Monday, March 25, 2013

The Eurogroup Statement on Cyprus Translated.

Team Macro Man offer their translation of the Eurogroup Statement on Cyprus. The original is in italics.

The Eurogroup has reached an agreement with the Cypriot authorities on the key elements necessary for a future macroeconomic adjustment programme. This agreement is supported by all euro area Member States as well as the three institutions. The Eurogroup fully supports the Cypriot people in these difficult circumstances.

We the 4th Reich Eurogroup  have finally pulled a moth eaten 3 legged rabbit out of the hat. The Eurogroup agrees with itself even if Cyprus is not at all happy with it. We fully support the Cypriot people through the difficult circumstances we have foisted on them (but not that much because it was their fault).

The programme will address the exceptional challenges that Cyprus is facing and restore the viability of the financial sector, with the view of restoring sustainable growth and sound public finances over the coming years.

We will restore the financial sector from being a multibillion Euro earner for Cyprus into a neutered annex of the Bundeathstar (sorry Bundesbank) over the coming years (coming years = 0 to infinity).

The Eurogroup welcomes the plans for restructuring the financial sector as specified in the annex. These measures will form the basis for restoring the viability of the financial sector. In particular, they safeguard all deposits below EUR 100.000 in accordance with EU principles.

We welcome our own plans. Please note or even praise us for standing by the deposit guarantee of E100k. As it is part of EU wide law, there is no way would we have ever suggested otherwise.

The programme will contain a decisive approach to addressing financial sector imbalances. There will be an appropriate downsizing of the financial sector, with the domestic banking sector reaching the EU average by 2018. In addition, the Cypriot authorities have reaffirmed their commitment to step up efforts in the areas of fiscal consolidation, structural reforms and privatisation.

We will downsize any EU economic sectors we don't like to EU averages (excepting the German Industrial sector or anything else German). As, by definition, half the sample must be over the average, if we insist on all those over the average downsizing to the average we should be able drive the average to our ultimate target of zero.

The Eurogroup welcomes the Terms of Reference for an independent evaluation of the implementation of the anti-money laundering framework in Cypriot financial institutions, involving Moneyval alongside a private international audit firm, and is reassured that the launch of the audit is imminent. In the event of problems in the implementation of the framework, problems will be corrected as part of the programme conditionality.

We will plug the competitive advantage that Cyprus had in the banking sector  by introducing online Anti Money Laudering training for all bank staff . Problems will be corrected by insisting on an 80% pass mark over three attempts.

The Eurogroup further welcomes the Cypriot authorities' commitment to take further measures. These measures include the increase of the withholding tax on capital income and of the statutory corporate income tax rate. The Eurogroup looks forward to an agreement between Cyprus and the Russian Federation on a financial contribution.

We are glad that Cyprus is at last doing what we tell them and look forward to them doing what Russia tells them too. As long as it involves Russia bunging in some money too.

The Eurogroup urges the immediate implementation of the agreement between Cyprus and Greece on the Greek branches of the Cypriot banks, which protects the stability of both the Greek and Cypriot banking systems.

Can you please make sure this doesn't screw up Greece again? If it does it will be Cyprus's fault. Or Greece's. But not ours.

The Eurogroup requests the Cypriot authorities and the Commission, in liaison with the ECB, and the IMF to finalise the MoU at staff level in early April.

And can Cyprus actually sign the agreement this time, preferably by April, rather than wriggling out of it at a later date as they usually do?

The Eurogroup notes the intention of the Cypriot authorities to compensate potential individual victims of fraudulent practices, in line with established legal and judicial procedures, outside the programme.

If you are mugged at the ATM trying to get your E100 out call the police, not us.

The Eurogroup takes note of the authorities' decision to introduce administrative measures, appropriate in view of the present unique and exceptional situation of Cyprus' financial sector and to allow for a swift reopening of the banks. The Eurogroup stresses that these administrative measures will be temporary, proportionate and non-discriminatory, and subject to strict monitoring in terms of scope and duration in line with the Treaty.

Once again this is a unique situation. Like Greece, Ireland, Portugal, Italy and Spain were all unique. Financial problems in the EU are like fingerprints - They are all unique but everyone has at least one but more likely ten. Administrative measures are temporary and in no way should be considered "temporary" as in the administration of Vichy France.

Against this background, the Eurogroup reconfirms, as stated already on 16 March, that – in principle - financial assistance to Cyprus is warranted to safeguard financial stability in Cyprus and the euro area as a whole by providing financial assistance for an amount of up to EUR 10bn. The Eurogroup would welcome a contribution by the IMF to the financing of the programme. Together with the decisions taken by Cyprus, this results in a fully financed programme which will allow Cyprus’ public debt to remain on a sustainable path.

