Cyprus,Expats- Financial Issues

[Bruce]

off dailymail.uk.com
 

Cash machines EMPTIED across Cyprus and 60,000 British savers face losing MILLIONS after £8.7bn EU bailout imposes tax of up to 10% on all bank accountsLines formed at ATMs as people scrambled to pull their money out
Word spread that rescue package included a one-off levy on deposits
Restrictions stopping people emptying accounts or moving money abroad
Up to 3,000 British service personnel are based on the bankrupt island
President Nicos Anastasiades agreed to raid with European finance chiefs

Said country in 'state of emergency' and not acting would be 'catastrophic'

But expats accused the island of 'plain theft' as violent protests sparked
Britons have about £1.7b of deposits on island and could lose up to £170m
Parliamentary official: Vote scheduled for today pushed back to tomorrow
G. Osborne: This is what happens if you don't show you can pay your way

By Simon Watkins and Alex Hawkes
PUBLISHED: 16:23 GMT, 16 March 2013 | UPDATED: 10:49 GMT, 17 March 2013
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Up to 60,000 British savers are to lose thousands of pounds each after European finance chiefs ordered an unprecedented  raid on personal bank accounts.
Expats and UK troops based in Cyprus will have their savings decimated as part of a  painful bid to bail out the bankrupt island.

Britons have about £1.7 billion of deposits in Cyprus and could lose up to £170 million.
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Panic: A move by Cypriot authorities that could see up to ten per cent of bank deposits seized to bail out the bankrupt sparked panic and violent protests. One disgruntled customer parked a bulldozer in front of a bank in the coastal town of Limassol in protest
The Cypriot government has agreed to seize up to ten per cent of savings and use the money to bail out the island’s crisis-hit banking system.
The move sparked panic and violent protests yesterday as crowds desperately tried to withdraw their money at cash machines.
More...Savers to take a hit on their deposits as Cypus becomes fifth country to receive eurozone bailout
Pound hits two-and-a-half year low against the dollar as industrial output takes unexpected plunge
SIMON WATKINS: This bailout madness will damage the euro, not help it

Restrictions have been imposed to stop  people emptying their accounts or moving their money out of the country following the deal with other eurozone finance ministers, under which ordinary  citizens’ deposits will be directly raided for the first time.

Furious: Shirley Brooks, 61, who is originally from Manchester, said she stands to lose £18,600 of her retirement money
One furious expat said: ‘This is plain theft. I’d love to hear someone explain to me why it isn’t.’
And one of the 3,000 British service personnel based on the island said: ‘I stand to lose €4,000 [£3,500] We’ve tried to save quite hard while we are here – that’s been thrown back in our faces.’
Cypriot president Nicos Anastasiades, who agreed to the raid following ten-hour talks with European finance chiefs, said it was necessary because Cyprus was in a ‘state of emergency’ and failure to enact the Brussels plan would be ‘catastrophic’.
Under the deal, all bank deposits over €100,000 will be hit with a levy of 9.9 per cent. Those with smaller savings will pay 6.75 per cent.
The raid will raise €5.8 billion, which will be added to a €10 billion bailout from Brussels.
But financial experts said the move – designed to stop Cyprus crashing out of the euro, potentially destroying the currency – would send shock waves through the eurozone.
If savers in other troubled nations fear their accounts might be next, they could withdraw their money and spark a catastrophic run on the  banks.
Economist Howard Archer from IHS Global Insight said: ‘It is an alarming precedent to hit the man in the street. As much as they say this is a one off, people will say if they can do it once they could do it again.’
Tory MP Douglas Carswell added: ‘We should all be extremely worried about this. It shows that ordinary Europeans are being fleeced by the Continent’s elite in order to rescue foolish banks. Why would you risk putting your money in Greek, Spanish or Portuguese banks after this?’

Panic: People queue to withdraw their money from an ATM machine in Larnaca, Cyprus, after learning that the terms of a bailout deal includes a one-time levy on bank deposits
The European Central Bank said Britons have £1.7 billion deposited on the island.
British expats were stunned by the news, with many left high and dry by the restrictions on accounts.

