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On Wednesday I reported Fools in Cyprus to Sell Gold, Hike Corporate Taxes to Finance Small Part of Bailout.
That rumor was quickly (but unbelievably) denied.
On Thursday, the International Business Times reported Cyprus Denies Rumor It Will Sell Its Gold To Raise Funds; Option Raises Same Question For Others.
A Central Bank of Cyprus spokesperson said Wednesday that rumors stating that it would sell 75 percent (approximately 10 tons or $523 million) of its gold were inaccurately reported by Reuters. Aliki Stylianou told the Cyprus News Agency, or CNA, that no such deal was ever "raised, discussed or debated" with the bank's board of directors.No Such Deal Ever Raised! Really?
In spite of denials that any such deal was ever "raised, discussed or debated" I knew what was about to happen. Sure enough ....
Cyprus Gold Sale Must Cover Emergency Loan Loss
ECB President Mario Draghi says Any Cyprus Gold Sale Must Cover Emergency-Loan Loss
European Central Bank President Mario Draghi said the profits of any gold sales by the Cypriot central bank must be used to cover losses it may sustain from emergency loans to Cypriot commercial banks.More Lies Than One
European creditors today left a possible gold sale in the hands of the Cypriot central bank, which manages 13.9 metric tons of the metal, according to the World Gold Council.
“The decision is going to be taken by the central bank,” Draghi said after a meeting of euro-area finance officials in Dublin. “What’s important, however, is that what is being transferred to the government budget out of the profits made out of the sales of gold should cover first and foremost any potential loss that the central bank might have from its ELA.”
ELA stands for Emergency Liquidity Assistance, a lifeline that can be offered by national central banks in the euro region to commercial banks that can’t get funding.
Asked about a letter he wrote to Cyprus President Nicos Anastasiades, Draghi said the letter is “very, very clear.” He said the government must abide by the central bank’s handling of the gold stock, since it is independent from political control under European rules.
Did you catch that last statement? Draghi says central bank handling of gold is "independent from political control under European rules".
Apparently independence is relative. The Central Bank of Cyprus has no such independence. It is being forced to sell its gold to cover Emergency Loan Assistance programs by the ECB.
Want more lies? Check this out.
Speaking alongside Draghi, Dutch Finance Minister Jeroen Dijsselbloem said "selling gold has always been an option put forward by the Cypriot authorities. But as mentioned in the program documentation, this is a decision to be made independently by the Cypriot central bank. And it’s not any demand from the troika or the eurogroup."
So this was an independent decision made by the central bank of Cyprus, yet denied by the central bank of Cyprus. Apparently the gold sale just happens to be the only way Cyprus can cover losses on ELA, no other method would do.
So Cyprus is forced to dump most of its "excess" gold reserves. A reader asked me yesterday what was meant by "excess" gold reserves. Certainly the name is strange. It implies central banks can have too much of the stuff. They can't.
In reality, the term means whatever the hell ECB wants it to mean. In this case, the term is a convenient way to make sure the noose in Cyprus' nose is as tight as can be.
I discussed that idea two days ago in the link at the top. Here is the pertinent snip.
Road to HyperinflationLeaks and Still More Lies
Raising taxes in the middle of a recession is bad enough. Cyprus actually needs a lower tax rate to attract business following its banking debacle.
Selling gold is downright idiotic. Gold backing can prevent a currency from going completely worthless. Should Cyprus leave the eurozone, its small holding of gold would at least put some bid on its currency.
Selling of gold and hiking of corporate taxes puts another noose through the nose of Cyprus (just what the nannycrats in Brussels wants and precisely what the average Cypriot should fear).
A Greek-like implosion with massive unemployment and endless recessions is on the way.
About that Cyprus shortfall... As I expected, it's a lot bigger than the Troika expected, assuming you believe the Troika was telling the truth about the size of the needed bailout.
The Guardian reports Cyprus forced to find extra €6bn for bailout, leaked analysis shows
Cypriot politicians have reacted with fury to news that the crisis-hit country will be forced to find an extra €6bn (£5bn) to contribute to its own bailout, much of which is expected to come from savers at its struggling banks.
A leaked draft of the updated rescue plan, which emerged late on Wednesday night, revealed that the total bill for the bailout has risen to €23bn, from an original estimate of €17bn, less than a month after the deal was agreed – and the entire extra cost will be imposed on Nicosia.
Visiting Athens, the Cypriot parliament's president, Yannakis Omirou, said the tiny island nation had been "served poison" by its EU partners.
The €23bn overall bill is larger than an entire year's output from the Cypriot economy.
Cyprus Hammered Into Submission
Step by step, Cyprus has been hammed into submission. Its economy has been ruined for at least a decade.
Recall the original deal was €13bn. It is now €23bn.
Recall that Cyprus Popular Bank, Laiki, was supposed to have 30% losses. Guess what?
Spoon-Fed Demands by the Number
- Laiki 100% wiped out
- Capital controls
- Losses exceed the size of the entire Cypriot economy
- Cyprus would have to sell its gold
- The Cypriot Central Bank would lose its independence
- Cyprus will go into an economic depression for a decade to pay for the "bailout"
Cyprus has been spoon-fed a pack of escalating demands by the Troika.
Had Cyprus initially understood the totality of what was going to happen, Cyprus may have done the right thing which should now be obvious: Tell the Troika to go to hell, default, exit the eurozone.
It's still not too late, but Cyprus needs to do so before it sells its gold.
Mike "Mish" Shedlock