Mish's Global Economic Trend Analysis

Deal Reached, Damage Done
Bad Bank Losses 30-90%; Food Supplies Down to Two Days; Plenty of Fuel, Not enough Cash
UKIP Leader Nigel Farage Says "Get Your Money Out of Spain While You’ve Still Got a Chance"
New Demands Every Half-Hour From IMF; Can Cyprus Be Saved? Impossible Math

Posted: 24 Mar 2013 07:02 PM PDT

One could tell from the rise in the futures this evening that a deal was reached, but conflicting reports had me wondering "what deal?"

The story now is that president Nicos Anastasiades threatened to resign if the terms were not acceptable (a nice strategy), and euro leaders agreed to a 10 billion euro bailout.

Reuters reports Revamped Cyprus deal to close bank, force losses.

Cyprus clinched a last-ditch deal with international lenders on Monday for a 10 billion euro ($13 billion) bailout that will shut down its second largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians.

The agreement emerged after fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund - hours before a deadline to avert a collapse of the banking system.

Deposits above 100,000 euros, which under EU law are not guaranteed, will be frozen and used to resolve debts, and Laiki will effectively be shuttered, with thousands of job losses.

An EU spokesman said no levy would be imposed on any deposits in Cypriot banks. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits.

A senior source involved in the talks said Anastasiades had threatened to resign at one stage if he was pushed too far.

EU diplomats said the president, flown to Brussels in a private jet chartered by the European Commission, had fought to preserve the country's business model as an offshore financial centre drawing huge sums from wealthy Russians and Britons.

The revised bailout plan many not require further parliamentary approval since the idea of a levy was dropped.

Damage Done

As I mentioned previously, haircuts on deposits above 100,000 euros are likely to be hammered by anywhere from 30% to 90%. I expect the mid-to-upper end of that range as noted in Bad Bank Losses 30-90%; Food Supplies Down to Two Days; Plenty of Fuel, Not enough Cash.

Regardless, the damage has been done. There should be and can be no trust. Anyone who keeps more money in Southern European banks than they need to pay immediate bills is a fool.

This crisis was resolved, at the last minute, like every other crisis, but I have a prediction. The next significant crisis will not be resolved easily, if at all, no matter how much blackmail and pressure the nannycrats apply.

In the meantime, the safe thing to do in Southern Europe is to get your money out of banks immediately. Nigel Farage says the same thing. For details, please see UKIP Leader Nigel Farage Says "Get Your Money Out of Spain While You've Still Got a Chance"

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Bad Bank Losses 30-90%; Food Supplies Down to Two Days; Plenty of Fuel, Not enough Cash

Posted: 24 Mar 2013 05:03 PM PDT

Capital controls and a good-bank, bad-bank structure is what is now on the table. In spite of what may be agreed upon, I stated earlier today the losses will be bigger than currently perceived.

I am not the only one to come to that conclusion, Faz has some estimates in its report striking high cash outflows from Cyprus

Despite the closed banks and capital controls in the past week, more money flowed out from Cyprus than in previous weeks, according to payment transfers. Prior to the escalation of the crisis in Cyprus accruing on the payment system "Target liabilities of Cypriot central bank to the European Central Bank (ECB) had increased to a rate of approximately 100 to 200 million euros per day. In the past week, billions of dollars flew in spite of controls.

Withdrawals at ATMs have been limited to €260 per day but on Sunday the value was further reduced to €100 per day.

Cyprus lists accounts amounting to €30 billion in foreign currency, mainly dollars (86 percent) and pounds (6 percent). The investment bank Goldman Sachs estimated that this money belongs to foreigners, mainly Russians, Britons and Russians living in Latvia.

These holders of often very ample bank accounts now have a particular interest in getting money out of the country.

All accounts with less than 100,000 euros will land in the "good bank". Other accounts will land in the "bad bank". In the "bad bank" loss estimates range from 30 to 90 percent, depending on how quickly depositors try to withdraw money.

Supermarket Food Supplies Down to Two Days

In Cyprus, merchants demand cash, but suppliers demand cash only as well. With a shortage of cash, results are as expected: Cash Demands Impact Supermarket Shelves

SUPERMARKET shelves are in danger of emptying according to head of the supermarket union Andreas Hadjiadamou.

Supplies will only last two or three more days according to Hadjiadamou and there will be severe problems if a solution is not found and if banks remain closed.

According to deputy of the supermarket union, Nicos Athanasiou, problems had already started being noticed at certain supermarkets in Larnaca. "Most people are making purchases with a certain amount of care and caution, buying the basics," he said. "Most consumers have been purchasing dry and canned food the last couple of days in case things get worse," he added.

Athanasiou said there had not been a large fall in sales although in almost all of the supermarkets there were shortages of goods from suppliers who only accept cash payments.

Plenty of Fuel, Just Not Enough Cash

Cyprus Mail reports Plenty of Fuel, Just Not Enough Cash

SOME petrol stations may have to close down as they do not have enough cash to pay for fuel shipments, the head of the stations' owners said yesterday.

"We may have to temporarily close some petrol stations because they have run out of cash. This creates great concerns to those in this profession," said the head of the petrol station owners' association, Stefanos Stefanou.

"Petrol stations pay for their fuel shipment only with cash and cash is running out," Stefanou added.

"There are some petrol stations that are still accepting credit cards today, but tomorrow no petrol station will do so," he said, asking consumers to take cash with them to carry out transactions.

Welcome to Insanity

Welcome to the insane world of fiat currencies and fractional reserve lending. If you are looking to assign blame, that's where the blame belongs.

