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Paying attention in Cyprus

cyp1

In December last year, I had some delicious seafood in one of a chain of restaurants in Cyprus. The chain was actually South African owned, and the style of cooking was actually Cape Malay. The restaurant didn’t mention either of these things in its advertising, signage, or on its menue. There was a vague suggestion that it was Cajun. (Being very vague about where they come from is a skill South African businesses picked up in the apartheid era, and they haven’t lost it). When I got my bill and paid by credit card, I was intrigued to see that the merchant bank was not a local Cypriot bank, but was a South African bank. I was slightly mystified by this at the time (other than that it is no secret that, well, interesting capital flows go through Cyprus), and wondered if the restaurant and the bank shared ownership for reasons similar to the reasons why the mafia also finds it convenient to own lots of restaurants.

Possibly, though, the situation is simpler. The Cypriot banks were and are bust. A South African company doing business in Cyprus does not trust the Cypriot financial system and is avoiding it as much as possible by bringing its own bank. Perhaps my payment for seafood was going directly to somewhere else in the euro area rather than to a Cypriot registered institution. Possibly it was going further afield. Some of the species of seafood on the menu were not native to the Mediterranean, so there were certainly foreign payments to be made, and that part would at least be legitimate to some extent. (To be fair, seafood may be one of the world’s most globalised industries, and this is true of almost any seafood restaurant anywhere). Someone, though, may have suspected what was coming.

26 comments to Paying attention in Cyprus

  • RAB

    This is Southern Cyprus that is being affected by this nasty little Bank raid isn’t it? Is the North affected as well, or are all the banks up there Turkish ones?

  • Laird

    Everything I’ve read indicates that it is all Cypriot banks, not just the southern ones, but I’d be interested to learn if that’s wrong.

    This is a pretty extraordinary event, in a year of extraordinary events. Why pick on Cyprus (whose bailout is relatively tiny, by EU standards)? Didn’t Cyprus’ taxpayers help bail out Greece, Ireland and Spain (as well as having its banks’ capital crushed by the Greek writedown)? There was no “bank tax” (i.e., theft of private savings) in any of those cases; what has Cyprus done to incur Merkel’s wrath (because certainly she’s behind this)?

    Another huge crack in the Eurozone facade?

  • RAB

    what has Cyprus done to incur Merkel’s wrath (because certainly she’s behind this)?

    Well burning her in effigy dressed as Hitler might do it, as they have been in Athens, but Cyprus is still not united. The North is still not part of the EU. It’s a complicated situation and looks like continuing to be. The North is in essence a Turkish colony, and the banks are also Turkish, so no haircuts there (I have just been reliably informed) as Turkey is outside the EU too.

    There is also a lot of dodgy Russian money running around in Greece, which Merkel doesn’t like. I was in Crete a couple of years ago and kept running into Russian fur Emporiums. Who the fuck needs an eye wateringly expensive fur coat in Cyprus? But there they were. The hotel we stayed at was Russian owned and a lot of the workers Russian or ex colonies too. Mucho money laundering has been going on for a fair while now.

  • RAB

    Doh, for Cyprus read Crete in the fur coat sentence.

  • veryretired

    I find it interesting that it appears much of the money in the Cypriat banks is money being hidden there by people from other countries, esp. Russia. If so, I wonder how much of this move is a punitive strike against Russia, laundered money, or even mob money.

    I don’t know, of course, just speculating based on the various articles I’ve read. In any event, it’s a bad move as far as I can see, and will only lead to more instability in the other countries where citizens might fear a similar move against their assets.

  • Rich Rostrom

    This is my great question:

    Is this the tear in the balloon?

    The entire banking and finance system operates on trusts.

    One critical trust element is that bank depositors do not have to fear losing all or part of their money. There have been a few cases where depositors in fringe institutions offering suspiciously high returns were burned (the Iceland collapse), but otherwise, if one’s money was in an institution under the aegis of a major nation’s central banks, it was safe.

    This is a case where depositors have had their money seized – with no due process – by the central banks themselves.

    Will it lead to a global run on all banks?

  • Michael Jennings (London)

    There is a legal fiction that the Republic of Cyprus covers the whole island, and that as a consequence of this, the whole island is part of the EU and possibly also the Euro zone. In some ways this is occasionally useful to someone. (People from the north of the island who can show that their ancestry on the island goes back before 1974 are citizens of Cyprus and hence the EU, although the tens (or possibly hundreds) of thousands of subsequent settlers from Turkey and their descendants cannot). It does, though, lead to the confusing situation in which people talk about the whole island when in fact they only mean the southern half.

    In practice, though, Northern Cyprus is an entirely different country, and in many ways is part of Turkey. Most importantly, the Turkish lira is used rather than the euro. The Turkish banking and payments systems are used in their entirety. Foreign credit cards and ATM cards are widely accepted, but any transactions will be listed on your statement as taking place in Turkey, not in Cyprus. Most bank branches are simply branches of Turkish banks, and all banks are in practice regulated by the Turkish authorities. So the legal fiction extents to believing that the money of people living in Turkish Cyprus is in fact in Turkey and hence outside the EU and euro area, and so the details of any “bailouts” are not relevant.

  • Rob

    So, de facto state regulation of the press and the theft of private savings, and it isn’t even lunchtime on Monday.

