Sunday, March 17, 2013

The Money Problem in Cyprus

Monday will be one of the biggest days in European history (at least for the last fifty years).  All because of Cyprus.

Cyprus and it's national bank is in pretty dire straits.  They need an immedate loan....of which we aren't talking about a lousy one billion Euro.  This is more of ten billion Euro....to help them survive.  Most of the words for the loan with the EU are already written.  There is a funny stipulation in this deal.  Every single bank account (savings and credit), must be taxed immediately to a tune of 6.75 percent to 9.9 percent.  No waivers.

The Cyprus Parliament were supposed to meet over the weekend and vote to make this happen before Monday morning.  It appears that they refused to meet.

You can guess the reaction on Monday morning.....as every single citizen of the country walks in to remove their money before the tax can be passed.  My humble bet is that this discussion in the Parliament will go for at least six hours, and practically every single bank will be empty by that point.  

This whole talk started on Saturday morning, and by lunch....most all banks had used up what reserves they had in their hands.

If the Parliament refuses the deal?  The two largest banks in Cyprus will likely be shut down within days. They won't be able to survive without the ten billion Euro loan from the EU.

The percentage deal?  Well....if you are over 100k Euro in your account....you get the 9.9 percent contribution to the government.  If under 100k Euro.....it's 6.75 percent.  Even the little guy on a pension is hurt in the end.

The acceptance of the deal?  Most journalists reporting on this....are split.  They mostly report the facts, and can't get any real comments out of the political side.  There's bound to be various party discussions today, and by tonight....there's supposed to be a short comment by the government to the public over the mess.

My prediction is that they waste most of Monday with no decision made.  This gives everyone a chance to move what capital they have left.  Then they pass it late Monday or into Tuesday.  By Tuesday, as the tax falls into place....less than ten percent of what was there a month ago....will still exist.

Some reports indicate that banks have now been instructed not to move any cash via electronic means, period.  If true, this would prevent the locals from moving cash over to Greek banks, which don't fall under this mess.

As for the economic trend of Monday across Europe?  A down-day....maybe somewhere between one and two percent down.  I would hate to predict it going into the three percent range, but anything is possible.

Cyprus in the coming weeks?  No one is going to trust the banking sector for a while.  expect most folks to hide their money in the home or in their business.

Tourists arriving there?  You'd best plan to have all the cash you needed on you before you get off their plane.

Does this all fall into the German political chat and the fall election?  Yes, sadly, this might end up being one of the biggest topics of discussion.

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