its monetary and budgetary sovereignty to the EU.

    As opposed to surrendering to the IMF, which would require similar reforms in exchange for a bailout.

    Now it appears the banks need a major injection of new capital, and the state has to slash its borrowing quickly, to persuade the EU/IMF bank managers to lend some more.

    I guess that’s what happens when a country becomes over reliant on the financial industry, rather than manufacturing.

    It is almost beyond belief that people living in an advanced EU country, part of their common currency, can get to the point where they cannot undertake normal transactions through their bank and do not know how much of their money in the bank they will one day be able to withdraw.

    Just like with Northern Rock, which also closed to prevent a run on the bank and had to be bailed out.

    In other news 100 academics are attacking Gove’s new curriculum for focusing on rote-learning, rather than understanding what you’re being taught, because it will result in standards further declining in schools.

    Ian Duncan Smith is still trying to retroactively change the law so that the DWP doesn’t have to compensate people who were illegally sanctioned.

    I’ll leave my comments about the budget until your blog about it.

    • Epigenes
      Posted March 20, 2013 at 5:39 pm | Permalink

      Don’t bother. Nobody is interested in your comments.

      • uanime5
        Posted March 21, 2013 at 1:15 pm | Permalink

        if no one is interested in my comments why do they keep responding to them?

        • Leslie Singleton
          Posted March 23, 2013 at 10:37 pm | Permalink

          unanime–There is a difference between being interested and feeling a need to express derision and sweep them away.

        • APL
          Posted March 24, 2013 at 3:39 pm | Permalink

          uanime5: “if no one is interested in my comments why do they keep responding to them?”

          Mostly, pity.

    • Edward2
      Posted March 20, 2013 at 8:37 pm | Permalink

      I think Uni, you are really struggling to find a contary argument to the misery the Euro is causing to some member nations.
      Unprecedented levels of unemployment, increasing business failures, lack of prosperity, and now the sequestration, overnight, of ctizens bank deposits.

      • uanime5
        Posted March 21, 2013 at 1:17 pm | Permalink

        Most of these countries would suffer the same problems if they weren’t in the euro because these problems are occurring because of how these countries are governed. It’s also ironic that most of the problems you mentioned are also occurring in the UK, even though the UK isn’t in the euro.

        • Edward2
          Posted March 21, 2013 at 4:21 pm | Permalink

          1.They would not suffer anywhere near as much if they had their own currency.They could devalue or adjust theri interest rates or increase their money supply making themselves more competitive.
          But they are locked into a Euro interest rates and exchange rate which just does not suit them.
          2. The UK does not have the terrible depressed ecomonic problems as these nations.
          We have in comparison :-
          lower levels of unemployment and a reducing trend
          reducing numbers of business failures
          better levels of prosperity than all the struggling Euroland nations
          no bank deposit thefts
          Other than that you were right as always!

        • Leslie Singleton
          Posted March 23, 2013 at 10:41 pm | Permalink

          unanime–Very unprofound comment–The UK is as you say only subject to “most”, not all, and in all cases to a much less degree. Nobody has ever said or even close that we are unaffected by what goes on the Continent.

          • Leslie Singleton
            Posted March 24, 2013 at 2:05 pm | Permalink

            Postscript–Meant ‘lesser’ not ‘less’ I think

        • Leslie Singleton
          Posted March 24, 2013 at 10:09 pm | Permalink

          unanime–You forget that most of these countries would not have been able to govern the way they have – indeed would not have thought of doing so – without the undoubted success of EU propaganda.

  41. Atlas
    Posted March 20, 2013 at 2:23 pm | Permalink

    EU Bank Deposit Guarantee??? – What a sick joke.

    But there again, history shows form on a certain european country appropriating the property of others…

  42. John Coles
    Posted March 20, 2013 at 2:45 pm | Permalink

    “”…..those who like the Euro and think the EU is getting it right””
    Is this still your view?

  43. Roy Grainger
    Posted March 20, 2013 at 2:49 pm | Permalink

    Did you see where the Cyprus finance minister is today haggling to sort out this crisis ? Not in Brussels, or Berlin, but rather Moscow. So much for the EU and its ever closer union – Cyprus is being forced to sell its banks and gas deposits to Russia to comply with EU terms.

    Another bizarre aspect is that the EU has proposed a 10% levy on bank deposits but what % haircut do you think it is demanding from senior and junior bondholders in those banks ? Answer: zero percent, nothing at all, they keep all their capital intact.

    Add to that a plane from UK with one million Euros in cash going to Cyprus and it is clear we are in the midst of a very serious and out of control crisis with entirely illogical things happening.

    • Jon Burgess
      Posted March 20, 2013 at 7:24 pm | Permalink

      The whole Russian influence is rather interesting. Who’d have thought the the EU (winner of the Nobel Peace Prize, let’s not forget) looks like it may be instrumental in forcing Cyprus to give access to the Russian navy to it’s ports and allow Russian access to it’s gas reserves.