We would rather not have had to donate anything but have been forced to hand over  E10bil. Having done all the leg work its only fair that the IMF bung in their lump too. And Russia but that's a long shot so we won't mention it again.

The Eurogroup expects that the ESM Board of Governors will be in a position to formally approve the proposal for a financial assistance facility agreement by the third week of April 2013 subject to the completion of national procedures.

We want this tied down asap before someone changes their mind.


Following the presentation by the Cyprus authorities of their policy plans, which were broadly welcomed by the Eurogroup, the following was agreed:

1. Laiki will be resolved immediately - with full contribution of equity shareholders, bond holders and uninsured depositors - based on a decision by the Central Bank of Cyprus, using the newly adopted Bank Resolution Framework.

Laiki to the Abattoir

2. Laiki will be split into a good bank and a bad bank. The bad bank will be run down over time.

The three tons of entrails will be left to rot in the corner and the one gram of edible meat will be put in the freezer.

3. The good bank will be folded into Bank of Cyprus (BoC), using the Bank Resolution Framework, after having heard the Boards of Directors of BoC and Laiki. It will take 9 bn Euros of ELA with it. Only uninsured deposits in BoC will remain frozen until recapitalisation has been effected, and may subsequently be subject to appropriate conditions.

A small part of the good meat will be seasoned with E9bil and served at the table of BoC, the rest will be left in the freezer.

4. The Governing Council of the ECB will provide liquidity to the BoC in line with applicable rules.

The ECB will provide liquidity under the usual conditions (like those applied by most payday loan companies) and of course default will mean the bailiffs popping round again.

5. BoC will be recapitalised through a deposit/equity conversion of uninsured deposits with full contribution of equity shareholders and bond holders.

We will make the BoC look stronger by switching real money for monopoly money.

6. The conversion will be such that a capital ratio of 9 % is secured by the end of the programme.

We will back engineer everything to fit our own rules.

7. All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation.

All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation unless we change our minds.

8. The programme money (up to 10bn Euros) will not be used to recapitalise Laiki and Bank of Cyprus.

Because there won't be much left over after we have paid all our admin and implementation teams we will sending over to run this scheme.

The Eurogroup is convinced that this solution is the best way forward for ensuring the overall viability and stability of the Cyprus financial system and its capability to finance the Cyprus economy.

We think this is a really good idea of ours and is in fact so good we should consider using it as a template for all banks in the EU. But no-one is to mention that. Mr Dijsselbloem included. Oh shit he hasn't has he?


Anonymous said...

C Says
I do not believe it (in my best Victor Meldrew voice)!!

"The rescue program for Cyprus reached on Monday is a new template for addressing banking problems in the euro zone, said Dutch Finance Minister Jeroen Dijsselbloem, the chair of the Eurogroup of euro-zone finance ministers, according to Reuters. "If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?' If the bank can't do it, then we'll talk to shareholders and the bondholders, we'll ask them to contribute in recapitalizing the bank,

and if necessary the uninsured deposit holders"

Look we know this always exist in theory as a possibility,but no one in their right mind would go down this road and establish this as policy approach.And especially not when they have to great trouble to try and hold out that Cyprus was an exceptional circumstance.

I'll be honest.This particular guy frightens me. Hos inexperience,naivety,apparent clueless knowledge of what makes a fiat system work must be zero because otherwise he would never ever dare to make a statement like this.
Shoot him,fire him, burn him at a Cypress stake I don't care,but please make him disappear very soon.
Having a fool like this in such an important position is reckless beyond presumption.
Public confidence,the monetary system,cannot afford a guy like this. He can't get his mouth and brain to work together.

Leftback said...

Ah, the bank recapitalization is upon us at last. Actually, C, we don't think this is an accident, and this is one of the things that LB has been waiting to see, not just in the EU, but in the US as well. We offloaded our remaining Spanish bank longs on Friday in concern over just such an event. Here it is:

Cyprus Deal Template for Banks 2013

Now then, children, if there was a crisis, and you wanted to do a massive program of bank recapitalization and deleveraging via debt and share issuance, would you do it in the depths of despair at the nadir of the crisis last year? Of course not. Nobody would pony up. Punters would tell you to stuff it. So you do what companies always do, you wait until markets are at Olde Tyme Highs, credit spreads at all time narrows, and then you do some crafty capital raises by diluting your shareholders etc....

Basically, this is more kabuki theatre. The great European public badly wants to see "bankers" get their rectal area invaded, bonuses clawed back and other very bad things done to them, but don't worry, our banking heroes are quite safe as usual.

