Cipro, tra Russia ed Europa

Riportiamo qualche altro commento dalla stampa internazionale sulla crisi di Cipro. Il Parlamento di Nicosia ha rifiutato il bail out europeo e Bruxelles e Berlino ora chiedono un altro piano. Il convitato di pietra, in questo caso, è la Russia che ha interessi importati nell'isola mediterranea, dove gli oligarchi ammassano le loro fortune per poi farle rientrare in patria a tassazione agevolata.
Il problema, però, non è solo di Cipro. L'Islanda, tanto per dire, era in una situazione molto simile, con un sistema bancario gonfiato dalla valuta estera - nel caso di Cipro le passività del sistema finanziario sono 8 volte il PIL, ed in Islanda erano 10 volte il valore dell'economia. Ma anche stati più grandi, come l'Irlanda (4 volte superiore) e la Gran Bretagna (4.5) si trovano in situazioni simili. Tutti e quattro i paesi sono incorsi in gravi crisi bancarie, con gli ultimi due per il momento salvati dai propri cittadini a costi elevati, mentre l'Islanda ha fatto pagare il costo della crisi ai creditori. Il piano UE era di dividere le perdite su entrambi i fronti (prelievo sui depositi di tutte le dimensioni e senza discriminazione esteri-domestici, cosa per altro proibita dall'Europa) ma il Parlamento cipriota, appunto, ha detto no. Trovare i soldi nella sola economia cipriota, troppo piccola, pare improbabile, a meno che non si trovi un accordo con i russi sul gas del Mediterraneo. La soluzione più equa e convincente pare in ogni caso far pagare il conto ai creditori più ricchi, cioè una tassa solo sui depositi maggiori. E chiedere nel caso alla Russia di compensare per le perdite dei propri cittadini - come in effetti avrebbe dovuto fare la Grecia, tanto per dire, invece di accettare il piano d'austerity.
Non è una soluzione facile, ne và dello status di Cipro e del suo intero sistema bancario - come spiega bene nell'articolo qui sotto Jeremy Warner - ma di mezzo ci sono anche gli interessi strategici della Germania e i suoi rapporti con la Russia (non è una sorpresa che sian stati proprio Merkel e Schauble ad insistere per un bail out salva russi, pur senza spese addizionali per i tedeschi). In generale, però, come fa notare Paul Krugman nell'articolo successivo, quello di Cipro è un problema del capitalismo finanziario tutto, dove i movimenti di capitale destabilizzano il sistema e creano paradisi off-shore per chiunque ne abbia la possibilità. Anche rimettere in ordine Cipro non servirebbe. In fondo, i capitali russi fuoriusciti da Nicosia potrebbero pur sempre trovare ottimo alloggio a Londra. Ed il discorso non finisce qui. Come avevamo spiegato tempo fa, e come spiegato anche nell'ultimo articolo presentato, di Martin Wolf, in discussione è il rapporto tra banche e governo. E' giusto che i governi garantiscano i depositi, sballando dunque il sistema di incentivi della banche stesse, che possono dunque continuare a comportarsi irresponsabilmente? Il problema è globale e necessita una risposta globale.