      Nato held Russia in check – the EU is allowing Russian expansion a bit of a boost!

      Any ex-East German Communists behind any of this, perchance?

      • A different Simon
        Posted March 20, 2013 at 9:32 pm | Permalink

        I remember being out there on business and at the weekend lounging around by the pool with a couple of gorgeous Russian chicks about 15 years younger than me .

        I’d never have been able to afford to stay at that hotel on my own account and they were booked in for 3 weeks .

        They didn’t strike me as being working girls but very few honest jobs would cover that type of expense . Still haven’t worked it out .

  44. Denis Cooper
    Posted March 20, 2013 at 3:14 pm | Permalink

    “That would be like the EU telling the UK to find a one off tax revenue of £500 billion, almost the total tax revenue each year which we collect.”

    I’m glad you’ve said that, because the story is being put around that the impact of this levy on a saver in Cyprus would be minor compared to the impact of low interest rates and inflation on a saver in the UK.

    Save Our Savers has a rather dubious estimate that collectively savers in the UK have suffered a loss of value of £220 billion over the past four years.

    But the average saver in Cyprus would have lost twice as much over a long weekend.

  45. Electro-Kevin
    Posted March 20, 2013 at 5:30 pm | Permalink

    I’ve a nasty feeling that we’re going to end up in the Euro. Those against it are still depicted as ‘nut jobs’.

  46. Lindsay McDougall
    Posted March 20, 2013 at 5:41 pm | Permalink

    Oh, dear. Here we go again. Germany does not have the resources to bail out Cyprus and the other countries (German federal debt is 80% of its GDP) and wants the Euro to remain a hard currency, so it won’t allow the ECB to print the money. Cyprus needs time to cure its fiscal problems and Germany can’t afford to give it time. The only way to square the circle is for Cyprus to leave the Euro zone. The same goes for the 5 PIIGS and later France and Belgium, who have public sector pensions commitments that they won’t be able to finance.

    Are the Cyprus banks privately owned and are they in trouble? If so, call off the threat to depositors and send in an administrator to do due diligence so that a correct share price can be determined.

  47. Pleb
    Posted March 20, 2013 at 5:58 pm | Permalink

    I think you are right. The effect of this will be that people will start to move money away from the southern countries. I doubt that anybody will be able to say anything that will prevent this. The next few months will be interesting if bank deposits in the Med countries start to fall away.

  48. Denis Cooper
    Posted March 20, 2013 at 6:31 pm | Permalink

    I see that Osborne has made a radical change to the remit he gives to the Bank of England.

    Previously Darling and Osborne turned a blind eye to the Bank failing in its statutory duty to keep inflation on target, accepting whatever excuses were offered.

    Now Osborne is saying that he will turn a blind eye to the Bank failing in its statutory duty to keep inflation on target, provided its excuses are acceptable.

    Seriously, it is a matter of law that the Bank must always give priority to price stability over supporting the economic policies of the government, and Osborne cannot change that law, the Bank of England Act 1998, by means of a letter sent to the Governor.

    He could ask Parliament to allow him to invoke reserve powers under Section 19 of the Act, and then suspend the normal system and instead give the Bank directions that wholly or partly reversed the order of priorities laid down in the Act.

    Or he could try to construct a more complex measure of price stability that somehow took into account anticipated economic growth and permitted higher consumer price inflation when it was expected that otherwise expected growth would be too low, not easy to do with it still looking like a price stability target but probably not impossible.

    Or if necessary he could get the Act amended so that the stated primary objective was to meet that kind of composite target without having to pretend that it was a price stability target for the purposes of the Act.

    Osborne is skating on thin legal ice, and in principle it could end up with some body like Save Our Savers taking him and the Governor to court for breach of statutory duty.

  49. APL
    Posted March 20, 2013 at 6:33 pm | Permalink

    JR: “The tax hit on deposits is large ”

    It is not a tax, it is theft!

    • APL
      Posted March 21, 2013 at 6:53 pm | Permalink

      I suppose you might just justify calling the theft a tax if we were all living in a feudal state.

      But we are not, we are supposed to be living in a democracy where the politicians are supposed to be under the control of the citizens.

  50. rd
    Posted March 21, 2013 at 12:01 am | Permalink

    We are told to work hard and do better in order to accumulate more wealth and security. If banks can devalue the proceeds of our labour and outright steal it over night why bother?

  51. rd
    Posted March 21, 2013 at 12:07 am | Permalink

    On the ‘tax’ issue. The reason the depositor guarantee, it is said, is not applicable is because the Cypriot banks are not bankrupt – due to ECB ELA funds. At the same time we are also told that ELA can be turned off because the banks are insolvent!!! If the banks are solvent then technically a ‘tax’ might be legal. If they are not then it must be illegal due to the depositor guarantee being applicable.

  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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