Regardless of where the blame is, the safe thing to do in Southern Europe is to get your money out of banks immediately. Nigel Farage says the same thing. For details, please see UKIP Leader Nigel Farage Says "Get Your Money Out of Spain While You've Still Got a Chance"

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

UKIP Leader Nigel Farage Says "Get Your Money Out of Spain While You’ve Still Got a Chance"

Posted: 24 Mar 2013 01:08 PM PDT

UK Independence Party (UKIP) leader Nigel Farage makes the same common sense plea that I have been stating for some time. Farage says "Get Your Money Out of Spain While You've Still Got a Chance".

The UK Independence Party leader said that the European Union had "crossed a line" by trying to extract funds from savers under the terms of the abandoned Cypriot bail-out.

Mr Farage said: "Even I didn't think that they would stoop to actually stealing money from people's bank accounts.

"There is going to be a big flight of money and that flight of money won't just be from Cyprus, it will be from the other eurozone countries, too. There are 750,000 British people who own properties, or who live, many of them in retirement, down in Spain.

"Now that we see the EU are prepared to resort to anything to keep alive their failing euro project, our advice to expats living down in the Mediterranean must be, 'Get your money out of there while you've still got a chance'."

Surge in Support for UKIP

The latest poll shows Ukip only 10 points behind Tories.

The Conservatives and Liberal Democrats have suffered a double blow as Nigel Farage's UK independence party soared to 17% in the latest Opinium/Observer poll, and a large majority of voters have said they believe coalition economic policies are harming the country.

Labour has dipped by 2% to 39% – also a likely victim of the UKIP bounce – while the Tories are down by the same amount to 27%, one of their lowest ratings of recent years.

The personal ratings of the leaders of the three main parties in parliament have all dropped, with David Cameron's having fallen by 8 points in two weeks from -18% to -26%. That of Labour leader Ed Miliband has dropped 5 points in a fortnight to -20% while Nick Clegg's rating has crashed a further 7 points from -46% to an alarming -53%.

But the findings on the economy will reverberate most at Westminster. Just 20% of all voters now believe the government's economic policies have been beneficial to the economy, against 58% who say they have been harmful.

Let's hope there is a run on Spanish banks. The sooner this mad experiment in the eurozone ends, the better.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

New Demands Every Half-Hour From IMF; Can Cyprus Be Saved? Impossible Math

Posted: 24 Mar 2013 11:19 AM PDT

Cypriot President Nicos Anastasiades was picked up by private Jet and is now meeting with the cardinals in Brussels (IMF, EU finance ministers, ECB, Various Government leaders) according to Cyprus Mail.

Quoting an unnamed senior government official, Reuters said Nicosia had agreed with EU/IMF lenders on a 20 per cent levy over and above €100,000 at No. 1 lender Bank of Cyprus, and four per cent on deposits over the same level at other banks.

However, an hour or so later, the Cyprus News Agency, also quoting an unnamed Cypriot official, said the two sides were not even close due to the stance of the IMF, which tabled new demands "every half an hour".

Racing to placate its European partners, Cypriot lawmakers voted in late-night session on Friday to split failing lenders into good and bad banks - a measure likely to be applied to No.2 lender Cyprus Popular Bank, or Laiki.

They also gave the government powers to impose capital controls, anticipating a run on banks when they reopen on Tuesday. A plan to nationalise semi-state pension funds has met with resistance, particularly from Germany which made clear that tapping pensions could be even more painful for ordinary Cypriots than a deposit levy.

The senior official who told Reuters of the levy agreement said the pension funds would not be part of the package to seal the bailout.

In an Cprus Mail Update, Anastasiades seeking last-minute Cyprus reprieve in Brussels.

Cypriot President Nicos Anastasiades, seeking a last-minute reprieve from financial meltdown at talks in Brussels on Sunday, has a "very difficult task" ahead of him if he is to save the island's economy, a government spokesman said.

Anastasiades then headed to Brussels in a private jet sent by the European Commission to hold talks with EU, European Central Bank and IMF leaders ahead of a crunch meeting of euro zone finance ministers at 6 p.m. (1700 GMT).

Underlining the gravity of Cyprus' position, the EU's economic affairs chief Olli Rehn said there were now "only hard choices left" for the latest casualty of the euro zone crisis.

French Finance Minister Pierre Moscovici put it more bluntly: "To all those who say that we are strangling an entire people ... Cyprus is a casino economy that was on the brink of bankruptcy," he told Canal Plus television.

Without a deal by the end of Monday, the ECB says it will cut off emergency funds to Cypriot banks, spelling certain collapse and potentially pushing the country out of the euro zone.

The tottering banks hold 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros - enormous sums for an island of 1.1 million people which could never sustain such a big financial system on its own.

Impossible Demands

Every time Cyprus agrees to something the Troika increases its demands. Some of those demands are mathematically impossible.

For example, the Troika wants Cyprus to wind down its deposits, especially from Russia. Yet it is impossible to wind down assets when there are capital controls preventing just that!

Nor can deposits be would down without capital controls because the money is not there. For further discussion, please see Reader Asks "Where's the Money?".

Too Late to Save Cyprus

With €68 billion in deposits, all of it wanting out, the one thing certain to be true is that any agreement reached will not be the final one. Demands will increase, and the troika will withhold bailout money time and time again, just as happened in Greece.

It's too late to save Cyprus. The euro helped ruin it.

Although the initial pain may be higher if Cyprus exits, Cyprus may recover faster outside the eurozone where it will not have to suffer from still additional demand of the nannycrats in Brussels, and the parasites at the IMF.

Cyprus should tell the EU to go to hell and get it over with. The alternative is 10 more years of pain and suffering at the hands of the Troika.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Economy News

24.3.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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