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Tuesday, March 19, 2013 5:56 PM

"Not Me!"; Capital Controls Placed, Banks Closed Until Tuesday; What's the Best That Can Happen?

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Banks Closed Until Tuesday

I will gladly pay you Tuesday for a hamburger today seems to be the message from this tweet from DJ FX Trader "Cyprus Banks Could Stay Closed Until Tuesday March 26".

Capital Controls

Bloomberg confirms in a story EU Said to Discuss Cyprus Capital Controls, Longer Bank Holiday

European policy makers are in Cyprus discussing further capital controls and the extension of a bank holiday through to the end of the week, said a European official familiar with the talks. No decisions have been made yet, said the person, who spoke on condition of anonymity because the discussions are confidential.
"Not Me!"

In the meantime, the Cyprus Bailout Blame Game is well underway. No one wants to be the object of "The Big Point".

  • Not me says German finance minister Wolfgang Schäuble.
  • Not me says Jörg Asmussen, the ECB executive board member who handled the central bank’s negotiations Friday night. Jörg pointed the finger at "negotiations in Brussels"
  • Not me says Pierre Moscovici, the French finance minister who claimed to be against the idea "from the beginning".
  • Olli Rehn, the EU's economic chief may become the object of the "big point". Rehn put on the table a plan for a "relatively benign" levy on smaller savers: 3 per cent for all deposits under €100,000.
  • One unnamed attendant says Ramon Fernandez, the French treasury chief is to blame. "The rest did not care".
  • Another unnamed person pointed a finger Jereon Dijsselbloem, the Dutch finance minister who chaired the meeting.
  • When Rehn and Anastasiades met in the early morning hours in a small group with Schäuble; Moscovici; Asmussen; Dijsselbloem; and Christine Lagarde, the IMF managing director, Schäuble was unwilling to play ball. He wanted to move forward with a full bail-in, and had the backing of Finland and Slovakia. A counter-proposal was put on the table by Dijsselbloem that would have seen the rate on smaller deposits hit 7.5 per cent, while those over €100,000 would face a 12.5 per cent cut.
  • Rehn had hoped that after setting the top rate at 9.9 per cent, there would be some wiggle room to get the rate on smaller depositors down to a more moderate level by finding cash from tools used in other bailouts, like more garden-variety taxes. But the IMF and Germany wouldn’t budge.

Who's to Blame?

Every damn one of them actually. The eurozone was fatally flawed from the beginning. The ECB's interest rate policy of "One Size Fits Germany" fueled the crisis.

There should not have been any deposit insurance, and the ECB should not have insisted Greece would never default (and it was Cypriot banks that were left holding the bag when Greece did default).

Best That Can Happen

The best thing for all involved would be for this to blow up in the EU's face, for Cyprus to exit the eurozone, and for Russia to quickly pick up the pieces so that everyone can see a eurozone exit is not the end of the world, for anyone.

Mike "Mish" Shedlock

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