I’ve been asked to name one future situation of which I’m most certain.

The Cyprus bailout is a template for Europe restructurings said the Eurogroup Head. The deal involved a hefty tax on depositor accounts above €100,000 ($128,000) and, more worrying for investors, an agreement to wipe out the senior bondholders of the Cypriot banks.

While that meant few losses for investors now, the big worry is what happens down the road should Italy and Spain start to stumble.

….more:

Dijsselbloem Said What?

Dijsselbloem Has Given Us A Glimpse Of The Euro ‘End Game’

“Those who control the money make the rules, and their main aim is to remain in power.  Currently, the various central banks control the creation and the issuance of money.  To ensure that they remain in power, the central banks are spewing forth a veritable avalanche of fiat currency, money created out of a computer — money that has been created out of “thin air.”  In turn, we are supposed to bow down and thank the money creators, those who are saving us from a new world depression.”

“So to sum up my search for a THEME, the theme of today is the “haves” remaining in power, and in doing so, also keeping the “have-nots” content and happy.  Everything we are dealing with now, including stocks, bonds, real estate and possible sources of income revolves around the central theme that I have presented.”

“have drawn attention to the problem of the S&P in previous sites.  Below we see the rising channel in the S&P.  The technical problem is easily seen in that the S&P is well below the upper border of the channel.  If we were seeing strong action in the S&P, the Composite would be making contact with the upper trendline of this channel.”

….read the whole report HERE

Summary: The most positive aspect of last night’s deal was that a deal was reached at all, and that some steps have been taken to counter moral hazard. However, overall, this is a bad deal for Cyprus and the Cypriot population. Cypriot GDP is likely to collapse in the wake of the deal with the possible capital controls hampering the functioning of the economy. The large loan from the eurozone will push debt up to unsustainable levels while the austerity accompanying it (along with the bank restructuring plan) will increase unemployment and cause social tension. There is a strong chance Cyprus could become a zombie economy – reliant on eurozone and central bank funding, with little hope of economic growth. Meanwhile, the country will remain at the edge of the single currency as tensions increase between members with Germany, the ECB and the IMF now looking intent on a more radical approach to the crisis.

The eurozone took this one down to the wire. But late last night, after a week of intense back and forth negotiations, a deal was reached on the Cypriot bailout. Below we lay out the key points of the deal (the ones that are known, there are plenty of grey areas remaining) and our key reactions to the deal.

The Euro and European stocks nosedive on the news:

……key points of the deal & what it means HERE

Don’t like a tax on Cypriot depositors? No problem – we’ll pretend to scrap it

by JR Crooks Monday March 25th 2013

It got too much play. The proposal to levy an across-the-board tax on deposits in Cypriot banks, for good reason, was being called theft.  (

So in order to quell the uprising and avoid setting a precedent everyone around the world could fear, Cyprus has agreed to a deal different only in semantics.

Here is Reuters:

Swiftly endorsed by euro zone finance ministers, the plan will spare the Mediterranean island a financial meltdown by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a “good bank”.

Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki’s debts and recapitalize Bank of Cyprus through a deposit/equity conversion.

The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros, Eurogroup chairman Jeroen Dijssebloem said.

Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution.

An EU spokesman said no across-the-board levy or tax would be imposed on deposits in Cypriot banks, although the hit on large account holders in the two biggest banks is likely to be far greater than initially planned.

We can all rest assured a tax will not be levied on depositors. Instead, a portion of uninsured deposits will simply be confiscated to pay off debts of a failed bank and raise enough money to satisfy bailout conditions.

Already there has been a limit of 100 euros put on ATM withdrawals. And come Tuesday, when banks are scheduled to reopen, additional capital controls will likely be needed. Parliament has given government the all-clear to apply capital controls if and when necessary.

All these last-minute antics are being categorized as a solution.

I suppose, considering the nature of the eurozone’s previous solutions, it is a solution. After all, they pulled the contagion card again. More precisely, they warned that if these drastic measures were not taken, the inevitable conclusion would be Cyprus withdrawing from the Eurozone.

Ahhh, say it ain’t so. Please no.

Officials are not hiding their motives anymore – they are acting in order to prevent financial market sell-offs. An exit by Cyprus, insignificant when measured by GDP, would open the door for other problem countries to escape the Eurozone, devalue and move towards a meaningful, albeit painful, recovery.

The thing is: any recovery in Cyprus will be painful no matter what. And this deal does very little to ensure depositors around the Eurozone their money won’t also be subject to confiscation. And potential capital controls would serve only to legitimize their concerns.

I suspect the kneejerk reaction of markets could be positive but very short-lived. I don’t see a meaningful difference between the recent deal and the proposals that have shaken markets to-date. I would suspect the Troika, namely the European Central Bank, will need to further maneuver so that Cypriot banks can be recapitalized, freed up to generate sufficient collateral and avoid the unintended consequences of capital controls.

Otherwise, this could all turn ugly very fast.

-JR Crooks