4 ms·

1.1 Million people and it's banks have 68 Billion Euros in its accounts So 62k Euro per captia? That doesn't sound like an insane amount. an amount of money w

1.1 Million people and it's banks have 68 Billion Euros in its accounts So 62k Euro per captia? That doesn't sound like an insane amount. an amount of money which couldn’t be sustained or created on its own ... "Cypriot banks have for years been taking the kinds of risks that are not allowed in France" Since when has taking cash deposits been risky? This reasoning sounds completely backwards to me. Why would a country with 68B Euros on deposit be begging for a 10B Euro bailout? All I can figure is the US, Germany, and France don't like Cyprus taking less taxes and asking fewer questions and they don't want it to be a reliable place to shift your revenue or deposit your money.

itsprofitbaron 14y ago
Cyprus's GDP per capita is $28k[1] and the reason Cyprus needs a bailout for 10B Euros is because its economy is worth 17.5B Euros which (until last week anyway) was expected to fall 3.5% this year. Likewise, Cyprus has a large banking system in relation to the size of the economy - as I mentioned in the previous comment - which means that if the government needs to bail out its banks (as it does now) then the economic hardship of doing so is going to be immense. Cyprus established itself as an offshore-haven through double tax treaties although this has been under-threat due to the EU wanting to harmonize this AND due to the potential levy because of their economic crisis, Russia have threatened to rip up its double-taxation treaty with Cyprus (which attracted Russian Billions in the first place). Russia is extremely important to the Cypriot economy as almost 30 Billion of the 68 Billion is from Russia which is larger than Cyprus's entire GDP. Moreover, the risks aren't really to do with the deposits but rather to do with what is being done with the money as I mentioned earlier, Cyprus are "highly exposed to the Greek risk (40% of the loan portfolio), is a systemic risk because of its size, with a balance sheet equal to seven times GDP and a high inter mediation raising the level of credit up to 280% of GDP. At the beginning of 2012, the portfolio of loans to Greek households and companies amounted to 120% of GDP."[2] [1] http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weorept.aspx?pr.x=39&pr.y=3&sy=2009&ey=2012&scsm=1&ssd=1&sort=country&ds=.&br=1&c=423&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a= http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weor... [2] http://globaledge.msu.edu/countries/cyprus/risk/ http://globaledge.msu.edu/countries/cyprus/risk/
byroot 14y ago
With a 1.77 child per women it make 188k€ of deposits (not capital) per household. It's a lot. Since the GDP per capita is around 28k€, 62k per capita seems insane to me. > Why would a country with 68B Euros on deposit be begging for a 10B Euro bailout? Because most part of these 68B is not owned by citizens but by foreigners, and is suspected to be dirty money from russian criminals. Anyway since the european laws protects any deposits up to 100k€, if these 68B€ are really all legitimates personal deposits, this extraordinary tax will just have no effect.
pavlov 14y ago
Since when has taking cash deposits been risky? The Cypriot banks have been paying much higher interest on deposits than other Eurozone banks. (You'd get something like 5-6% in Cyprus versus 1-2% in stable Euro countries like Finland.) When you're paying much higher interest than market rate, obviously taking a lot of deposits becomes a huge risk. The same thing happened with the Icelandic banks before the 2008 crisis -- they attracted lots of European deposits with high interest rates and lost most of that money on ill-advised investments around the world.
- camus 14y ago
  when it's to good to be true...
furyg3 14y ago
You're misunderstanding "in it's accounts". Cyprus banks have debts to account holders of €68 billion (people have deposited €68 billion into bank accounts in Cyprus). They didn't do that because they felt their money would be happier on the sunny island, they did it because Cypriot banks were offering higher interest rates than banks in other countries. Also they didn't ask many questions about where the money came from. In order to offer interest on deposits, banks have to lend money out. In order to offer high interest rates, banks have to lend money to more risky sources, which is what Cypriot banks did (they bought a lot of Greek bonds, whoops!) In this way, Cypriot banks were more exposed to the crisis than other banks. Turns out, Greece wasn't a great investment. This is why the banks went bankrupt. They can't pay the interest on the deposits they've taken, and they could not pay back the money that depositors have 'loaned' them. This is why they need a bailout. Other countries (Germany) aren't comfortable guaranteeing the crazy promises (high interest rates) Cypriot banks promised their (mostly Russian) depositors. They claim that depositors knew the risks: high interest, offshore, no-questions-asked, island bank accounts of more than €100k (e.g. not government-guaranteed) are risky. So they're forcing these depositors to take a loss during the bankruptcy restructuring.
arethuza 14y ago
"Why would a country with 68B Euros on deposit be begging for a 10B Euro bailout?" Perhaps because the banks took that money that was deposited with them and used it to make rather dubious investments such as Greek government bonds? e.g. Here is an article from 2011 that talks about what a risky position those banks were in: http://www.navigator-consulting.com/articles/cypriot-bank-exposure-to-the-greek-debt-crisis/17 http://www.navigator-consulting.com/articles/cypriot-bank-ex...
Shivetya 14y ago
Didn't they also get pushed into their current situation when the debt corrections were taken on Greece's debt? Their model might have been sustainable if not for the money taken from bond holders of Greece debt.

