Monday, April 22, 2013

No Longer Exempt: Charities, Educational Institutions, Insurance Companies 
Now Subject to Levy
Central Bank of Cyprus (photo from Reuters)

The Central Bank of Cyprus announced that charities, educational institutions and insurance companies  will now be subject to a levy of 27.5% on bank accounts held in the two beleaguered banks, Bank of Cyprus and Laiki Bank.

Under previous terms of the bailout it had been announced that charities, educational institutions and insurance companies  would not subject to levy or "haircut" after much initial anxiety. See my earlier post on the issue: University of Cyprus Among Casualties of "Haircut” and Academic Institutions, Municipalities to be Spared Haircut and Charitable Organization Spared Haircut.

This development follows an earlier statement by the current government (elected 24.02) that it was recently discovered that more money was required to bailout Cyprus than the previous government had declared.
Russia: Release our Bank from Capital Controls and We Will Ease Terms of Loan 

Russian Commercial Bank in Cyprus
Russian Finance Minister Anton Siluanov  has stated “We will deliver our support (restructuring of the loan to Cyprus) taking into account our interests, and our interests are that our subsidiary (the Russian Commercial Bank) should operate in normal conditions.

The Russian Commercial Bank, a subsidiary VTB, like all banks in Cyprus, is under strict capital controls in order to prevent capital flight.
Here is a brief re-cap of the major points in Russia's role in the Cyprus financial bailout. In 2011 Russia granted Cyprus a 5 year 2.5 billion euro loan. In July of 2012 Cyprus, under former administration by the opposition party, applied for financial assistance from the EU or "bailout."

Current president, Anastasiades, took office 24th of February 2013 and focused immediatley securing a bailout (which had been delayed due to missed deadlines by the former adminisration). Troika required Cyprus to raise 5.8 billion euros in order to receive EU financial assistance and was adamant that Cyprus raise the money internally rather than taking a loan from anywhere else other than the EU.

Anastasiades met with Troika on 15.03 with the intent to secure a financial bailout. The meeting lasted until the early hours of Saturday the 16.03, when Anastasiades agreed to put the controversial levy on banks before parliament

All banks in Cyprus, whether domestic or international, went into immediate lockdown, reopening after two week of closure under strict capital controls; read about it here: Cyprus Announces Unprecedented Capital Controls.

Cypriot Parlimanent rejected the levy. Details can be found in my post on the issue dated 19.03 Why Anastasiades was Right to Put Controversial Levy Before Parliament.
The Cypriot Greek Orthodox Church, with vast business interests in the island nation and believed to be its largest landowner, offered to fianancially assist the Cyprus government (in exchange for energy rights), but Troika rejected this scenario. See my post on the issue dated 21.03:  Cypriot Greek OrthodoxChurch Offers to Assist Cyprus Government; Troika Says No.

Cyprus turned to Russia to request financial assistance in two forms, a restructuring of its loan with lower interests rates and later maturity date, and a second loan despites the fact that Troika was adamant that Cyprus should only negotiate a loan with the EU and not Russia, and that the only assistance from Russia could be easing of the terms of the current loan.

Russian President Putin told reporters in March after holding talks with German Chancellor Merkel in Hannover, "At the request of the European Commission, we have decided to restructure this debt." Russia declined to offer another loan to Cyprus, see earlier post on the issue dated 22.03: Russia Says No, and Then No, and Then No Again. Putin went on the say, "We are making our own contribution," but did not disclose the details of the debt restructuring.

Thursday, April 18, 2013

Arthur Miller Would Write a Play About  Cyprus...

Book cover of The Crucible by Arthur Miller

...except  he  already wrote  it back in 1953.

Cyprus is now swept up in blaming and naming those who are responsible for causing the  financial crises and  those who may have escaped it's major consequence to date, the  bank levy, in a firestorm the media in Cyprus  and Greece have fanned by  publishing  so-called "Lists." The  media further orchestrated this frenzy by dubbing the  media's own list publishing  "The War of the  Lists."

The lists have taken two major forms to date: 1) those individuals and companies who transferred cash out of Cyprus and/or out of the two floundering Cypriot banks prior to  the  bank lock down, and  2) those whose debts to banks were generously waived. 

