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Article / 16 March 2013 at 19:28 GMT

Cyprus bailout a major game changer

Lars Seier Christensen Lars Seier Christensen
co-founder & CEO / Saxo Bank A/S
Denmark
Shocking!
 
It is difficult to describe the weekend bailout package to Cyprus in any other way. The confiscation of 6.75 percent of small depositors' money and 9.9 percent of big depositors' funds is without precedence that I can think of in a supposedly civilised and democratic society. But maybe the European Union (EU) is no longer a civilised democracy?

I heard rumours about this when I visited Limassol last week, but dismissed them as completely outlandish. And yet, here we are. The consequences are unpredictable, but we are clearly looking at a significant paradigm shift.

This is a breach of fundamental property rights, dictated to a small country by foreign powers and it must make every bank depositor in Europe shiver. Although the representatives at the bailout press conference tried to present this as a one-off, they were not willing to rule out similar measures elsewhere - not that it would have mattered much as the trust is gone anyway. It is now difficult to expect any kind of limitation to what measures the Troika and EU might take when the crisis really starts to bite.

if you can do this once, you can do it again. if you can confiscate 10 percent of a bank customer's money, you can confiscate 25, 50 or even 100 percent. I now believe we will see worse as the panic increases, with politicians desperately trying to keep the EUR alive.

Depositors in other prospective bailout countries must be running scared - is it safe to keep money in an Italian, Spanish or Greek bank any more? I dont know, must be the answer. Is it prudent to take the risk? You decide. I fear this will lead to massive capital outflows from weak Eurozone countries, just about the last thing they need right now. Even from the EU as a whole, I suspect, as the banking union is in place in most countries already.
 
This is a major, MAJOR game changer and the fallout will be with us for a long time to come. I believe it could be the beginning of the end for the Eurozone as this is an unbelievable blow to the already challenged trust that might be left among investors. Talk about a possible own goal.

Market reaction? it must be very good for gold - and for safe-haven countries like Switzerland, Singapore and economically more healthy non-Euro contries in, for example, Scandinavia. I would think the EUR and associated markets will be undermined by increasing lack of confidence when the full implications become clear for investors.

This is full-blown socialism and I still cannot believe this really happened.

Be careful out there...
1y
Felicity A Glover Felicity A Glover
The bailout is worth EUR 10 billion, but savers bear a 10 percent brunt on their savings to raise almost EUR 6bn. Why not the same treatment for Greece, Ireland, Portugal and Spain with their bailouts? Why now? Is it because almost half of depositors are non-resident Russians?
1y
Juhani Huopainen Juhani Huopainen
My two cents on "why now": Brussels has given all the previous bailout countries the harsh IMF treatment. At least part of reasoning behind this are both domestic and foreign policy: to sooth the creditor countries' voters that 'we're not giving money away easily', and to kick the crisis countries' politicians. This makes the countries try their best to not get into the hands of the Troika, as it is a certain way to lose elections. If the bailouts are hard on the target countries, the logic goes that they will try their best not to need one. By kicking ordinary depositors, the creditors have taken the fight to the streets.
1y
Justin Spigelman Justin Spigelman
Good time to buy gold I guess. Some cheap VIX calls might be a good idea.......
1y
Juhani Huopainen Juhani Huopainen
why? don't you think that they wouldn't come after gold, stocks and other portfolio investments as well at some point? This is important to think through...
1y
Justin Spigelman Justin Spigelman
Well it seems nothings safe except for gold/silver bullion buried in your backyard. Total collapse won't happen right away, so I'm thinking on how to make a quick buck off this current state in the economic crisis. No doubt in my mind the PIIGS are next, after that who knows. If I was a billionaire, I'd buy all the gold I could lay my hands on and a pacific Island redoubt armed to the teeth with robotic sentry guns and hellfire armed drones.
1y
Juhani Huopainen Juhani Huopainen
hellfire is antitank. What you need will probably be S-A and S-S missiles and some antipersonnel rounds :) Seriously, check Steen Jakobsen's comments on some asset views. It will be one European open to remember on Monday, for sure.
1y
Juhani Huopainen Juhani Huopainen
Something I posted earlier: Interesting compromise on Cyprus: small haircut on deposits, with bank stocks offered in return to the depositors.