Cyprus should do what Iceland did, and just confiscate the Russian money   

Jeremy Warner
da Telegraph

It's a funny thing about small islands on the fringes of Europe – or in the case of the UK, not so small – but they do seem particularly prone to banking crises, as the latest shenanigans in Cyprus has once again proved. "Maybe it is something in the surrounding waters, but banks in such places evidently should come with a “caveat insula investor” (Let the island investor beware) sign in the window!" muses Jacob Funk Kirkegaard in this penetrating piece for Washington's Peterson Institute.
Whatever. One thing they do have in common is that they all allowed their banking sectors to grow to sizes where they were essentially too big to save – or almost too big to save in the case of the UK. Pre-crisis, Iceland's banking liabilities amounted to around 10 times its annual GDP, with Ireland it was four times, and with Cyprus it is eight times. Britain was at least 4.5 times.
Britain has gone its own route in dealing with the fall-out from a banking sector which massively outgrew the economy. But for smaller islands where the same phenomenon has occurred, two very different approaches have emerged. The choice, as Mr Kirkegaard puts it, is between an "Icelandic bail-in" and an "Irish bailout".
In Iceland, the government allowed the banks to go bust but protected domestic retail and wholesale depositors. The losses were instead born by other creditors, including bondholders and foreign depositors in the UK and the Netherlands. Iceland subsequently agreed partially to pay the British and Dutch deposits back over time.
In Ireland, by contrast, they saved the banks with a blanket guarantee of all creditors. This proved unmanageable and eventually forced the Irish government into insolvency alongside the banks. Irish taxpayers are still paying for the consequences of that guarantee. Banking losses have fallen on them rather than creditors – hence extreme levels of austerity in the form of tax rises and government spending cuts.
The size of Cyprus's banking sector at an astonishing 800 per cent of GDP makes it much closer to Iceland than to Ireland. Cyprus could not have gone the Irish route even if it had wanted to. Its banking sector is too big to save. At "just" 400 per cent of GDP at the time the balloon went up, the Irish nation was in a better position to bankroll the losses. With Cyprus, as with Iceland, it's just not possible.
As proposed, bondholders are to be protected in the Cypriot bailout, consistent with the approach applied elsewhere in the eurozone. But even if they weren't, they are not big enough as a capital class to cover the losses. This has made applying a hair cut to depositors inevitable.
European rules, moreover, prevent the Cypriot government attempting to replicate Iceland (which is not in the EU) by protecting domestic retail depositors from a wider creditor haircut. Expropriation that discriminates between Cypriot depositors and other EU deposits is not allowed.
The obvious solution would therefore be to default on the Russian deposits, accounting for about a third of the total, or at least all deposits above the insured rate of €100,000. Unfortunately, this would be the end of Cyprus's banking industry, and the supposed economic benefits it brings to the island. A defaulting bank is a dead bank.
This none the less is essentially the choice facing the Cypriot authorities. To haircut insured deposits is political suicide, and as we have seen, profoundly destabilising for the eurozone as a whole. If it can happen in Cyprus, then it can happen elsewhere.
So why not just make the Russians bleed. If, as widely suspected, it's largely mobster money, would anyone care apart from the Russians themselves? And if the Russian government really does care, should it not be bailing out its own citizens, rather in the way the British and Dutch governments were forced to in the case of Icesave.
Admittedly, it would make Cypriot banks, and by extension the European Union, pariahs in Russian eyes. Germany in particular has made good diplomatic and trade relations with Russia a priority in recent years. These would be jeopardised. Cypriot's banking model would also be over, not to mention the backhanders liberally heaped on the higher echelons of Cypriot society. That particular gravy train would not be calling again.
But shocking to the traditional rules of banking though this solution might be, it is surely better than expropriating insured deposits, and/or, loading up taxpayers with decades of austerity. As Iceland demonstrates, small countries can and do get away with this sort of thing.
As for where the Russians then turn as a home for their dodgy money, well, there's always London…

The Яussians Are Coming! The Яussians Are Coming!

di Paul Krugman
da NYT

How big a deal is the Russian factor in Cyprus’s crisis? Pretty big, it seems. Over at FT Alphaville, Izabella Kaminska reports on estimates of 19 billion euros in Russian nationals’ deposits in Cyprus banks, which is more than the country’s GDP. Without being an expert here, I wonder whether this is an understatement; given what we think we know about the nature of much of this Russian money, is all of it really being declared as Russian?
Let me make a broader point: we’ve now seen three island nations around Europe become huge international banking hubs relative to their GDPs, then get into crisis because their domestic economies don’t have the resources to bail out those metastasized banking systems if something goes wrong. This strongly suggests, to me at least, that we have a fundamental problem with the whole architecture (to use the preferred fancy word) of international finance.
As long as you haven’t bought into the Barney-Frank-did-it school of thought, you realize that the global crisis of 2008 was in a fundamental sense made possible by the erosion of effective bank regulation. As Gary Gorton (pdf) has documented, we had a 70-year “quiet period” after the Great Depression in which advanced countries had very few major financial flare-ups; Gorton argues, and most of us agree, that the key to this quietness was a constrained, regulated financial system that also limited the opportunities for excessive non-bank leverage.
But this regulation in turn depended, to an important extent, on limited international capital flows; otherwise regulations made in Washington or elsewhere would have been bypassed via havens like, well, Cyprus. And once capital controls began to be lifted in the 1970s we entered an era of ever-bigger financial crises, starting in Latin America, then moving to Asia, and finally striking the whole world.
So what are we going to do about this? Cyprus, as a euro-zone country, should really be part of a euro-wide safety net buttressed by appropriate regulation; it’s insane to imagine that the euro can be run indefinitely with merely national deposit insurance. But euro-area deposit insurance doesn’t seem to be in the cards — and anyway, there are plenty of other potential Cypruses out there.
All of which raises the question, is the era of free capital movement just a bubble, fated to end one of these years, maybe soon?

Big trouble from little Cyprus

di Martin Wolf

da FT

A camel, it is said, is a horse designed by a committee. This is unfair to camels, which are well-adapted to their harsh environment. The same, alas, cannot be said of eurozone rescue programmes. The proposed Cyprus intervention, rejected on Tuesday by the Nicosia parliament, will not help the eurozone make a smooth exit from its wave of crises. Indeed, the imbroglio should serve as a lesson in how not to deal with financial and sovereign debt problems.

