Friday, March 22, 2013

Cyprus received ECB deadline

I am sitting in our conference room and have assembled the commanders of our four FWU’s in order to create the game plan for this weekend and especially for the start of trading on Monday. I ordered each commander to draw up a combat plan prior to the meeting in order for us to discuss it. This will give us seven different approaches, one each from the four commanders, one from my chief of security, one from our CMO and of course my own.

The ECB has given Cyprus a deadline of next Monday at which point the ECB will withdraw emergency funding for Cyprus (Cyprus Bailout andthe EURUSD Currency Pair). Without the funding the Cypriot banking system will collapse and Cyprus may be half a step away from a Eurozone exit. A Cyprus exit from the monetary union will be followed by an exit of Greece as well and Portugal as well as Italy may flirt with a similar idea. Spain is next on the list for a full financial bailout.

Cyprus needs to come up with a plan to cough up €5.8 Billion in order to secure a €10 Billion bailout. Last weekend we witnessed the first failed attempt to push through a bill in order to force a depositor participation in the bailout (Cyprus Bailout Rattles Eurozone and GlobalMarkets). The proposal was the work of Germany and they applauded the move on Monday. The measure was defeated with 36 votes against it and 19 abstentions while President Anastasiades managed to rally zero yes votes.

The Germans, in a well-known display of cowardness, forced Cyprus to take their idea and make it public in order to gauge global opinion from power players. Up until now it was an unwritten taboo to force insured depositors to participate in a financial bailout. Germany broke that taboo and drew harsh global criticism as the country once again became the most hated member of the European community. Interesting how history repeats itself in such a short time frame.

Cyprus has over €26 Billion of Russian deposits and Germany insisted Russian participation in the bailout. Russia has openly refused, but closed door meeting indicated that if Germany together with the EU would be willing to work closer with Russia they may get on board. Germany, which decades ago became the female canine of the Kremlin, refused the generosity of Russia and no deal was reached. Russia already made a €2.5 Billion loan to Cyprus in order to help the country restructure financially.

Germany was angered over Russia’s refusal and the proposal to force depositors to participate in the bailout was Berlin’s way of seeking revenge as the country is left without any allies. The initial proposal called for a 6.6% theft of deposits below €100,000 (deposits below €20,000 would not be touched) and a theft of 9.9% on deposits above €100,000. The deal was alter changed to steal much less from deposits below €100,000 and much more from deposits above €100,000 which was a clear indicator that this proposal was drafted with the sole purpose to legally steal money from foreign depositors, mainly Russia.

The Kremlin stated that the treatment was unfair and that Cyprus started to play a dangerous game which was an indirect warning to Germany. Cyprus did not want to simply be a pawn in this game and send their Finance Minister to Moscow in order to ask for a €5Billion loan which was refused by Russia as the two countries could not agree on terms. Russia did agree to amend the terms of the €2.5 Billion loan.

In addition Cyprus has suspended talks with the Troika, the ECB, the IMF and the EC, which angered Germany which in return referred to current events as a dangerous poker game. Time is running out and multiple parties seek to broker a compromise. Cyprus may be the spark which will ignite a global sell-off.

We are working even harder to have a combat plan which we can execute on our behalf as well as our contractors. I think I am looking down a very long and eventful weekend with no time for private life. The global arena is heating up rather fast and different governments seek different approaches in order to gain the upper hand. Weekend, here we come as others try to answer the question:


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