The way this is being played by the EU is to have Dijsselbloem talk NASTY NASTY talk to the banks, but basically "if the bank can't do it, then we'll talk to shareholders and the bondholders, we'll ask them to contribute in recapitalizing the bank", in other words Charlie Yield-Reacher is going to get the shaft. The uninsured deposit holders is just a scare tactic to make sure the governments in each country get in line behind the recap plan. Otherwise, mate, it's Cyprus Avenue...

Now before we write this off as an event confined to Yoorp, there's no reason why this concept doesn't extend to the US as well, where the money centre banks are well overdue for some serious dilution. Actually a bit surprised that the market has held up as well as it has in the wake of that announcement. If punters were really smart, Spoos should have dropped about 100 points already.

LB would like to suggest an appropriate musical accompaniment for banks, and perhaps for this market in general at this point in time:

Drop It Like It's Hot

Anonymous said...

C Says
I wish I had your confidence that this is done through serious intent having considered the full consequences.
To me it looks like simple incompetence and his apology the opther day and the timid slapdown for it does not actually allow me to read it any other way.

Leftback said...

The relief rally in EURUSD lasted about as long as a Happy Ending in Bangkok.

Anonymous said...

C Says
Right this dutch guy joined the Labour party at age 19.At 27yrs after what passes for an economic education he went to work for Labour party parliamentary group and subsequently went on to work again within public offices.
In essence this twrrp ahs no apparent commercial,or business experience,but has continued to be promoted in financial roles within the public sector.

Ok,I go back to my former assumtion.He's an accident.Not an intention.

Anonymous said...

By the way there is a certain logic in some of his later remarks regarding the pricing of risk.Unfortunately,I don't see that he understands the potential for unforeseen circustances that his approach may also bring.In essence ,he might well trigger something with this approach that will far outweigh the benefits he forsees.

Anonymous said...

A lot of these politicians "work" history come from places, that don't really make you wonder why they sometimes say what they say without doubts in their own minds.

I have to wonder whether there will be an official Eurogruppe statement to deny this particular Dutchman statement, cause with a good probability this guy didn't do a very good job to maintain the integral balance of the Union. I know 'Dam is a place above the clouds but sheez, there should be even some restrictions.

Of course it might be that the rest of the crowd sitting in Brussels aren't that much cleverer, and this statement will be left to rot in the air and cause funny smells all over.

abee crombie said...

great post TMM. But forgive my naivety regarding the Cyprus subject but isn't it the 'right' thing to do, in terms of inflicting losses on uninsured depositors and sr debt hlders? In terms of who takes the risk, those depositors and bondholders should not be bailed out all the time.

or perhaps we are on the same page but just saying that if those groups are inflicted with losses and this risk enters the psyche of the markets, it is a big negative for the Euro as a whole.

Leftback said...


I have always assumed that the front guy for any group of bureaucrats is essentially A Spokesperson, so that whatever Dijsselbloem* says isn't just the ramblings of an EU official of Dutch origin, but actually represents the consensus sentiment of a larger group (perhaps in this case one dominated by Northern Europeans).

I just can't believe that a bloke would be allowed to go off half-cocked like that on such a sensitive topic. Surely this is the equivalent of the Hilsenrath editorial, i.e. he is being used as the mouthpiece of the EU, as WSJ is the "Organ" of the Fed? Can they really be as disorganized in Brussels as you are suggesting?

* TMM's contest for a rude nickname for Jeroen D. is now in session. LB's entry: DIS 'LL BLOW 'EM. As with "Tricky", "Dr Aghi" and "Super Mario" we fully expect to see this get ripped off and used by the Pink Blog very soon.

Alternate entries are to be encouraged. Send a SAE to :Polemic, c/o Macro Man blog, @ "The Black Swan" public house, Portfolio-super-mare, U.K.

theta said...

"Once again this is a unique situation. Like Greece, Ireland, Portugal, Italy and Spain were all unique. Financial problems in the EU are like fingerprints - They are all unique but everyone has at least one but, more likely, ten. "

I would expand the analogy to include toe prints as well, so the number grows to twenty, with the added bonus of having the latter ten hidden inside the shoes and likely stinking way more.

Saul Bollox said...


That's my entry, innit.

Anonymous said...

C Says
Nearly half a century in the trenches has taught me that it isn't what you say that counts. It's how and when you say it and what response you are looking to create etc etc.
I don't care if he is a mouthpiece,or a f..g codpiece at this juncture he has repeatedly made a dismal job of communication re policy. As it stands he has probably ramped up uncertainty a few notches and from here I think we can expect some fallout by way of economic disruption as entities adjust what they are doing and how they are doing it. Dare I say Europe really can't afford to create any disruption that exagerates the contraction they are already suffering.