itsprofitbaron 14y ago

Cyprus's GDP per capita is $28k[1] and the reason Cyprus needs a bailout for 10B Euros is because its economy is worth 17.5B Euros which (until last week anyway) was expected to fall 3.5% this year. Likewise, Cyprus has a large banking system in relation to the size of the economy - as I mentioned in the previous comment - which means that if the government needs to bail out its banks (as it does now) then the economic hardship of doing so is going to be immense. Cyprus established itself as an offshore-haven through double tax treaties although this has been under-threat due to the EU wanting to harmonize this AND due to the potential levy because of their economic crisis, Russia have threatened to rip up its double-taxation treaty with Cyprus (which attracted Russian Billions in the first place). Russia is extremely important to the Cypriot economy as almost 30 Billion of the 68 Billion is from Russia which is larger than Cyprus's entire GDP. Moreover, the risks aren't really to do with the deposits but rather to do with what is being done with the money as I mentioned earlier, Cyprus are "highly exposed to the Greek risk (40% of the loan portfolio), is a systemic risk because of its size, with a balance sheet equal to seven times GDP and a high inter mediation raising the level of credit up to 280% of GDP. At the beginning of 2012, the portfolio of loans to Greek households and companies amounted to 120% of GDP."[2] [1] http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weorept.aspx?pr.x=39&pr.y=3&sy=2009&ey=2012&scsm=1&ssd=1&sort=country&ds=.&br=1&c=423&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a= http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weor... [2] http://globaledge.msu.edu/countries/cyprus/risk/ http://globaledge.msu.edu/countries/cyprus/risk/

byroot 14y ago

With a 1.77 child per women it make 188k€ of deposits (not capital) per household. It's a lot. Since the GDP per capita is around 28k€, 62k per capita seems insane to me. > Why would a country with 68B Euros on deposit be begging for a 10B Euro bailout? Because most part of these 68B is not owned by citizens but by foreigners, and is suspected to be dirty money from russian criminals. Anyway since the european laws protects any deposits up to 100k€, if these 68B€ are really all legitimates personal deposits, this extraordinary tax will just have no effect.

pavlov 14y ago

Since when has taking cash deposits been risky? The Cypriot banks have been paying much higher interest on deposits than other Eurozone banks. (You'd get something like 5-6% in Cyprus versus 1-2% in stable Euro countries like Finland.) When you're paying much higher interest than market rate, obviously taking a lot of deposits becomes a huge risk. The same thing happened with the Icelandic banks before the 2008 crisis -- they attracted lots of European deposits with high interest rates and lost most of that money on ill-advised investments around the world.

camus 14y ago
when it's to good to be true...

furyg3 14y ago

You're misunderstanding "in it's accounts". Cyprus banks have debts to account holders of €68 billion (people have deposited €68 billion into bank accounts in Cyprus). They didn't do that because they felt their money would be happier on the sunny island, they did it because Cypriot banks were offering higher interest rates than banks in other countries. Also they didn't ask many questions about where the money came from. In order to offer interest on deposits, banks have to lend money out. In order to offer high interest rates, banks have to lend money to more risky sources, which is what Cypriot banks did (they bought a lot of Greek bonds, whoops!) In this way, Cypriot banks were more exposed to the crisis than other banks. Turns out, Greece wasn't a great investment. This is why the banks went bankrupt. They can't pay the interest on the deposits they've taken, and they could not pay back the money that depositors have 'loaned' them. This is why they need a bailout. Other countries (Germany) aren't comfortable guaranteeing the crazy promises (high interest rates) Cypriot banks promised their (mostly Russian) depositors. They claim that depositors knew the risks: high interest, offshore, no-questions-asked, island bank accounts of more than €100k (e.g. not government-guaranteed) are risky. So they're forcing these depositors to take a loss during the bankruptcy restructuring.

arethuza 14y ago

"Why would a country with 68B Euros on deposit be begging for a 10B Euro bailout?" Perhaps because the banks took that money that was deposited with them and used it to make rather dubious investments such as Greek government bonds? e.g. Here is an article from 2011 that talks about what a risky position those banks were in: http://www.navigator-consulting.com/articles/cypriot-bank-exposure-to-the-greek-debt-crisis/17 http://www.navigator-consulting.com/articles/cypriot-bank-ex...

Shivetya 14y ago

Didn't they also get pushed into their current situation when the debt corrections were taken on Greece's debt? Their model might have been sustainable if not for the money taken from bond holders of Greece debt.