Cyprus bailout next?

[Dr Mordrid]

http://english.alarabiya.net/article...05/218792.html

OK Brian, hat's the skinny? Is it really Greek debt, the local pols deflecting, or both?

[Brian Ellis]

It is a President and government gone mad. The President is a paranoid megalomaniac who brooks no opposition. He refused to speak with the Governor of the Central Bank for years because the latter was warning him about economic policies driving the country to ruin. (The Governor was recently replaced by a presidential poodle). In the past year, we have had 3 Ministers of Finance who have tried to cut public spending, but have been thwarted by the President. The present one can't make up his mind.

Of 3 main commercial banks, Laiki exposed itself to tens of billions of losses through over-exposure to Greek Bonds. The President has promised a government bail-out if necessary, without saying where the money is coming from. The Bank of Cyprus is also exposed by billions but is less in danger. The Hellenic Bank can take its losses (millions) in its stride. All 3 have been classed as junk by the ratings agencies despite profitability of Hellenic.

The EU can't make head nor tail of what is happening, any more than anyone else.

When Prezzie was elected, he had a popularity rating of >70%: today <20%. No way to impeach him. He alone is to blame (apart from the commercial banks and their exposure to Greek debt). He weasels himself out of every awkward situation. Last year's explosion that killed 13 and seriously injured many tens more and destroyed our electricity supply has not helped him. He commissioned an independent enquiry which blamed him personally for the catastrophe; he responded by denying any responsibility and putting the blame on everyone else, including two ministers in his government who are being prosecuted for manslaughter etc., while he has weaselled his way out, Scot-free.

Corruption and nepotism has bounded upwards in his 4 years in power.

See http://famagusta-gazette.com/index69.htm and http://www.cyprus-mail.com/ for all the complexities and contradictions in the situation. Read back a few days to get the flavour that Cyprus, a prosperous country 4 years ago, is now morally and economically bankrupt.

[Dr Mordrid]

Jumpin' Jesus How long is his term, or is this a parliamentary system where as long as his party's in power and he pays them off with ministerial appointments he has a job ????

[Brian Ellis]

The next Presidential elections are in February for a 5-year stint. He has declared he won't stand for re-election, but there's plenty of time to change his mind.

The party system here does not help:
The three main parties are
AKEL, pseudo-communist with a slightly Stalinist flavour, very popular (up to recently)
DIKO, centrist, slightly to the right. After the last Presidential elections, coalesced with AKEL to form the government, but left the coalition last year.
DISY, right wing (not extreme), opposition

Then there are four minor parties with extreme right, centrist left, socialist and green badges. These have failed to find a common candidate for next year's prezzie elections.

DISY's boss is standing for next year, but he is not popular.
An ex-AKEL (thrown out for misconduct) independent is standing but is an idiot (he has said he will leave the country if he doesn't get 3% of the votes)

Quite frankly, I can't see a single potential candidate who is not corrupt and whose wing-span is sufficient to keep him afloat. The political class is currently at an all-time low.

It is not helped because parliament is unicameral, which places the government in a legislative as well as executive position, while the judiciary are not totally independent with the Attorney-General a presidential nominee. Up to now, this system has ± worked, but is currently close to total failure.

Give or take, there are 200,000 adult males in the country and 200,000 political parties (the women are told by the men what their politics are!). Without being patronising, at least 195,000 of them think they are God's gift to humanity with a mentality to match. OK, perhaps 190,000! It is said that they drive with the car window open and their arm hanging out because they need to beat their donkey to make it go faster; this is not true, as they use their right hand to hold their cellphone to their ear or to send text messages. There are a lot of very intelligent Cypriots, but they are too intelligent to go into politics. Those who do go are generally there for the glory and not to pay their speeding fines.

To misquote the Bard, there is something very, very rotten in the State of Cyprus. But it's a great place to live!!!!

[Dr Mordrid]

This is why I prefer 2 dominant parties, term limited chief executives, and bicameral legislatures with different apportionment methods.

Fortunately here in Michigan we have some pols who while having different philosophies are 'honest brokers.' Our Governor is Rick Snyder, a conservative Republican businessman - not a career politician. He appointed as his Treasurer Andy Dillon, a fiscally pragmatic Democrat who was previously Speaker of the House, to guide his financial reforms.

Between them they've taken us from a $1.7 billion deficit to a $450 million surplus in 1 year by reforming regulation, the tax code, public employee benefits and retirement packages (both massively excessive), schools (partly), and setting up a system to temporarily take over the finances of failing municipalities and school districts and set them right. Now the biggest argument in the legislature is what to do with the surplus

There was a lot of screaming & yelling and there's more to do, especially with the schools, but it got done and now we have the 6th fastest growing economy in the US.

