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    Senior Member AirborneSapper7's Avatar
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    Next Up For Cyprus: Depression - So much for the hope of recreating Icelands recovery

    Next Up For Cyprus: Depression



    Submitted by Tyler Durden on 03/25/2013 08:40 -0400

    From SocGen:


    Depression for Cyprus: Our Cypriot GDP forecast entails a drop of just over 20% in real GDP by 2017. This forecast had already factored in much what was agreed, but did not account for the additional uncertainty shock generated by the past week’s appalling political mess. Risks are clearly on the downside and Cyprus will in all likelihood require additional financial assistance further down the road. Accounting for less than 0.3% of euro area GDP, any downward revision to Cyprus will be barely visible on the euro area aggregate.

    So much for the hope of recreating Iceland, and actually growing in 2-3 years. Congratulations Cyprus - you may have a depression for the next four years, but at least you have the (and helped Merkel win the September election).


    Next Up For Cyprus: Depression | Zero Hedge

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    European Financials Biggest 1-Week Plunge In 8 Months; Russian Ruble Nears 2013 Highs

    Submitted by Tyler Durden on 03/25/2013 12:42 -0400

    It was all going so well. TV pundits could proclaim their omnipotence - knowing full well that Cyprus was a storm in a teacup - and then D-Bom hit the wires with some harsh reality speak. European banks plummeted - most of Italy's banking system ended limit down, European bank credit spreads blew to their widest in 4 months and bank stocks are playing catch down - as we pointed out recently (with their biggest 6-day plunge in 8 months) and almost negative YTD. Equity indices across the continent saw their biggest drops in a month (since the Italian elections) but it was Spain and Italy that bore the brunt - rightfully so as fulcrum securities. Bond spreads snapped wider (from opening notably tighter) as rumors of an Italy downgrade and Fitch reconsidering the sovereign/banking link didn't help. Swiss 2Y rates held at 0% and while it dropped notably on the day,Switzerland's SMI was the best performing stock market on the day, as the Russian Ruble saw its best day against the EUR in 6 weeks. "Europe is fixed," indeed.




    Credit knew something was coming...as 'bail-in' chatter has been around for a few months


    Spain and Italy were battered...


    and EUR was offered...



    Charts: Bloomberg


    European Financials Biggest 1-Week Plunge In 8 Months; Russian Ruble Nears 2013 Highs | Zero Hedge

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    The Russians Are Outtahere: "The Cypriots Killed Their Country In One Day"

    Submitted by Tyler Durden on 03/25/2013 13:46 -0400

    It appears the Cypriots (or more clearly the European leaders) do not appreciate the extent to which Russia has propped up the local economy. “When the Russians leave who is going to stay at the Four Seasons for $500 a night? Angela Merkel?” one wealthy Russian asks rhetorically, as The FT reports, they are receiving a deluge of overseas phone calls from helpful Swiss bankers looking to swoop up the deposit transfers. "The locals should understand: as soon as the money leaves, the people who go to restaurants, buy cars and buy property leave too. The Cypriots’ means of living will disappear," and there are signs that the locals are getting how drastic this situation is, as a large billboard has sprung up at Larnaca Airport with a Russian flag and the words "Brat’ya ne predaite nas!" - "Brothers, don’t betray us!" Many Russian businessmen appear to have one foot out of the door already and are considering whih jurisdiction to move to as they await to see if Medvedev follows through on his threat to dismantle the double tax treaty with Cyprus.

    And now the rumors are that billionaire Russian tycoon Roman Abramovich, owner of Chelsea Football Club, has been arrested in the USA.

    Via The FT,

    One Cypriot lawyer with Russian clients said he had already been approached by half-a-dozen European banks in locales ranging from Latvia to Switzerland to Germany, some of them promising they could open new bank accounts for his clients in under an hour.

    The Cypriots killed their country in one day,” says Mr Mikhin, referring to Friday March 15, when President Nicos Anastasides accepted the EU’s proposal to seize €5.8bn in emergency funds from Cyprus’s local and foreign depositors.

