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Tuesday, April 02, 2013

A turbulent Easter in Cyprus

Uncertainty continues to reign in Cyprus. Cypriot Finance Minister Michalis Sarris resigned this afternoon, seemingly confirming the earlier (denied) rumours that he had previously tried to resign and bringing to a close what must be one of the shortest stints as finance minister in recent history (35 days). To add fuel to the fire, initial reports suggest he resigned due to the on-going investigation into people moving funds out of Cyprus ahead of the bailout. Fortunately, unlike other aspects of the crisis, the Cypriot government has wasted no time in appointing a successor with Labour Minister Haris Georgiadis already lined up to fill the role.

Meanwhile, as we noted in today’s press summary (and have repeatedly suggested) the capital controls look set to last for much more than a week.We also highlighted some interesting comments by the President of the Cypriot Parliament Yiannakis Omirou who said:

“I would like to send a message to the Cyprus people that there is no other way, there is no alternative apart from freeing (the country) from the troika’s and the memorandum’s bonds…by leaving the troika and the EMS behind us, we will ensure our national independence, our national sovereignty, our moral integrity and our economic independence…If we remain bound by the Troika and the memorandum Cyprus’ destiny is already foretold and there will be no future.”
Clearly not one to mince his words.

Furthermore a draft version of the loan agreement between the EU/IMF/ECB Troika and Cyprus (the Memorandum of Understanding) was leaked yesterday. It drove home another point which we have flagged up before. Despite all the talk about depositors and banks, Cyprus is still getting a €10bn bailout, that will mean undergoing the fiscal consolidation and structural reforms (widely referred to as ‘austerity’) witnessed in the other bailout countries. The key points of the agreement confirm this:
  • 7.25% of GDP in fiscal consolidation between 2012-2016.
  • Freeze in public sector pensions and a two year increase in the retirement age.
  • Implement a four-year plan as prepared by the Public Administration and Personnel Department aimed at the abolition of at least 1880 permanent posts over the period 2013-2016.
  • Increase the statutory corporate income tax rate to 12.5%.
  • Increase the tax rate on interest and dividend income to 30%.
These are but a few of the measures and the document remains incomplete. The impact on GDP is likely to be significant, while youth unemployment is already at 31.8% (total at 14%) – this is likely to rise substantially.

To add to all this, reports continue to abound about outflows of deposits before the bailout, while the banks were closed and people now trying to skirt the capital controls. Significant questions are being asked about the enforcement and implementation of all these rules. With a decision on whether to extend capital controls expected on Wednesday evening or Thursday morning the uncertainty is likely to continue.


Rik said...

I think the outflows were largely by people who can do highschool maths.

At least when Dijsselbloom got into the newspapers with his 10 Bn, it was clear accountholders would be hit. No other way 7 Bn could be reached without looking at accountholders.

-Sov debt was largely with the banks so a PSI would be close to neutral.
-Tot. bankbonds if I am not mistaken 2 Bn, simply not enough.
All readily and easily accessible info. Same calculation as the Troika and Co made btw.

Next in line accountholders.
3 banks with interests in Greece also names known including the present 2 suspects.
Also all known.

Add Russian fixation.

2 Options:
- overall cut; or
- with some banks either as rescue or as bankruptcy.
With >100K accounts by far the most in danger seen the guaranty, also an easy bet.

But imho nobody in his right mind would take the risk anyway.
So simple maths and reading newspapers.

Interesting here we have again 2 President that smell very dodgy. It looks like in the North the public opinion doesnot make the link yet, but we have:
-Mr Bunga Bunga in Italy;
-Spanish PM receiving money from a very obscure fund;
-Greek PM's mother with 1 Bn USD account in Switzerland;
-2 dodgy Presidents in Cyprus.
Governance simply stinks down South. If this starts to play any new bail out will become more and more difficult (on top of the usual stuff).

Rollo said...

Godfrey Bloom spoke well on this subject.

christina speight said...

@ Rollo - Where what when please ???

This is getting almost like the Sherlock Holmes story "The Dog That Did Not Bark In The Night" in that the parliament rejected the initial bailout but hasn't been able to utter any opinion since , let alone decide anything! What kind of a country is this ?

But at last today a trenchant call to arms from the President of the Cypriot Parliament Yiannakis Omirou. Can he not call parliament together and see if that can be made official ???