Cash machines had been working, but many ran out of notes because of the panic withdrawals. Tomorrow is a public holiday in Cyprus, too, so savers will have to wait until Tuesday until they can access their money.

Worry: Steve Carr, a financial advisor originally from York, has been living in the coastal city of Limassol for 24 years. He said the solution could make the situation worse and personally stands to lose ¿2,000
Andy Georgiou, 32, who grew up in Liverpool, said: ‘We are struggling. We can’t access money and we need it to buy petrol and food. It’s appalling. All without any warning.’
Sean Chamberlain, a 39-year-old writer from Devon who now lives in Cyprus, said: ‘There are a lot of  people who are very angry. Everyone was furious, feeling absolutely betrayed by yet another apparently incompetent government.
‘And now they’ve done it once, what’s to stop them deciding to do it again next week? If there’s a run on the bank, that’s a terrifying thing.’
Shirley Brooks, 61, originally from Manchester, stands to lose €18,600. She said: ‘I am extremely angry. This is our retirement money, and there was no warning that this was coming. I don’t think we should have to pay anything as we did not cause the problems in the economy.’
Her sentiments were echoed by former Army officer Graham Smith, who moved to Cyprus from Dundee five years ago. ‘I don’t believe we Brits should have any money taken,’ he said. ‘We have not contributed to the bankruptcy. If anything, all we’ve done is contribute to the economy.’
He stands to lose about €2,000, as does financial adviser Steve Carr, who is originally from York but has  been living in the coastal city of Limassol for the past 24 years.
He said the supposed solution to the island’s woes could make matters worse: ‘When the banks reopen,  people will start moving their money out of Cyprus because they don’t want this happening again. This could create a run on banks, which would be a very bad thing for Cyprus.’

Rescue package: The island national has been bailed out by European partners and the International Monetary Fund in a bid to prevent it entering a bankruptcy which could rekindle the region's debt crisis
Angry crowds gathered to demonstrate outside the presidential palace in the capital of Nicosia yesterday.
President Anastasiades held emergency talks with his cabinet and other party leaders last night and is expected to make a televised address today explaining the situation.

Cyprus' Finance Minister Michalis Sarris defended the decision to accept the levy, saying it was either that or a complete economic meltdown
Because of tomorrow’s public holiday, he has two days to pass a law  to enact the Brussels deal in time to seize the cash from bank accounts before Tuesday morning.
In a statement he said: ‘We either choose the catastrophic scenario of disorderly bankruptcy or the  scenario of a painful but controlled management of the crisis.’
An official said today that Cyprus's parliament had postponed the debate and vote on the controversial levy on all bank deposits that the country's creditors demanded in exchange for €10billion [£8.7million] in rescue money.
Parliamentary official Antonis Koutalianos said the vote that was scheduled for the afternoon today has been pushed back to tomorrow, but the exact hour of the vote has yet to be fixed.

It is understood savers will be offered shares in Cyprus banks as compensation for the raid on their savings, but it is unlikely to appease those who have lost hard cash.
A spokesman for the Cypriot government said yesterday the agreement with Brussels was ‘serious but not tragic’ and said that the EU had wanted a much higher levy, but the government had fought hard against it.
He said: ‘The dilemma is whether we would have a functioning economy or total collapse on Tuesday .  .  . whether to give in at the 6.75 per cent mark or lose 100 per cent.’

Warning: Chancellor George Osborne said today on BBC One's Andrew Marr Show that the situation in Cyprus was 'an example of what happens if you don't show the world that you can pay your way'
The UK’s Ministry of Defence declined to comment, but Government sources suggested Ministers were considering whether to help the British troops affected.
Chancellor George Osborne said today that the situation in Cyprus was ‘an example of what happens if you don't show the world that you can pay your way’, adding: ‘We are not part of the bailout.’
He told BBC One's Andrew Marr Show: ‘The Cypriot banks in Britain are not going to be included in this bank tax. It's a very difficult situation for people who live in Cyprus
'But for people serving in our military and government out in Cyprus, we're going to compensate anyone who is affected by this bank tax - people who are doing their duty for our country.’