    “The locals should understand: as soon as the money leaves, the people who go to restaurants, buy cars and buy property leave too. The Cypriots’ means of living will disappear,” he says.

    “They are saying we laundered all the money, but they lived on that money for 10 years and forgot about it.”

    Says another Nicosia-based lawyer: “I don’t understand why it is money laundering when it’s in Cyprus, when in London it’s a perfectly respectable company.”

    If the double-taxation treaty is lifted there will be no reason for us to stay in Cyprus,” an oligarch’s Russian lawyer says bluntly.

    Mr Mikhin complains that the Cypriots do not appreciate the extent to which Russia has propped up the local economy.“When the Russians leave who is going to stay at the Four Seasons for $500 a night? Angela Merkel?”

    But there are signs that a growing number of locals realise how drastic a mass emigration of Russian business would be.

    Over the past week, a new billboard has sprung up on the highway between Limassol, the palm-treed beach town favoured by the Russians, and Larnaca International Airport.

    Drawing on Russia and Cyprus’s shared Orthodox faith and deep political ties dating back to the Soviet era, the advertisement displays a massive Russian flag, with a desperate plea in Russian underneath: “Brat’ya ne predaite nas!”

    “Brothers, don’t betray us!”


    The Russians Are Outtahere: "The Cypriots Killed Their Country In One Day" | Zero Hedge
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    A Word Out Of Place Sends Europe Tumbling

    Submitted by Tyler Durden on 03/25/2013 11:07 -0400

    Perhaps the best example of a "word out of place" comes from the new Eurogroup head, Dijsselbloem, also phonetically known as Diesel-BOOM, who just may have ushered in the next, next wave of the Eurozone crisis:


    • "Cyprus a Template For EU"


    Er... wasn't it a special case, inside a unique case, wrapped in a one-time case? We will ignore the rather hilarious Freudian slip, and focus on what he was explicitly talking about with Reuters, which is the resolution model which was just put in place in Cyprus:




    A rescue programme agreed for Cyprus on Monday represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors, the head of the region's finance ministers said.

    "What we've done last night is what I call pushing back the risks," Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times hours after the Cyprus deal was struck.

    "If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'. If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders," he said.

    After 12 hours of talks with the EU and IMF, Cyprus agreed to shut down its second largest bank, with insured deposits - those below 100,000 euros - moved to the Bank of Cyprus, the country's largest lender. Uninsured deposits, those accounts with more than 100,000 euros, face losses of 4.2 billion euros.

    Uninsured depositors in the Bank of Cyprus will have their accounts frozen while the bank is restructured and recapitalised. Any capital that is needed to strengthen the bank will be drawn from accounts above 100,000 euros.

    The agreement is what is known as a "bail-in", with shareholders and bondholders in banks forced to bear the costs of the restructuring first, followed by uninsured depositors. Under EU rules, deposits up to 100,000 euros are guaranteed.
    The punchline:




    The approach marks a radical departure for euro zone policy after three years of crisis in which taxpayers across the region have effectively been on the hook for resolving problem banks and indebted governments via multiple rescue programmes.

    That process, with governments and taxpayers bearing the costs and providing the back stop, had to stop,Dijsselbloem said. Recent financial market calm meant now was the time to make the change, although he conceded there was some concern that it could unsettle markets again.

    If adopted by the euro zone, Dijsselbloem's template could also sound a death knell for a plan hatched nine months ago when the euro zone debt crisis was threatening to blow the currency area apart.

    Then, euro zone leaders agreed that the bloc's future rescue fund should be allowed to recapitalise banks directly, thereby breaking the debilitating link between teetering banks and weak governments forced to bail them out. That may now never happen.

    Asked what the new approach meant for euro zone countries with highly leveraged banking sectors, such as Luxembourg and Malta, and for other countries with banking problems such as Slovenia, Dijsselbloem said they would have to shrink banks down.

    "It means deal with it before you get in trouble. Strengthen your banks, fix your balance sheets and realise that if a bank gets in trouble, the response will no longer automatically be that we'll come and take away your problem. We're going to push them back. That's the first response we need. Push them back. You deal with them."