  • Michael Jennings (London)

    Rob: Pretty much. I’d go back to Australia, but the government there has announced a deadline of next week for regulating the press, and they have barely even announced what the proposals are. (They may not have the votes in parliament, which is something, I suppose).

  • Rich, the absurdity is that EU law requires all deposits in EU banks to be guaranteed up to €100,000, in order to prevent such a loss of trust.

  • bobby b

    The entire banking and finance system operates on trusts.

    Completely true. One of the foundational truths.

    But this “trust” concept, as practiced by the complete global cohort of bank depositors large and small sand miniscule, has a huge inertial component that causes the monolithic “public reaction” to consistently lag behind occurrences in time, and to under-value the import of those occurrences.

    Meaning, of course, that nations that democratically choose leaders such as Obama and Cameron and Hollande are going to fight tooth and nail to preserve their Right To Keep Their Eyes Firmly Clenched Shut to occurrences in the banking worlds that really ought to concern them.

    And even when they do have to begin intellectually admitting and acknowledging that the ship is sinking, that same inertial drag will keep them from acting on that knowledge for years.

    The new world citizen will still be making bank deposits months and months after his bank has defaulted and disappeared, because banks just don’t fail when proper, progressive principles drive bank regulation. They just don’t. It wouldn’t be fair.

    Gah.

  • Laird

    While it appears that there is still some negotiating going on about the actual amount of this “one-time tax”, the ECB has indicated that it is OK with some tweaking of the actual percentages and deposit levels as long as the total amount taken equals €5.8 billion. I guess, since they’re calling it a “tax”, that this money goes to the government of Cypress, right? And if what I’m reading is correct, the promised EU bailout will be in the amount of €10 billion. So the total “bailout” is €16 billion, of which Cypriot savers are being required to fund almost 40%. Have I got that right?

  • Richard Thomas

    Meanwhile, Bitcoin is now hovering around $48. Many are expecting a surge on the back of this news.

  • Paul Marks

    It is all madness.

    Bailouts, “taxes” on deposits, all of it.

    At least people hiding gold (and bullets) do not have to worry about this stuff.

  • Greg

    But we can’t buy bullets in America any more. I want to buy a nice little semi-automatic, but can’t find a caliber in which ammunition is actually available. Maybe if I go downtown to the Homeland Security department, they’ll sell me some of theirs? Might not be a smart move. I wonder if arrows are still available?

  • Greg

    Say, I was just admiring the semi-auto pistol on the top of the Samizdata page; the one keeping Karl Popper company. What is it? Looks a lot like the Springfield Armory XDs I’ve been eying.

  • Bod

    Looks more like a SIG with that top slide with the rounding at the back end.

    My money’s on a P22-something.

  • Regional

    An American entrepreneur after the War for Independence made a fortune exporting fur goods from a bankrupt Canadian fur company to Jamaica, Google Coals to Newcastle where he also made a fortune

  • llamas

    Er, you can buy all the bullets you want in the USA. I was at the gun show last weekend and it was awash in ammunition, in every caliber you can think of.

    Sure, the prices have increased dramatically. $60 for a brick of 22′s? It’s insane – but there was plenty being offered, and bought, at that price. But it’s a classic bubble – there is no sudden shortage of supply, it’s just that irrationally-motivated buying has driven up the prices.

    Funnily enough, there is absolutely no shortage of MSRs, and these were being offered in abundance at prices not-so-very-different than what was being asked before all the latest talk about AWB’s. Between $900 and $1000 for a basic AR-15 clone by a reasonable maker. Anyone would think that the big MSR manufacturers had learned their lesson from the last time and made sure that they had enough inventory to ride out sudden variations in demand without creating a bubble.

    llater,

    llamas

  • llamas

    Regional wrote:

    “An American entrepreneur after the War for Independence made a fortune exporting fur goods from a bankrupt Canadian fur company to Jamaica, Google Coals to Newcastle where he also made a fortune..”

    Dexter – the punctuation nutter? Am I right?

    llater,

    llamas

  • Ljh

    If you are a South African abroad you quickly notice how slow and inconvenient local banking can be compared with some SA banks which are innovative, fast and efficient: they really are good. I think that is the explanation.

  • Richard Thomas

    Ammo is out there if you’re willing to do the legwork. I picked up a box of 555 22lr last week at Walmart for $23.17. It’s coming back, there’s just a bubble at the moment and the scalpers are buying up everything they can (not through frontend stores either). Quite a few people are going to be caught with expensive-bought ammo that they can’t sell for retail.

  • Richard Thomas

    Llamas, I think the price rose so quick on center-fire guns and ammo that everyone jumped to 22lr and hence the current issues there. I see plenty of pistol ammo if you know where to look but the 22 is the current thing.

  • Bod

    Tough to get anything in quantity up here in the People’s Democratic Republic of Connecticut.

    I managed to snag 100 rounds of 38 special at ridiculous prices a few weeks ago, but rounds for most normal long guns other than 22lr are almost impossible to source unless you happen to be in the right place at the right time, and to be prepared to pay about $1/round.

  • Regional

    llamas,
    Yep!

  • Richard Thomas

    Bitcoin hit $62 early this morning (US time). It’s since settled somewhere around $57.