Additional reporting: Abul Taher, Martin Beckford and Mark Duell

THE LEVY THAT HAS SHOCKED CYPRUS' DEPOSIT-HOLDERSCyprus' eurozone partners and the IMF agreed early Saturday to bail out Cyprus to the tune of 10billion euro ($13billion) - largely to prop up its flailing banking industry. But the deal, as usual, comes with strings attached. The one causing the most consternation is a levy on bank deposits held in Cypriot accounts. Here's a look at how that will work - and the problems it may pose.

HOW CAN THEY DO THAT?
Currently, all 17 European Union countries that use the euro offer deposit insurance to protect customers if their bank fails. But the measure in the Cyprus deal is a tax - not losses incurred because of a bank failure. In fact, it's meant to hold off a bank collapse. Countries have the right to raise or lower taxes whenever they want. Just ask the residents of Greece, Portugal and Ireland - all bailout recipients - who saw their tax bills skyrocket as those countries tried to reduce their debts. But Cyprus is charting new ground here, and there could be legal - and political - challenges.

AND HOW EXACTLY WILL THEY DO THAT?
Banks have already acted to seal off the amount of the levy - a 6.75 per cent tax on deposits under 100,000 euro and 9.9 per cent on those above - so depositors can't access it. Bank customers still can draw on the rest of their funds via ATM machines this weekend, and nervous depositors did that on Saturday to drain their accounts. But the few banks that opened on Saturdays did so only briefly, and no international transfers will be able to go through until Tuesday, since Monday is a holiday. Cyprus' Parliament is expected to meet Sunday to pass the required legislation. The deal also needs the approval of several eurozone parliaments; it's unclear how fast they can act and what will happen to bank deposits in the meantime.

HAS THIS EVER HAPPENED BEFORE?
So far in the euro crisis, depositors have been protected. But in the 1990s, Italy levied a tax on every bank account to stave off the collapse of its lire currency. The rate, however, was minuscule - 0.06 per cent - compared to what Cyprus is enacting. Iceland - another island with an outsized financial sector, although worse weather - also relied on depositors to prop up its banks. When the crisis hit there in 2008, Iceland protected its domestic deposits but reneged on deposit insurance for overseas, Internet-based accounts held by British and Dutch. Those two governments stepped in to help their citizens to the tune of $5billion. The U.K. and the Netherlands sued Iceland unsuccessfully in a European court to get their money back, but Iceland has nevertheless started to repay some of that money.

European officials are promising that Cyprus is a unique case, and they are right in one aspect: the country's banks are overwhelmingly funded by deposits, so it wouldn't have been very fruitful to go after bondholders.

WHO IS AFFECTED?
All depositors - except those in Greek branches, which will be sold to Greek banks. EU and IMF creditors clearly wanted to protect struggling Greece, but perhaps also saw that Greece is the most likely place in the eurozone for a bank run. Protecting depositors there minimizes that possibility. Of the about 68billion euro on deposit in Cypriot banks, foreigners hold about 40 per cent - and most of those are Russians. Cyprus could have only gone after non-EU depositors, but it may have been hard to distinguish between Cypriot and Russian savers, Jacob Kirkegaard said, since many Russians have dual citizenship and many Russian businesses are registered on the island. Kirkegaard, who is a senior fellow at the Peterson Institute for International Economics in Washington, said Cypriots may paradoxically welcome this measure since the government just managed to widen its tax base to include a lot of Russians; the taxes levied in Greece, Portugal and Ireland were for residents alone to shoulder.

WHY DID CYPRUS NEED A BAILOUT?
Cyprus built its economy in recent years by becoming a financial centre, much the way Ireland and Iceland had done. Its banks offered Internet accounts to foreigners, were renowned for their service and provided substantial privacy to clients in a country with very low tax rates. It worked so well that Cyprus' banking industry ballooned to nearly eight times the country's gross domestic product at the height of the boom. In December, it was still more than seven times Cyprus' 17.5billion euro GDP. Russians - looking for warmer climes, friendly tax rates and shared culture in the form of Orthodox Christianity - are thought to hold the majority of those, with about 20billion euro in the island's banks.

But Cyprus' banks held a lot of Greek debt and suffered significant losses when they took a write-down of those bonds as part of the Greek bailout. Much of Cyprus' bailout money will be used to recapitalise Cypriot banks to prevent them from collapsing. Like other eurozone countries, Cyprus has also seen its deficit and debt explode as growth has ground to a halt. And with the banking system so large, the government wouldn't have been able to bail it out even in a healthy economy.