    Translation: it now officially sucks to be an unsecured creditor in Europe. In other words: an uninsured depositor.

    Why this ad hoc dramatic shift in the European approach to bank solvency, which if anything makes the link between bank and sovereign closer than ever, and crushes all that Draghi achieved in the summer of 2012?

    Simple: because what Cyprus allowed was the effective usurpation of democracy - the only reason the Cypriot bailout "passed" (at least so far) is because it was structured as a bank restructuring, a financial system "resolution", not a tax, and thus not in need of a parliamentary, democratic vote. Because as Cyprus also showed, votes to deprive depositors of cash, whether insured or uninsured, simply won't fly.

    Hence the shift.

    However, there is a problem: it means that depositors are now fair game everywhere, and that the ESM or EFSF, with their unlimited scope but "democratic" impleention pathway, are on the backburner.

    And now, the scramble to pull uninsured deposits out of banks everywhere begins. Thanks to the new Eurogroup head.

    "You ask for miracles, Theo. I give you Diesel-BOOM"

    And now, every European depositor is going to their local financial dictionary to look up the definition of General Unsecured Claims, only to see a picture of... themselves.

    A Word Out Of Place Sends Europe Tumbling | Zero Hedge

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    Cyprus Church Loses EUR100 Million, Curses Those Responsible

    Submitted by Tyler Durden on 03/25/2013 11:33 -0400

    Perhaps it was their comment last week that "with the brains in Brussels... the Euro can't last," but the Orthodox Church of Cyprus has lost over EUR100 million reacted to its holdings in Bank of Cyprus. Church leader Archbishop Chrysostomos II, in comments on TV, noted that "Cyprus asked for 'crumbs' compared to large size of Europe’s budget," and that those responsible in Cyprus should be punished (he blames the outgoing government, Ministers of Finance, the Central Bank, and the Executive Directors of Banks) - "those that brought the place into this mess, should sit on the stool." He noted that people will lose jobs and the state will be poorer but that the Church is prepared to help; and his first step - to send invitations to the heads of various Russian companies on the island.

    Via Church of Cyprus,

    Heads of Russian companies operating in Cyprus will call a working lunch, next Thursday, March 28, 2013, His Beatitude Archbishop Chrysostomos Mr. to encourage them to remain in Cyprus.

    Speaking to the media Sunday, March 24, 2013, the Archbishop said: "I think we should stand on our own forces. Do not expect any thing. Our people have unfortunately learned to live with the waste, but when the need to know and live with a few and I think he will live with the few. We will try as much as possible to open a business there that can help the state. We will do this with love, "he added.

    He also said that "next Thursday I call - I will send invitations and of course - the heads of various Russian companies on the island, we come to the Archdiocese for a working lunch."

    "I want to invite people to talk together, to encourage them to stay that benefit in Cyprus because Cyprus was the only country that gave interest to the Russian capital, and if they had their money in any other European country would receive or 0 or 0.5%, while here they get so much more. At last they have brought the place into this mess, should sit on the stool, "he said.

    The Archbishop said that the situation blame the outgoing government, Ministers of Finance, the Central Bank, "which brought the top down, blame and Executive Directors of Banks."

    "We all sit on the stool, of course, because they brought up - and found below this poverty of our people, so unexpectedly, without a consideration. It is not vengeful. We must punish naughty, fiber and other fear shall have, "he added.

    Replying to a question, the Archbishop said that the banks belong to the shareholders. "It is neither the Governor nor anyone. The Governor can not monitor, or orders appoint either cease or be closed banks. Unfortunately, they stayed with our own apathy. I've said to initiate treatment, "he said.

    Cyprus Church Loses EUR100 Million, Curses Those Responsible | Zero Hedge
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    Think Tank: Cyprus 'Saved'; But At What Cost?

    Submitted by Tyler Durden on 03/25/2013 09:51 -0400

    Authored by Raoul Ruparel, originally posted at Open Europe blog,


    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.

