Cyprus, part II

Read Part I here.

The Cypriot politicians all voted against a forced saver tax as a part of the Cyprus bank bailout so the fate of the Euro hung in the balance.  The loan was based on Cyprus raising enough cash so that the European Union troika, would loan the rest for the bailout. Cyprus was the mouse that roared. The troika is the EU, the International Monetary Fund (IMF) and the European Central Bank.

As I wrote before, the homage was a “haircut” of everyone’s savings so that Cyprus could raise about $7 billion to qualify a “final” $10 billion EU loan. This was to keep the Cypriot banks solvent. The EU had been trickling money into Cyprus to stop the banks from going bankrupt. The faucet was turned off.

Editor’s note: Cyprus has discovered that it’s in a deeper mess than thought, so to qualify for the $13 billion EU loan they previously had to raise $7.1 billion through pillaging savings account. That is $7.1 billion  has increased to $17 billion forcing Cyprus to sell off all of its gold reserves. It may take almost all of the money in people’s savings accounts over €100,000 causing a complete collapse of its economy.

Under the original plan if you had up to €100,000 (~$130,000) in your Cyprus savings account, you’d be taxed a onetime amount of 6.5% or a maximum of ~$8,500. If you had more, it’s was 9.9%. That’s ~$13,000 minimum for more than €100,000 savings accounts.

All that has changed. It now seems that to keep the general population quiet, the EU has waived requiring the one-time theft tax on accounts with under $130,000 and are stealing taxing the over $130,000 accounts up to 40% of their deposits! That 40% is to be exchanged for shares into a new “failed bank” split off from the original that become the solvent “good bank.” Those paper shares will be issued and almost certainly immediately worthless. They may make nice wallpaper.

Because the Russians appear to have most of these large deposit accounts, they will howl. The howling will be very damaging to the fragile Cypriot economy because the Russians are already providing loans to Cypress to help them out. Those loans will end.

It’s said that revenge is best served cold. The Russians have very long memories, so payback will be coming eventually. Russia supplies much of Europe’s natural gas, so any supply disruption due to accidents or “terrorism” will increase prices. Some of those additional profits will flow to Russia.

I’ll be paying attention when its really cold in Germany and Belgium next winter. Delivering natural gas is a complicated process, and many problems could occur causing price spikes.

The other quiet part of the story is that Russia supports Syria to keep its fleet at Tartus, a Syrian port in the Mediterranean. Russia also supports Syria’s claim on the huge undersea Leviathan gas fields that you can read about here. Israel, Lebanon, the Gaza Strip, Syria and Cyprus and others all want a piece of it. It is a huge find.

So Russia may step up its Syrian support, including “military advisers” to block (formerly known as terrorists, now freedom fighters) radical groups from taking over Syria supported by us. It’s a proxy war with ingredients for a future disaster.

As you know our government is becoming strange bedfellows with our soon-to-be rebel enemies. The enemy of my enemy is my friend. At least for now. It’s all about permanent business interests, nothing else. Not alliances or humanitarian interests; just big business packaged any way appropriate to fool the public. Easily done.

Cyprus has shot itself in the foot. Rather than its feeble minded government standing up to the EU troika, it caved. They didn’t realize that the EU had to fund a bailout anyway as a Cypriot withdrawal from the EU could have been the final straw for Euro integrity. In other words, if Cyprus would have said no, the Euro could have collapsed and Brussels would have done anything to stop that. Anything. They must be laughing in Brussels at the stupidity of the Cypriot government. It reminded me of the 1973 movie, The Sting.

The creation of a common currency, the Euro has mostly benefited Germany, as they had a distinct export advantage that other EU countries didn’t. As I wrote some time ago, Germany was tired of exporting cars, for example, and the recipient country paying for them in frequently devalued local currencies. Greece was a prime example of the scam. So Greece now has to pay in the same currency as Germany uses, the Euro so the currency games ended… to the delight of the auto manufacturing giants.

In this instance the Cypriot government blinked first, and are clearly no good at playing poker. They actually had a strong hand, with most of the best cards but played from weakness. The president isn’t worried as he was elected a month ago and will stay in office for five years anyway. He can pretend he did the right thing. Some will believe him as there are always a few gullible people around. I thought that most of the foolish decision makers were in Washington, DC. Evidently, I’m wrong.

It’s likely that the Russians will pull out all of the money they can from Cyprus; the loans will be called and Cyprus will have its second crisis as its economy will start to collapse. One-half of its tiny GDP is banking related.

Another problem is that the incredibly dumb Dutch Finance Minister Jeroen Dijsselbloem said that taking money from depositors was to be the new model. Clearly savers will start to move money from weaker countries like Italy, the next in the crisis chain, to Germany or outside of the EU completely such as into Switzerland that still uses Swiss Francs.  Although good for the U.S. dollar, instability is no-ones friend.

Another example of engineered instability is the Arab Spring fiasco, one of our very long list of foreign policy blunders.

And with the Cyprus collapse, the fate of the Euro could be tested again and again. Truly, Cyprus is the mouse that has roared.