WHAT WILL THE REACTION BE MONDAY?
Cyprus may be on holiday Monday, but the rest of the world will go back to work. Kirkegaard says that the decision to tap depositors indicates that the European Central Bank is confident that the risk of a bank run elsewhere in the eurozone is low - and by excluding Greek branches of Cypriot banks, they have reduced the possibility even further. Bond markets may react a little since bondholders were also tapped. Bank stocks will probably fall and they'll see their borrowing costs rise since this deal is a signal that other eurozone countries may call on bondholders, if their banks run into trouble.

But Heather Conley, director of Europe program for the Center for Strategic and International Studies, says it's hard to know the far-reaching implications of this one-off deal. The 'exceptions' created to solve Europe's debt crisis are adding up, she said. And some investors may look at this late-night, three-day-weekend deal and see what she saw: a dress rehearsal for a country dropping out of the euro.

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Read more: http://www.dailymail.co.uk/news/article-2294388/ATMs-emptied-Cyprus-savers-learn-10billion-euro-bailout-agreement-includes-levy-bank-accounts.html#ixzz2NnLdESLi
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[earthdome]

This is an example of why you should work hard to ensure that all your eggs are not in one basket. Diversify... diversify... diversify. Not only what you invest in but who you invest with and where.

[OnMyWay]

Are you following the Cyprus "bail-in"?  I don't want to get into the politics here, but you might want to keep an eye on your investments.  It looks like the US stocks will take a bit of a hit but my bond funds should be happy!   :)   Bloomberg has the US 10 year treasury yield at 1.92%, down 7 points.

[JJReyes]

If the tax on deposits in Cyprus banks has the consent and approval of EU politicians, the situation can have a strong impact on global financial markets. One possibility is the withdrawal of Euro deposits and movement  to other currencies. The US Treasury has to be ready to provide "safe haven" reassurance regarding the US dollar. I will be up by 3:30 am (Hawaiian Standard Time) to monitor the opening bell at NYSE. Tomorrow can be a very exciting day.

[Old55]

Yea, a bad precedent "taxing" those with over $100,000 Euro's in the bank. Typical socialist thinking, just watch and see the money flee Cypress when the banks open Monday.

NIKKEI 225 Index down 300 Hang Seng Index down 500 Edited March 18, 2013 by Old55

[Mike S]

Read this info it sheds a new light on what and why it happened ..... apparently the Russian Mob is a major factor in this decision by the way and why the accounts were taxed ..... read more here

 

http://www.zerohedge.com/contributed/2013-03-17/two-sides-cyprus

 

 

Two Sides of Cyprus

Submitted by Bruce Krasting on 03/17/2013 07:16 -0400

• Bond
• European Central Bank
• Federal Deposit Insurance Corporation
• Federal Reserve
• France
• Germany
• Greece
• Italy
• Swiss National Bank
• United Kingdom
• Yen

 

Let me first (try to) give you a justification for the seizure of bank deposits in Cyprus.

Everybody who knows any thing about Cyprus also knows that the domestic banks were a parking lot for Russian hot money. I wrote about this back in 2011 (Link). There are a gazillion other articles saying the same thing.

That being the case, the seizure of some of the black Russian money as part of a bailout for Cyprus is not really a surprise. With dirty money flowing in, the stupid banks in Cyprus used the deposits to buy crappy assets like the sovereign bonds of Greece. To a significant extent, the hot money caused the problem – and therefore the E5.8b ($7.5b) hit to depositors is justified.

The folks in Berlin, Brussels and Paris all understood that Cyprus was a Russian front. To bailout Cyprus is one thing, but to bail out Russian Oligarchs is quite another. What else could the Euro Deciders do?

I struggle to come up with a valid comparison for what has happened in Cyprus. Think what the backlash would be if somehow the FDIC/Federal Reserve were forced to step in to bailout an entity that was a depository for the Mexican drug lords. If faced with a similar situation, America would do the same as the EU. Screw the hot money crowd.