    Key points of the deal:


    • Laiki bank will be fully resolved – it will be split into a good bank and bad bank. The good bank will merge with the Bank of Cyprus (which will also take on Laiki’s circa €8bn Emergency Liquidity Assistance – a last-resort funding system outside the usual ECB operations). The bad bank will be wound down over time with all uninsured depositors (over €100,000) taking significant losses (no percentage yet but some could lose all their money above the threshold).
    • The Bank of Cyprus will be recapitalised using a debt to equity swap and the transfer of assets from Laiki. Uninsured depositors will take large hits in this process – again no percentage but reports suggest up to 40%.
    • These actions will be taken using the new bank restructuring plan passed in the Cypriot Parliament on Friday. Crucially, no further vote will be needed in the Cypriot parliament since there is no direct deposit levy.
    • The banks will not receive any of the €10bn bailout money, the entire recapitalisation will be done using the tools outlined above.
    • Not clear when the banks will reopen but significant capital controls are likely to be in place, creating a risk of Cypriot euros being “localised”.
    • Further tax increases may be included in the detailed plan to be drawn up between the two sides.



    What does this deal mean for Europe?


    1. Europe once again sidestepped democratic procedure to secure a deal:
    By removing the deposit levy and forcing losses on depositors through the bank restructuring the eurozone was able to dodge a tricky second vote in the Cypriot Parliament. Although the bank restructuring proposals were approved in the Parliament on Friday, it is not clear that all Cypriot MPs were fully aware of how far the restructuring tools could be pushed. However, it’s likely that the final deal that will actually activate the bailout loan – the Memorandum of Understanding – will need approval of the Cypriot Parliament, so there may be another vote yet to come. Parliamentary approval is not guaranteed but voting it down would again be close to a vote to leave the euro.

    2. A change in tack from Germany and the ECB:
    Germany has made it clear that it is no longer willing to foot the bill for extensive bailouts without the recipient country taking a share of the burden and making some radical changes. The ECB, by setting an ultimatum, has signalled that it is willing to use the significant leverage and control which it has to force what it sees as the desirable outcome, meaning it is becoming an increasingly political actor (which its mandate does not allow). In combination with the sense of unfairness that has been built on all sides, this could serve to entrench the North-South standoff in the Eurozone, making future talks trickier.

    3. Will the Troika break up? Reports overnight and throughout the week have shown that this relationship has become increasingly strained, particularly between the IMF and the European Commission. Some strains were visible also over the Greek debt sustainability analysis, but looks to be far worse this time around. With Germany and the northern countries insistent on the IMF’s continued involvement there could be further conflict. Any future bailout deals will likely remain strained because of this.

    What does this deal mean for Cyprus?

    1. Despite avoiding taxing small depositors, political upheaval looks likely: Although the most controversial aspect of the original plan was dropped there will likely be some political fallout. Ultimately, the government in Cyprus has been shown up by the crisis, with both the Finance Minister and President reportedly threatening to resign at various stages. Furthermore, the bank restructuring will likely cause significant unemployment.

    2. The standard of living and the wider economy could collapse: Cyprus’ position as a financial centre could be over. There are few other alternatives for growth. One option that remains is tourism, but with a significantly overvalued currency it is not clear to what extent Cyprus can take advantage of this. The capital controls will severely hamper liquidity in the economy, while it will be very difficult for the small island to trade with the rest of the world (it is far from self-sufficient). The collapse in GDP could be anywhere between 5% and 10% this year, depending on how long capital controls are imposed, while the resulting collapse in tax revenue could make the government’s position worse. There is a strong chance Cyprus could become a zombie economy – reliant on eurozone and ECB funding to function, possibly requiring further bailouts.

    3. The capital controls will keep Cyprus teetering at the edge of the euro: As we noted over the weekend, these controls are severe and could de facto lead to Cyprus being seen as out of the euro. Ultimately, money is no longer fungible between Cyprus and the rest of the Eurozone and, at this point in time, it’s hard to argue that a euro in Cyprus is worth the same as a euro elsewhere. The real problem though may not be imposing the controls but removing them – Iceland still has capital controls in place, five years after it installed them (despite having the advantage of a devalued currency).

