Contagion

Goldman: Cyprus deposit tax could spread across Europe

Marketwatch,

18 March, 2013

Contagion. A word that many market participants have become all too familiar with over the course of the European crisis, and on Monday the proposed bank-deposit tax in Cyprus brought the concept back on most investors’ minds.

The levy on bank deposits, which has yet to be approved by parliament, marks the first time during the euro-zone debt crisis that depositors would lose money, stoking fears other struggling nations could be inspired to do the same. Read: Here’s why markets are in uproar over Cyprus deposit tax

“Despite Cyprus being small, and arguably unique, a depositor in a peripheral bank is likely to ask the obvious question: how likely is a deposit tax for me? The answer to this question, we believe, will differ, depending on the peripheral country where it is asked,” Jernej Omahen,  head of European financials research in London at Goldman Sachs said in a note.

He boiled the issue down to two questions: “How likely are savings to be bailed-in in any future bank rescues?” and “How likely are savings to emerge as a tax-base for any future wealth taxes?”

Both are good questions that should be interpreted on a country-specific basis. 

And fortunately the Goldman Sachs analysts also fleshed out what to expect in other bailed-out or bailout-prone countries:

• Greece: The read-across is not clear cut, in our view. There is an argument to be made that risk-aware depositors have already moved their deposits away from Greek banks, leaving solely the “sticky” residual in the banks. However, close ties between the two countries, as well as deposit flow to Cyprus during Greek crisis peaks, could form an argument for a restart in deposit outflows, in our view. Perceiving deposits as a potential tax-base could add to the volatility.

• Ireland: We see limited scope for a strong read-across in Ireland. The banking system suffered greatly in 2010, but has since been stress-tested and recapitalized. Deposit flows have also turned positive. It is unlikely, in our view, that an Irish depositor would fear yet another bank bail-out.

• Spain: Similar to Ireland, a depositor is also likely to interpret the Cyprus deposit tax as something that could have happened in 2012 – but didn’t, in our view. Post the (external) stress-tested and considerable recapitalization in 2012, deposit flows have turned positive, suggesting confidence has returned.

• Italy: Unlike Ireland and Spain, Italy did not require a bank bail-out. That said, the [non-performing loan] formation for the system is accelerating, and problems at specific institutions (e.g., the 3rd largest bank) have recently received meaningful media attention. Additionally, Italian depositors had experienced a deposit tax in the early 90’s. The potential for some “sentiment” read-across therefore exists. But as said, we still expect it to be modest.

• Portugal: Similar to Ireland, the depositors should largely perceive the terms of Portugal’s bail-out as very unlikely to be altered at this stage. The banking system has been recapitalized and is undergoing planned downsizing. That said, deposit flows in Portugal have remained und

The Rape Of Cyprus By The European Union & The IMF

Zero Hedge,

18 March, 2013

Submitted by Mark J. Grant, author of Out of the Box,

I have been watching articles pour forth about Cyprus all weekend. I am almost as aggravated with the majority of them as I am with what took place. People are dancing around the edges while the propaganda machines of Europe are churning out the usual bunk.
 

Let's get some things straight and look what has happened directly in the face. There was no tax on the bank accounts in Cyprus. There still is no tax; the Cyprus Parliament has not passed it and will not vote on it until tomorrow so whatever action takes place it is retroactive. Next, this was not enacted by Cyprus. The people from Nicosia did not go to the Summit and ask to have the bank accounts in their country minimized to help pay the bills. Far from it; the nations of Europe, Germany, France, the Netherlands and the rest, demanded that this take place, a "fait accompli,"the President of Cyprus said and Europe annexes Cyprus. Let's be quite clear; the European Union has confiscated the private property of the citizens in Cyprus without debate, legislation or Parliamentary agreement.
 

A bank account is not a bond or a stock or any sort of investment. This seems to be lost on many people. A bank account is the private property of a citizen or a corporation and does not belong to the government or at least that was the supposition up until now in Europe.
 

Next there is deposit insurance in Europe. Every country has its own version but it is there. It guaranteed the bank accounts of citizens up to one hundred thousand Euros. So much for the meaning of any guarantee in Cyprus or any other country in Europe. Null and Void! If the European Union can dismantle deposit insurance in Cyprus they can damn well do it in whatever country they please and at any time.
 

Here’s the description of the Cypriot government deposit insurance plan:

"Participation in the DPS is compulsory for all banks authorized by the Central Bank of Cyprus, i.e. banks incorporated in the Republic of Cyprus, including their branches in other countries, and the Cyprus branches of foreign banks, incorporated outside the Republic of Cyprus or the Member-States of the European Union. The DPS does not cover deposits of branches of banks established in European Union Member States. These deposits are covered by the corresponding deposit protection scheme established in the country of incorporation.

 

The DPS is activated in the event a decision is reached that a member bank is unable to repay its deposits, or as a result of a Court’s order for the winding-up of a member bank. Where a bank is unable to pay its deposits, the relevant decision is adopted by the Central Bank of Cyprus or, where a member bank is incorporated in a country outside the Republic of Cyprus, by the competent supervisory authority of the country of incorporation.

 

The maximum level of compensation, per depositor, per bank, is €100.000."

Please note that until yesterday all depositors in Cypriot banks were insured up to the value of €100,000 with any one bank. Today that solemn governmental promise has been shown for what it is; a lie. Worse and actually far worse and quite scary in fact is that the European Union and the European Central Bank and the IMF has not just allowed violation of the deposit insurance but demanded it. One thing is certain here; if they can void deposit insurance in Cyprus then they can void it in any country in Europe. Further; if they can void deposit insurance then they can void bond covenants with the scratch of a pen on paper. Nothing now; Nothing is safe!
 

Pay attention please. The European Union and the European Central Bank and the IMF have just advocated the confiscation of private property for their own indulgence. Bank accounts are not bonds or stocks or some other form of investments. It is private property like your house or your car. Germany, France et al came in and said, "We want it and we are taking it and it is necessary for our government." These countries did not demand it, yet, from their own citizens though they might soon but they demanded it from the citizens of Cyprus in exchange for funds. This is not a European Union this is a European Fourth Reich!
 

"The moment the idea is admitted into society that property is not as sacred as the law of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence."
           -John Adams