 

And now the other side. This is a huge development, a potential game changer. If the seizure of accounts had happened in Greece (or the other PIGS) the European Monetary Union, as we know it today, would not exist. The EU would have imploded within months. This outcome would have resulted in some form of Euro break up, and a return to national currencies. That scenario has broad global implications.

The decision to clip depositors was not taken lightly. The ECB, and all the other Finance ministers contributed to the decision to take the depositors money. While making that decision, they had to have considered the consequences. Certainly there was recognition that this was an unprecedented step, and that it was extraordinarily hostile to bank depositors.

 

How are markets going to react to this? Will people care if some Russian money was stolen? Will they conclude that this was a unique event, and the depositors in Italy, Spain and France will never face the same losses that depositors in Cyprus have realized?

Given the significance of what has happened it would be logical to assume that a huge safe-haven trade could be the market’s response. If the Cyprus seizure had happened a year ago, the market would have reacted with:

- The Euro trades cheap against all crosses.

- The Yen strengthens against the Euro and the dollar.

-European bond spreads widen. Money moves to Germany, while Spanish and Italian bonds get crushed.

-The EURCHF comes under attack. The Swiss national Bank floor of 1.2000 is tested, and the SNB is forced to intervene to maintain the peg.

-US bonds trade rich.

-Money moves to the UK (where banks are ‘safe’) and Sterling strengthens.

-Money moves to gold, and other PMs.

-Stocks would take a beating globally.

 

While all of those things might have happened a year ago, I’m not sure that is the case today. As of Friday, the markets hated gold/PMs, Sterling, the Yen against everything (including the Euro), the EURCHF, US bonds and everyone loved stocks.

Is it possible that everything that was in the market on Friday is going to be reversed? I would think not, but these are very unusual circumstances. Nothing like the seizure of depositor’s money has ever happened before, so we are on uncharted ground.

Given the fact that the EU deciders were well aware of the potential consequences to financial stability within the EU, I wonder if some additional “market friendly” steps might be in the offing. (There must be a plan 'B" in place - that or the guys pulling the strings are idiots.)

Because of the Russian money angle, the step to seize deposits might be glossed over. On the other hand, there is a great risk that what has happened is a turning point in modern finance. I’m not aware of any precedent for what has occurred. I say again, if this had happened in any other country in Europe – the monetary union would be dead within months. That possibility still exists, even though it was just crooked Russian money that was stolen. We shall see the market’s reaction in a matter of hours – I can’t wait.

[Old55]

Thanks for that Mike, wow I had no idea.

[OnMyWay]

Yes, I knew about the Russian angle but it would appear that one of the larger judgement errors made was to apply the "tax" to all accounts.  >100k euro will be 9.9% and <100 will be at 6.75%.  That means every mom and pop with money in the bank will be hit.  The president is trying to amend that today.  

 

And up to 100k is supposed to be "insured" like we have FDIC insurance in the US.  So you think you have your safe money up to 100k in the bank vault and boom, 6.75% gone.  So much for "insurance"!

 

Monday is a bank holiday there and they might add an extra bank holiday Tuesday.

[OnMyWay]

Here is a snippet from the latest on Bloomberg:

 

http://www.bloomberg.com/news/2013-03-17/europe-braces-for-renewed-turmoil-as-cyprus-deposit-levy-at-risk.html

 

 

Depositor Swap

In a bid to ease a run on banks, depositors who keep their account for two years will receive securities linked to future revenue from the country’s gas reserves, the president said.

He said he would also seek to soften the impact on savers. The potential changes include taxing deposits less than 100,000 euros at a 3 percent rate, while setting the levy at 10 percent between 100,000 euros and 500,000 euros and at 12 percent for deposits greater than that, Antenna TV reported, without saying how it got the information.

The levy -- as of now 6.75 percent of all deposits up to 100,000 euros and 9.9 percent above that -- whittled the euro- area’s bailout of Cyprus to 10 billion euros, down from an original figure of about 17 billion euros, near the size of the nation’s 18 billion-euro economy.

[Jollygoodfellow]

I merged Bruce's topic with "on my ways" as they are about the same thing.

 

As for money, I am glad I have no money worries. When you have none, nothing to worry about right!