Let us start with why some bank restructuring was inevitable. The government of Cyprus is both highly indebted and responsible for a banking sector that is surely too big to save. According to the IMF, gross government debt reached 87 per cent of gross domestic product last year and would reach 106 per cent of GDP by 2017, without the bailout. The sovereign credit rating is also far below investment grade: Standard & Poor’s rates Cyprus CCC+. That is not surprising: the banking sector still has assets over seven times GDP. (See charts.)

The banks stand on the edge of collapse. But it is theEuropean Central Bank that has pulled the plug by threatening not to accept Cypriot government debt as collateral against liquidity support. Banks have to be recapitalised. Taxpayers cannot do this, on their own. Without taxing depositors, the proposed rescue package would have had to be €17.2bn, instead of €10bn, or close to 70 per cent of GDP. This would have brought sovereign debt to some 160 per cent of GDP: an unsustainable burden. Indeed even the actual bailout package looks unsustainable, since it would appear to bring gross debt to 130 per cent of GDP. Under the programme, public debt is to fall to 100 per cent of GDP by 2020. Achieving that will demand substantial fiscal tightening and lending to Cyprus on easy terms. A restructuring of public debt is still likely. As Hamlet advises: If it be not now, yet it will come.

Is there no alternative to the bail-ins? Yes: direct bank recapitalisation by the eurozone, for which the sum required is a small matter. If the banking union had been up and running, that would have happened. It is not, presumably because core countries do not want to bail out mismanaged banking systems, such as theoffshore hideaway for Russian capital that is Cypriot banking. The banking union will not arrive before the cleaning up of past mistakes and establishment of new arrangements.

Turn then to whether what was done was right. The answer is: yes, though only up to a point.

Many insist that any tax on deposits is theft. This is nonsense. Banks are not vaults. They are thinly capitalised asset managers that make a promise – to return depositors’ money on demand and at par – that cannot always be kept without the assistance of a solvent state. Anybody who lends to banks has to understand that. It is inconceivable that banking – a risk-taking financial business – can operate without exposure to loss of at least some classes of lenders. Otherwise, bank debt is government debt. No private business can be allowed to gamble with taxpayers’ money in this way. That is evident.

The question, then, is not over the principle that lenders can face losses. It is about which of them should do so and to what extent. Apparently on the insistence of Nicos Anastasiades, the president of Cyprus, losses are to be imposed on deposits of less than €100,000, the upper limit for deposit insurance in the eurozone. The idea is to tax these smaller deposits at 6.75 per cent and the bigger ones at 9.9 per cent. That may now change – and for good reason. But forgoing the former would mean raising the rate for deposits above €100,000 to 15 per cent, to raise the required sum of €5.8bn. A good thing, I would argue. But the Russian government does not agree . Nor does that of Cyprus.

A big question is why ordinary Cypriot taxpayers should rescue banks at all? With no bailout and full protection of deposits under €100,000, the tax on the remainder (after allowing for €1.4bn from wiping out the junior creditors) would rise much further. Unjust? No. The only argument against this is that the government, as agent for taxpayers, created a dangerous financial system. So taxpayers must bear part of the cost.

Yet bail-ins create dangers. The actual package under discussion is a balancing act between those frightened of creating further panic and others determined to address “moral hazard”. The result may be the worst of both worlds. The fact that depositors are on the hook may trigger flight elsewhere. At the same time, taxpayers still bear a big part of the costs of failures.

This leads me to some big worries.

The first concern is the deal itself. The decision to impose losses on insured deposits is indeed a big error. (Yes, it is a default, not a tax.) But the decision to bail in some deposits was not an error. However unpopular it may be, a resolution regime that makes this a reality is necessary, in Cyprus and elsewhere. Another concern is the blanket coverage of the tax, which does not vary from bank to bank. This robs even big depositors of the incentive to monitor bank solvency.

The widest concern comes from the Banker’s New Clothes, the book by Anat Admati of Stanford and Martin Hellwig of the Max Planck Institute, which I reviewed earlier this week. Banks have so little loss-absorbing capacity that they stand permanently on the edge of disaster.

The case of Cyprus is an extreme example: beyond a small amount of equity stood only some €2.7bn in unsecured bonds (€2.5bn junior and €200m senior) protecting €68bn in deposits. Rightly or not, the other, including interbank loans were deemed untouchable. (See chart.) This structure gives the authorities not just in Cyprus, but virtually everywhere, a terrible dilemma: either rescue all institutions, thereby validating the riskiest business models and, at worst, putting the solvency of governments in danger; or refuse to rescue them and so risk causing a depression at home and panic abroad, particularly within the tightly integrated eurozone.

The eurozone must either make the industry far more robust, by hugely increasing equity capital, or consolidate fiscal capacity and tighten regulation, to ensure adequate eurozone-wide oversight and fiscal support. What is frightening is not that tiny Cyprus got into trouble, but that it is a source of wider danger. Banking is dangerous everywhere. But it still threatens the eurozone’s survival. This has to change – and very soon.