    4. Is Cypriot debt sustainable? A key goal throughout these negotiations has been to make Cypriot debt sustainable (unlike under the Greek bailouts). We do not believe this has been achieved due to the likely collapse in GDP noted above. A €10bn bailout will push Cypriot debt to GDP to 140% - if Cypriot GDP falls by just 5% this year, that rises to 148%.

    What is the geopolitical fallout of this deal?

    There is yet to be a clear reaction from Russia but Russian depositors are likely to be hit hard by this deal. Russia’s First Deputy Prime Minister Igor Shuvalov has suggested today that an extension of the €2.5bn loan given to Cyprus is not guaranteed – something which the eurozone indicated was necessary last night. Separately, Russia remains the key energy supplier for most of the EU and has already issued veiled threats around this deal – such as a withdrawal of money from the EU and a switch-away from euro currency reserves.

    Central banks once again dodge losses:

    Overnight it became clear that the ECB and IMF were insistent that the ELA must be moved from Laiki bank to the Bank of Cyprus as part of the deal. The main reason for this must be to avoid the Cypriot Central Bank taking losses on the ELA, which would have been counterproductive as it would have to have been recapped by the Cypriot government, a cost which would need to be added to the bailout bill. This episode does highlight that the assets pledged as collateral at the ELA are basically worthless and that avoiding central bank losses will always be a key objective in any bailout negotiations. Worryingly, once the banks reopen (capital controls notwithstanding) money will likely flow out, leading to an increase in ELA and reliance on central bank funding.

    Are there any positives from this deal?


    • The main positive is that a deal was finally reached, the alternative would likely have been messy for the eurozone and the EU.
    • There is some reduction in moral hazard, since those who invested in the large undercapitalised banks are footing the bill – as opposed to all depositors.
    • Some trust in terms of the deposit guarantee below €100,000 may have been restored.
    • Senior bank bondholders in Laiki and possibly Bank of Cyprus will be bailed in (taking losses) – although this may not raise much cash, it is the correct order in which to restructure the banks.


    These small points will provide little comfort as the Cypriot population endures the harsh reality of rising unemployment, fiscal consolidation, private sector stagnation and internal devaluation, all while under stringent capital controls.


    Think Tank: Cyprus 'Saved'; But At What Cost? | Zero Hedge

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    What A "Black Swan" Looks Like in Real Media Time

    Submitted by Tyler Durden on 03/25/2013 09:08 -0400

    Before last Saturday, few even knew where Cyprus was located. Then, courtesy of the most epically bungled up "bail-out in" attempt in the history of the Troika, Cyprus became the only thing everyone talked about: the definition of a black swan. How did this transformation from an ugly island duckling to a glorious black swan look like from the perspective of the media? The following chart courtesy of Bloomberg's Michael McDonough, which shows the instances of mentions of the words "Apple", "Germany" and "Cyprus" across newswires, shows the answer which not surprisingly even looks like a swan.



    h/t @M_McDonough


    What A "Black Swan" Looks Like in Real Media Time | Zero Hedge



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    Merkel "Very Happy", Russian PM Furious: "The Stealing Of What Has Already Been Stolen Continues"

    Submitted by Tyler Durden on 03/25/2013 07:46 -0400

    First, it is Merkel's turn, which last week was furious at Cyprus for daring to reject the first flawed Eurogroup plan impairing insured depositors, only to praise it for now... rejecting said plan.

    To wit: Chancellor Angela Merkel, "as well as the government, is very happy that the troika, the euro group and Cyprus were able to reach an agreement," German government spokesman Steffen Seibert says in Berlin. He added that difficulties will arise in the short term because of measures aimed to scale back Cyprus’s banking sector, "but in the long run it will lead to a healthier” industry. That remains to be seen, especially when factoring in the Russian response.

    Which wont be pleasant.