On the plus side I expect he will do wonders creating some decent opportunities to buy back risk at prices that make sense.

The Original said...

well, 'Bloem' means 'flower' in Dutch, so I can only assume that 'Djissel' means 'carrion' or 'corpse', as this clown seems to leave the stench of rotting flesh whenever he opens his gob.

On second thought, I think Saul nailed it above.

Polemic said...

Funny that Original, i was just trying to get a definition myself for Djissel. Couldn't find one

But by the sound of it I suggest it comes from "Vagdjissel". "To decorate a {Saul's definition} up as something much more exciting than it is"

So DjisselBloem is " a c*** dressed up as a blooming great sparkly c*** "

Anonymous said...

The origin of the name is probably here. The Ijssel, a Dutch river contained by many dikes and canals, of which those farthest away are known as "far canals".

D'ijsselbloem, flower growing by the river of plugged dikes and far canals. Insert jokes about clogs here.

Thorium238 said...

Please forgive the anglo saxon but to quote my rugby coach at school "the fucking fuckers fucking fucked it" the new model for europe is if Germany doesn't agree with it god help you. From now on if you want our (german) money you have to be willing to viserate your bond holders and potetially your deposit base. Now while this might be right on some levels I Don't think most of the EuroZone signed up for this; so the next wiff of an issue means greater vol and downside risk for investors. While I cannot believe there are any readers of this blog that do not understand this. It is clear from the reaction of bond market spreads that either a group of of investors are on Mogodon or as we know Eurozone bond markets are rigged. So if any of you still think holding any peripheral market bonds is sensible again with apologies for the language "YOU ARE FUKING STUPID"

Anonymous said...

I loathe Lehmanitis as much as anyone, but one has to wonder whether Cyp is the BSC to someone bigger's LEH down the road.

Small, contained, salvaged ... until the next one comes up, and the "template" doesn't work.


Gus said...

The name IJssel is thought to derive from the Germanic i sala, meaning "dark water".

So, there you have it: "DARK WATER FLOWER"

But I must say, LB's nickname for Jeroen is forever etched into my neurons ... Diss'el blow'em!

And what a learned pedigree:

Black Ink said...

Sometimes I wonder ... who is trying to fool whom... and how long can one really lie to oneself?

Whilst the EuroGroup considers itself David Copperfield - in keeping with their record of illicit activities - I would probably prescribe potent LSD-25 to maintain a semblance of sanity

Anonymous said...

C Says
At sme point yesterday I belive I heard that large depositors were to be considered as investors in banking institutions. That made me pause because I though for example that large corps dealing in tens of millions of daily cashflow (thus large depositors) were actually clients being charged for an intermediary service and not thus investors by anyone's rational assessment of the relationship.
Appears to me Huston that we have a problem,failure to Identify!

If we can't even distinguish between investor and client then the European financial system is indeed going to need to be rethought particularly in terms of price as we descend into the ridiculous.

I would imagine corp treasury officers are having an interesting time wondering whether the universe has suddenly inverted on them.

In effect by reaching for depositors of any kind the onus is upon people using (note the wrod "using" because it covers clients and nvestors etc) them to be capable of determining the financial strength/position of them. Good luck with that as we all know how easy it is work out those positions from accounts submitted. No problem at all for your company of any size to take a week ,or two regularly to work through a small dictionary size set of accounts for each bank that you choose to use. That number of course will rise if you are dealing with larger flows as you try to spread the risk across institutions.

Pretty much a mess developing.

Anonymous said...

C says
You sell your property maybe a couple of times in your life. For a fairly fleeting moment you are a large depositor,but unfortunately for you you are bailed-in. For property read any other example of your choice. Final pension lump sums,sale of an estate,or indeed any meaningful asset above the isured level. In other words has you transition from holding an asset to reallocating it you stand the risk of European bail-in. Apparently you take this risk because as a large depositor you somehow became an investor?

The more one thinks about this the more problems become evident.

I think the danger is on the face of it this policy sounds attractive because somehow it fit's some naive way of looking at the capital system. Unfortunately,like many simplistic concepts it doesn't quite capture the commercial reality of our world. So in trying to achieve what it thinks is a more equitable outcome it in turn inflicts inequity in a different way via unforeseen consequences.

Sorry,but I keep coming back to the conclusion that Disselblowemup is qualified to manage a pond ,but who has been charged with controlling the ocean..he's out of his depth and once again proving that Peter's principle is alive and well living in the EU.

Anonymous said...