[Brian Ellis]

Read the readers' comments at http://www.cyprus-mail.com/cyprus/ch...-mari/20120602 to get an idea how well our President is respected!

[Dr Mordrid]

After reading that and some research on my own, you have my sincere sympathies - you guys are screwed until your govt changes.

[UtwigMU]

I think it goes much deeper than just introducing 2-party system.

I think USA is equally ****ed. You're in debt for about 120% of GDP and there is no way of ever repaying this. FED will print money to buy bonds and repay creditor nations which will in turn stop buying bonds and holding USD as reserve (this is already dropping).

One Dollar gradually looses this point your GDP falls for about 10-15% as you need to export to buy reserve currency to buy raw materials and goods and inflation goes up. I think everything will be fine till election but afterwards it will get more interesting (no end of world, ... I was a kid and we had inflation and I knew exchange rate of DEM/YUD).

http://www.bwater.com/Uploads/FileManager/research/deleveraging/why-countries-succeed-and-fail-economically--ray-dalio-bridgewater.pdf

This paper is really interesting as it compares USA to British Empire in 19th century.

Also really interesting book is why nations fail:

http://whynationsfail.com/summary/

http://www.nybooks.com/articles/archives/2012/jun/07/what-makes-countries-rich-or-poor/?pagination=false

http://www.amazon.com/Why-Nations-Fail-Origins-Prosperity/dp/0307719219/ref=sr_1_1?ie=UTF8&qid=1339091294&sr=8-1#reader_0307719219

The basic premise is that some countries for various reasons develop extractive institutions. For example in Peru even after revolution the inequality and poverty stayed.

Even if you change system nominally it still doesn't change instutitons, etc...

So I think stuff like if you guys in Cyprus go 2-parties or if you guys in Europe go China style strong 1-party or if you guys in USA no longer own guns and are more socialist will not solve problems.

[Brian Ellis]

The Bridgewater paper seems interesting but, as far as I could see at a skim through, it may be missing out on one or two things.

The most important is work ethic, aka as pulling oneself up by the bootstraps. Countries that have shown this, in my lifetime, are Germany, Austria and Switzerland in Europe and Japan and Singapore in Asia. All these countries were desperately poor after WWII but have succeeded in becoming wealthy by dint of hard work as much as having resources. In other words, the human mindset is a most valuable resource.

OTOH, the countries that have not done as well, such as the UK and France, have had top-heavy administrations, militant trade unions and have a mindset that God or the State will provide. Interestingly, in the UK, when Thatcher toppled the unions, the reliance on the State increased and all will towards hard work by manufacturing flew out the window, to be replaced by an increasing service economy which became too big for the demand. North Sea oil and gas was perceived as the saviour but no one saw that it was being bled dry and it became a bubble, currently bursting (cf. Norway, in a similar position but with proper management of its fuel resources).

The current rise of China and, to a slower extent, India is not, IMO, primarily because of cheap labour as many think or the presence of resources, but because of a new will to pull themselves up by their bootlaces. In other words, their mindset is changing; hard work is the new God, in order to become rich as individuals and as a nation.

The USA is starting to decline as their mindset is changing from manufacturing to services. IMO, the two-party system is, by far, too polarising and alternating administrations means that there is no common mindset because it needs a happy medium, an adjudicating middle-of-the road. People don't know whether they are coming or going, even though the words for both sides may sound the same, but mean different things. It would not surprise me if the USA goes into economic free fall in the next decade or so and it is going to hurt hard.

To get back to the subject from the wild generalities:
Cyprus had an economy largely based on one thing: tourism. A minority of service providers over-exploited it by ripping tourists off, creating an atmosphere of mistrust and dropping numbers. Successive governments have been weak and short-sighted, the present one worst of all, not helped by the 1974 US-backed invasion by Turkey of 1/3 of the island, which has been and still is a big bone of contention without a real will for a settlement (by either side). In other words, we struck gold, but the lode was small and mismanaged. We have just struck another valuable lode in the form of natural gas and this will probably be equally mismanaged because the mentality is always "we know best" while knowing nothing. The mindset in the Republic is "because we speak a dialect of Greek and our Church is an independent form of Greek Orthodoxy, we are Greek and everything that is Greek, including a 3000 year old culture, is perfect!". This is a big mistake, as the notion of being Cypriot, has become very secondary, plus the fact that the people have much more Phoenician blood in their veins than Greek. You see more Greek flags flying than Cypriot ones. Without a national identity, the country will never pull itself up by its bootlaces and will rely on bubbles, such as tourism and natural gas, for any prosperity they may acquire, much more than the will to be a vibrant nation.

I have often reflected that if, in 1960 (year of independence), it had thought ahead and acted, Cyprus could have been a second Singapore. At that time, the two small island states had much in common, with two major differences: we had developed an unworkable constitution and we had a weak president who was also Archbishop and couldn't reconcile his extreme Hellenism with the real needs of the country. We still suffer from this, a top-heavy administration, over-powerful trade unions and an unashamed will to get all it can from the EU and give nothing in exchange. The world owes Cyprus its living.