Personally I believe a simple gift of EUR 5bn of free money would have been a better choice. The lending of 10bn raises the debt/GDP, lowers the growth prospects, forces austerity and has the danger of creating a negative spiral that could turn the island into a second Greece: a continuous source of headaches and disappointment to the EU. The haircut is small and Rehn states this is a one-off. Whether depositors in e.g. Spain believe this remains to be seen. If not, the bank jog could start again. That could push Spain to eventually apply for the ECB's OMT-program, and perhaps that is what the Brussels and ECB actually want.
1y
stanley j g crouch stanley j g crouch
Mr. Christiensen,
Your characterization of the socialist nature of the unprecedented confiscation of saver's assets in Cyprus is spot-on. From my perch in the U.S., I have been characterizing the entire 'bail-out' from the "financial Crisis" as the 'socialization of risk, whilst gains are 'privatized'. In my humble opinion, this coordinated and coercive 'policy' marks the end of the Empire known as "Western Developed Market Capitalism". So, just as EVERY Empire in the history of mankind has ended in agony of millions, so will this one...!!
1y
mariokellywallwood mariokellywallwood
this move may prove to be Euro bulish as whilst it appears a socialization of debt governments will now be careful of overspending and asking for a bailout,also what a great way in obtaining a tax from a leaky tax collecting area..!!
1y
brydd0 brydd0
Those who did not expect this are either stupid or naive. A surrender of deposits has been on the table for months.
1y
M Schwing M Schwing
Well, this was actually pretty foreseeable. I have to correct you in your assertion that the EU is a democracy. It is not, its member states are but on the European level we have something resembling an oligarchy. The eu doesn't even have a constitution or fair representation.
II understand that most people ignore this or don't know it. I had hoped that on this level of expertise there is more understanding for and of the political structure of the EU.
1y
goldfinger goldfinger
Correct me if I am wrong, but their accounts have never been signed off. Neil Kinnock was supposed to be in charge of tracking down corruption in Brussels, and the problem got worse. I'm no Brownite but he did stop Blair going the full hog. Time to disband the whole rotten borough... Talking of Oligarchs, surely they left Cyprus some time ago
1y
bohemrapp bohemrapp
Mario, do you really believe this is a EURO bullish event? We now have a goverment capriciously taking the money of "foreigners" based on them having a bit more confidence in the european system than their own. Fiat currencies are based on confidence alone. This is a major major moment and unfortunately even voting it down now will not help --in fact --if anything it will make it worse as then everyone will not know if it will be 10% or a total run of all deposits and end up being a lot more. The ATM's are already dry -- that should tell you what to anticipate when the banks/markets open.
1y
Mark Wogan Mark Wogan
Whether this was foreseeable is no longer the question. What next is what matters now. Given that it appears the Cyprus Govt. was given an ultimatum to either invoke a 'wealth tax/bail in' or get no bail out (or only @10bn of the apparent 17bn needed) who might be next in line for the the hand out waterboarding - Italy, Spain? Even if they are in no real danger as Cyprus was apparently a 'one off' (phew... thats ok then...) its going to do wonders for investment inflows in to the EU periphery and thats not even considering the rush to lifeboats that must surely be the fate of foreign cvash already invested - and anyone else's for that matter. Has the EU/ECB just shot itself in the head as well as both feet!
1y
Juhani Huopainen Juhani Huopainen
One good commentator suggested that the government of Cyprus decided to cut the depos below 100k, even though they should have been protected by the deposit guarantee scheme. They were scared to haircut the russian depos beyond 10%. EU's original idea was to cut depos above 100k and leave everything else 'as is'. It makes perfect sense, unfortunately. The government in Cyprus gets its kickbacks from Russia. It is more important for them to take good care of them than their own citizens. And besides, the local people would simply not vote for them the next time around. The Russians would probably do something else...
1y
bohemrapp bohemrapp
So i think Mario's question was answered being the EUR/USD is down from 1.037 to 1.294 at the moment. thank you saxo for filling my short orders! I have called several of my customers in Cyprus who said it was either the EU deal or nothing and are not disassisfied even losing 10% if that is what it ends up being. I do not think this will be the end of it however, and many many freinds are moving their 90% out Tuesday morning when banks open. The swooshes of electronic transfers are barely audible, but they will be felt. This is Europe's Lehman moment if they do not handle this correctly and I am not sure there is even a solution to this. It's nice to characterize this as taking the funds of money-launderers, bankers, etc. but this is not what this is. It's EVERYONE's funds and this was not the appropriate way to institute a tax. This is a new world.
1y
Umbeluzi Umbeluzi
@ Lars ("This is full-blown socialism..."), no Sir, it is not a ideological issue, it is a totally corrupt form of governing, banks made irresponsible bets, and citizens paid the bill...
1y
ChrissyLumpy ChrissyLumpy
This is precisely why every Asian-owned bank is cheering right now. Soon China will call the shots, if it isn't already.
1y
Iva Iva
Good day, that would be great, if we could receive from Saxo Bank daily outlooks on the main commodities such as energies, for example. Unfortunately, many informations here are useless for retail day trader. Thank you
1y
bohemrapp bohemrapp
Just a small update. I have spoken with several large account holders in cyprus and all are planning on sending all of their money out when they can. No panic, just they have had enough and do not want further risk. Draw your own conclusions on what will happen no matter what is decided.
09 January
Klaas Klaassen Klaas Klaassen
important is that exactly the Euro itself can be used to solve the so called Euro-, banking- and national debts crises, www.GoldMorgs.Com/d

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