    The official Russian line is one of a typical professional chess player - calm, cool, collected: Russia doesn’t see need to take any additional steps now, may still agree to restructure loan, First Deputy Prime Minister Igor Shuvalov told reporters earlier. Shuvalov, unlike Merkel and ECB's Mersch who sees nothing but green shoots (literally) everywhere in Europe, said that Russia is concerned Cyprus crisis may have negative effect on euro. The deputy PM says that he has no estimate for Russian losses in Cyprus but added that Russian money in Cyprus is "legal."

    The unofficial line comes from former president, and current PM and Putin mouthpiece,Dmitry Medvedev. From Reuters:

    Moscow reacted with anger on Monday to a European Union bailout of Cyprus that will result in heavy losses for foreign depositors at the Mediterranean island's banks, many of which are Russian.

    "The stealing of what has already been stolen continues," Prime Minister Dmitry Medvedev was quoted by news agencies as telling a meeting of government officials.

    Russia turned down desperate appeals for financial aid last week from the Cypriot government and the final bailout was likely to be more painful for its depositors than an initial rescue plan rejected by the Cypriot parliament.

    Speaking after the meeting, First Deputy Prime Minister Igor Shuvalov said losses to Russian investors in Cyprus were not yet clear.

    He also said that the Cypriot unit of state-controlled VTB, Russian Commercial Bank, would not be affected by measures taken by the government.

    "What is happening is a good signal to those who plan to move their capital to ... Russian banks," he was quoted as saying. "We have very stable banks."

    Russians are believed to account for most of the 19 billion euros of non-EU, non-bank money held in Cypriot banks at the last count by the central bank in January. Of 38 billion euros in deposits from banks, 13 billion came from outside the EU.


    In other news, we are closing our Belgian Caterer 3x long ETF, and opening a new 3x levered ETF in Belgian Bodyguards and Polonium 210 "tasters." We expect it to hit our price target of "more" shortly.




    Merkel "Very Happy", Russian PM Furious: "The Stealing Of What Has Already Been Stolen Continues" | Zero Hedge

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    "Cyprus Is The Homage Europe Pays For The Denial Of A Systemic Crisis"

    Submitted by Tyler Durden on 03/24/2013 20:41 -0400

    Three months ago, Yanis Varoufakis explained Europe's bogus growth pact and the papering over the cracks that was being done by the IMF and ECB, "The idea here is that, yet again, the Eurogroup-ECB-IMF alliance is not ready, politically, to reveal the truth to its various constituencies." He was, obviously, correct. This weekend, in a brief BBC Radio interview (below), as Cyprus erupts and brings the European circus back into town, Varoufakis exclaims, "every bailout agreement, beginning with Greece’s in May 2010, seems less logical and more toxic than the previous one." In three minutes, the Greek economist illustrates how the leaders are laying waste to the supposed pillars upon which the European Union was founded.




    Yanis Varoufakis on Cyprus economic crisis - YouTube

    Via Yanis Varafoukis,

    Here are some unedited thoughts I just shared with the BBC’s Radio 4 on Cyprus while we are all waiting for the new deal to shape up:

    Cyprus’ banking sector must shrink. As did Ireland’s, the hard way. What is essential, as every Irishman and woman will tell you, is that the politicians do not load up the weaker citizen’s/taxpayers’ shoulders with enormous debts on behalf of bankers that refuse to wither.

    Every bailout agreement, beginning with Greece’s in May 2010, seems less logical and more toxic than the previous one. The culmination was of course Cyprus this past week. Think about it: In one short week, Europe has managed to put in jeopardy:


    • The hitherto sacrosanct concept of state guaranteed deposit insurance
    • The monetary integrity of the Eurozone
    • The European Union’s single market principle according to which capital controls are a no-no.



    If only the agreement reached at last June’s EU Summit to de-couple the banking crisis from the public debt crisishad been implemented, we would not be having this conversation now.

    The Cyprus debacle is the homage that denial of the systematic nature of the euro crisis pays to a systemic crisis.

    Cyprus parliamentarians offered the Eurozone a reprieve from the stupidest and most potentially destructive Eurogroup decision since this Crisis began three years ago. It now remains to be seen whether, scared by the sound of their own NO, they will now succumb to an even less rational deal.