I know these words are inflammatory, but I see no upcoming leader who could bring some common sense to the island and that has become clear to me by the ineptitude of the present administration and megalomaniac President.

In the words of Frazer in "Dad's Army", we're doomed, aye, doomed!

[dZeus]

UK's oil and gas reserves are (were) not really of the same scale as Norway's.

And I'd hardly call Norway's management of their oil reserves neither proper no prudent. They pump up way more oil that they need in income, while at the same time it is quite clear that future oil price will have a much bigger chance to go up than to go down. We'll see how well their investment fund will retain its wealth when more nations are driven towards bankruptcy and currencies are further debased in the near future.

As for the militant trade unions in France: to a certain degree it protects the rights of labor. In more 'docile' societies (North/North-West Europe, US), this just has led to a decrease in welfare as corporates can increase their profit margins by reducing labour costs.

I think that the nationalisation of banks while repaying bond and equity holders in full, financed by imposition of austerity on the populace is a very similar issue. My take is that we'll see a different reaction to this by the people in different parts of Europe (and US).

Docile societies work better when everybody works for the common good. As soon as you get a class of people who use the system to profit at the expense of others, then the situation can get far further out of control than in societies where people are more concerned about their own well-being and are vocal about it.

P.S. I think the two party system is a disaster. It's fake democracy, as neither side represents your interests any more. Further more, it encourages people to think in black and white, and 'cheer for their team' rather than to look critically at what is going on. The presence of plenty of threads with comments on democrats/republicans between Dr. M and cjolley are very representational of this behaviour.

[dZeus]

and right on queue we get the announcement of the next €100 billion wealth transfer from tax payers to banks' equity and bond holders, this time in Spain (I guess Cyrpus has to wait a bit longer).

[Brian Ellis]

and right on queue we get the announcement of the next €100 billion wealth transfer from tax payers to banks' equity and bond holders, this time in Spain (I guess Cyrpus has to wait a bit longer).

But, if it happens, it won't be as much!

[UtwigMU]

I'm wondering how this will unfold. Break-up of Euro or some countries leaving it is possible.

I saw one currency breakup in my life (Yugoslavia) and I read up on how Austro-Hungary broke up.

What consequences might this have for certain countries in Europe - you can see 1920s and 1930s for historic reference. Unrests, soviet republics, hyperinflation, civil wars, clashes that resulted in full scale war. I don't think major war is to transpire in Europe, since key players are now China and USA but for example if Greece cannot form a government for a while or if one group in power goes to radical and other groups feel they need to use force to make/stop changes.

[UtwigMU]

Found this historic piece: The Latin Montary Union

http://en.wikipedia.org/wiki/Latin_Monetary_Union

The Latin Monetary Union (LMU) was a 19th century attempt to unify several European currencies into a single currency that could be used in all the member states, at a time when most national currencies were still made out of gold and silver. It was established in 1865 and disbanded in 1927.
Contents

By a convention dated 23 December 1865,[1] France, Belgium, Italy, and Switzerland formed the Latin Monetary Union and agreed to change their national currencies to a standard of 4.5 grams of silver or 0.290322 gram of gold (a ratio of 15.5 to 1) and make them freely interchangeable. The agreement came into force on 1 August 1866.[2] The four nations were joined by Spain and Greece in 1868, and Romania, Bulgaria, Venezuela, Serbia and San Marino in 1889.

The LMU eventually failed for a number of reasons. Some members, notably the Papal State's treasurer, Giacomo Cardinal Antonelli, began to debase their currency. This meant he minted coins with an inadequate amount of silver and then exchanged them for coins from other countries that had been minted correctly.

According to Financial Times, another major problem of the LMU was that it failed to outlaw the printing of paper money based on the bimetallic currency. A weakness which was exploited by France and Italy that printed banknotes to fund their own endeavours, effectively "forcing other members of the union to bear some of the cost of its fiscal extravagance by issuing notes backed by their currency"[9]. Greece also caused problems. According to the BBC, "its chronically weak economy meant successive Greek governments responded by decreasing the amount of gold in their coins[10], thereby debasing their currency in relation to those of other nations in the union and in violation of the original agreement". Greece was formally expelled from the Latin Monetary Union in 1908. It was readmitted in 1910, however.[11]


Emphasis mine. Nothing new going on here.

[UtwigMU]

Cyprus asks for bailout help.

Cyprus has told the European authorities that it intends to apply for financial assistance, the fifth eurozone member to do so.

http://www.bbc.co.uk/news/business-18586532

And Spain also

http://money.cnn.com/2012/06/25/investing/spain-banks/