C Says

Funny take on recent events,and like most good humour you get it because you can guess there is some basis for fact underlying it.

Anonymous said...

"The clearest sign that BRICs are leaking tax revenues is that each country’s biggest source of outside investment is a tax haven. China counts the tiny Caribbean bolthole of the British Virgin Islands as its biggest source of foreign investment (not including the Chinese territory of Hong Kong). India has Mauritius, Russia has Cyprus,
and Brazil has the
Netherlands" ..paging Mr Disselblowemup.

Leftback said...

Leaving the Planet Yoorp for a day or so, we return to the new US Economic Miracle, where macro issues no longer matter and the market goes up for ever b/c Jeremy Siegel says it is 'cheap'.

This rally is based on Strong Fundamentals that allow investors to buy equities, safe in the knowledge that Uncle Sam is decoupled from Yoorp, China and any other nasty place that isn't enthusiastically buying into the recovery meme. Let's check up right now on that red hot 'Murkin economy, a raging torrent fed by the mountain stream of QE pissing down from atop Mount Bernanke.

Well we have recent guidance and earnings from CAT and FDX (both dire on strong dollar and weak global activity), then today we have New Home Sales (tepid at best, prices still too high for new buyers in many markets, winter data distorted by bulk "investor" buying), confidence data (lower, b/c of sticky gasoline prices and a jobs market that isn't as hot as the BLS reports would have you believe), and the entrails of the Durable Goods report (take out the aircraft and it's pretty weak).

So, there we have it. Yet another fantastic day to buy over-hyped homebuilder stocks, or social media giants like FB (P/E ratio 1184) b/c it's all about "growth", or LNKD (P/E ratio of 843), and then Tweet a new price target of $250. While you're at it, there is this sleeper stock,, that you might be interested in, folks....

What could go wrong?

Anonymous said...

Unrelated to CYP/Yoorp disaster, but in line with LB's "what could go wrong", we have been witnessing an increasing number of vol tourists making victory laps on the success of shorting front vol strategies.

Now, we are not vol specialists, but we ARE well versed in vicious reversals in the face of unsuspecting carry monkeys, and we wouldn't surprised at all to see a vicious unwind in that little pocket of the world at the first sign of trouble.


Leftback said...


Yes, you can see the rationale for vol tourists.

Wait for small crisis, and watch vol pop. Begin to sell vol, buy inverse vol ETF XIV, and even short a variety of vol ETFs, and then collect profits after Bernanke and Dr Aghi step up to the mike to soothe the market's fevered brow. Add in some margin to spice things up a bit. Repeat....

Celebrate each round of vol selling, drink some $200 cocktails and dance with some skanks, just like AJ here:

Models and Bottles with AJ

The problem with this is there is always one small crisis per year that goes systemic, and then we find out that the vol tourists haven't read their Taleb. Still, AJ seems smart, he'll be able to see it coming.

Leftback said...

Yeah, I know that video is old. But it takes some beating for pure nafness. We salute you, AJ, wherever you are. Writing daily headlines for Bloombags?

Anonymous said...

The market, Cyprus Djblowjob, its all just absolutely shocking to me right now.

Leftback said...

Europe didn't give a rat's ass today, the WC Qualifiers are on. Back to business tomorrow, I reckon.

Anonymous said...

C Says
More awful Italian numbers. I'm not sure how any of the ongoing Euro data can be construed to be a bottom ,or turnaround. To me it looks like an ongoing downward trend which I want to hold like I want the pox.

Europe looks to me like the classic 30's scenario. I equate the Euro and the accompanying monetary policy out of the ECB to be the equivalent to the "Golden Shackle". In essence economies in the 30's only came out depression when each was released from the shackle and each was allowed to flexibly create monetary policies that targetted domestic growth that was economy specific.

Growth in each then allowed them to function collectively to make the whole greater than the sum of the parts in regards to ongoing growth.They are not even close to being into that process indeed I think the German approach combined with Brussels are just pushing them further and further away from it.

For the longer term looking past short term turmoil I think a catalyst for breaking down the "Golden Shackle" would be good.They actually need someone to leave to prompt either a wider break up in the currency union,or a splintering of it to create more than one Euro for the zone.Even then they would only be one step closer to where they need to be.If they still cannot apply flexible monetary polices because of ECB and Brussles handcuffs then I don't see the way out except through an excrutiatingly long period of stagnation relative to the rest of the world.

Anonymous said...

French look like they are eating each other. All looks like events are still locked back into 2008 for them.

The Original said...

Euro data can be construed as a bottom insofar as it stinks.

Momo Monkey said...

Existing home sales down. Where's my Housing Recovery?

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