    "Cyprus Is The Homage Europe Pays For The Denial Of A Systemic Crisis" | Zero Hedge

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    ECB Banking Standards and Other Great Works of Fiction

    Submitted by Phoenix Capital Research on 03/25/2013 13:47 -0400

    As noted in numerous articles, the entire European banking and corporate system is over-burdened with debt.


    Jagadeesh Gokhale of the Cato Institute puts the situation as the following, “The average EU country would need to have more than four times (434 percent) its current annual gross domestic product (GDP) in the bank today, earning interest at the government’s borrowing rate, in order to fund current policies indefinitely.”

    Put another way, for Europe’s Government to fund all the entitlements they have, they would need an amount equal to 400% of GDP to be sitting in the bank collecting interest.

    Virtually NO European country is running a surplus, let alone has an amount equal to 100% of GDP let alone 400% of GDP sitting around.

    How come no one is openly admitting this?

    The reason none of this shows up is because Europe’s accounting for unfunded liabilities as well as its accounting for banking liabilities. As noted by Mark Grant, the ECB even ADMITS that it doesn’t record most of the garbage it owns:

    Recognition of assets and liabilities

    An asset or liability is only recognized in the Balance Sheet when it is probable that any associated future economic benefit will flow to or from the ECB, substantially all of the associated risks and rewards have been transferred to the ECB, and the cost or value of the asset or the amount of the obligation can be measured reliably.”

    So the ECB has openly admitted: “we don’t actually count something as an asset or liability unless we believe it should be.”

    In other words, the ECB’s balance sheet, which backs up the entire EU banking system it essentially a work of fiction. Unless the ECB officials feel like admitting something is an asset or liability, it doesn’t exist.

    At this point, no sane person could possibly invest in Europe. And given that EU bureaucrats are now proposing STEALING depositors savings, I can’t think why anyone would have a bank account there either.

    At the end of the day, this is all you need to know about Europe’s Crisis:


    1. The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).
    2. This banking system is officially leveraged at 26 to 1. Realistically it’s likely closer to 50 to 1.
    3. The ECB’s balance sheet is entirely made up based on how the ECB feels like valuing what it owns (how’d that concept work out for Wall Street banks in 2008?)
    4. Over a quarter of the ECB’s balance sheet is PIIGS debt which the ECB will dump any and all losses from onto national Central Banks (read: Germany)


    So we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1…

    And all of this is occurring in a region of 17 different countries none of which have a great history of getting along… at a time when old political tensions are rapidly heating up.

    To be clear, the Fed, indeed, Global Central Banks in general, have never had to deal with a problem the size of the coming EU’s Banking Crisis. There are already signs that bank runs are in progress in the PIIGS.

    Thus, the World’s Central Banks cannot possibly hope to contain the coming disaster. They literally have one of two choices:


    1. Monetize everything (hyperinflation)
    2. Allow the defaults and collapse to happen (mega-deflation)


    If they opt for #1, Germany will leave the Euro. End of story. They’ve already experienced Weimar and will not tolerate aggressive monetization.

    So even the initial impact of a massive coordinated effort to monetize debt would be rendered moot as the Euro currency would enter a free-fall, forcing the US dollar sharply higher which in turn would trigger a 2008 type event at the minimum.

    In simple terms, this time around, when Europe goes down (and it will) it’s going to be bigger than anything we’ve seen in our lifetimes. And this time around, the world Central Banks are already leveraged to the hilt having spent virtually all of their dry powder propping up the markets for the last four years.

    On that note, if you’ve yet to prepare for Europe’s BIG collapse…we’ve recently published a report showing investors how to prepare for this. It’s called What Europe’s Collapse Means For You and Your Savings and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.
    You can pick up a free copy here:
    What Europe’s Collapse Means For Your Savings
    Best Regards,
    Graham Summers
    PS. We also offer a FREE Special Report detailing the threat of inflation as well as two investments that will explode higher as it seeps throughout the financial system. You can pick up a copy of this report at:
    http://gainspainscapital.com/gpc-inflation/

    ECB Banking Standards and Other Great Works of Fiction | Zero Hedge



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