List Number 1) is maddeningly absurd. See my previous post on the issue Accusations Around Capital Flight Defy Logic and Reason 

List Number 2) is something for sure, but what it isn't, is a surprise. Is there a single Cypriot or expat living in Cyprus  who didn't think that people in  positions of power in Cyprus  were getting unethical, even illegal perks such as having loans written off? I don't think so.

Cyprus is infamous for the extent that nepotism, the act of favoritism without merit, has cemented itself at every  level of society. I am told that nepotism on the  level that it exists in Cyprus is a Mediterranean phenomena and can be found in Greece, Italy and Spain as well. I don't know about this, but I do know that nepotism  lives in Cyprus  like a cancerous  tumor and that Cypriots classically wave their hands (literally and  figuratively) and  accept nepotism as something unavoidable and  imminent. Cypriot parents commonly advise their children not to say anything against someone in power, and by power, I mean any level of  power, no matter how small, in order to protect them from harm or in the  hopes that they will receive favoritism in the  future.

This is  why the frenzy around List Number 2)  is also ridiculous. 

I think List Number 2) should be published. I think that people should be made to be  responsible for their actions. I  believe that transparency and checks and balances are  necessary for democracy and fairness. I believe in the  power of the news media  and the  power of positive social pressure. 

But list Number 2) is a hypocracy, meaning that such nepotism would not exist to the  level that it has thus far existed in Cyprus if Cypriots did not feed it. Now that Cypriots feel real consequences of such nepotism, they are angry and suddenly want names named.

This List frenzy reminds me of Arthur Miller's 1953 play about McCarthyism, "The Crucible." McCarthyism was the  hunt for "un-American activities" and included the  publication of lists of people who were believed to  have been communists who were then "blackballed" meaning that they could not get jobs.

"The Crucible" is about the  Salem witch hunts, and is an analogy about McCarthyism. Now I am not saying that those identified as communists  are the  same as those who may have had their loans  unethically or illegally forgiven, but they may be the same as those who transferred money out prior to the  bank lock down. We should be aware of the List frenzy and the destructive power that Lists can have on innocent people and use such  Lists  with discrimination.
Accusations Around Capital Flight Defy Logic and Reason 

Much has been made in the news media here in Cyprus and abroad about the fact that in the weeks and days prior to the lock-down of the banks millions of euros were transferred out of Cyprus by both companies and individuals. Some media have even referred to the capital flight as "covert." President Anastasiades has been accused of passing on inside information.

For those outside of Cyprus, the facts listed above could raise the question whether inside information was passed around in order to protect the interests of certain people and companies-- if you do not know what we know here in Cyprus. 

Talks of levies on bank deposits dominated the news media and conversations of people here in Cyprus for months prior to its actual occurrence. It was a major issue in the race for the presidential election.

Additionally, much speculation around Cyprus' offshore financial sector further added to the possibility of a levy on banks. Specifically, with respect to the fact that there is a relatively high number of Russian deposits and Russians in Cyprus, with some accusing Cyprus of laundering money for Russian criminals. Other Europeans, who may face paying higher taxes in order to bailout Cyprus, and and who have perhaps grown weary of the prospect of continuing to pay for the financial failures of other EU members states, started saying that they did not want to pay for a bailout of Cyprus if by doing so they would be protecting the investments of Russian criminals. Demand that depositors in Cyprus contribute financially to the country's bailout began to flood EU news media as well.

The way that Merkel would handle the Cyprus bailout would likely figure prominently in her run for re-election later this year. Therefore treatment of the Cyprus bailout and specifically, Cypriot bank deposits, became of an issue of particular significance and sensitivity. (It should be noted that Cyprus adamantly refutes accusations of money laundering and has submitted to an audit by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) as agreed with the Council of Europe.)

During the presidential race, Anastasiades is famous for having said repeatedly that he adamantly opposed a levy on bank deposits. He was elected president 24th of February 2013. On the 13th of March Moody's slashed Cyprus credit rating to junk, further fueling the anxiety around the security of finances in Cyprus.
There is an elderly woman in Limassol who for a month before the lock down went to her bank every Friday and withdrew the entire sum of her deposit in cash and stashed it in her house, to return her money to the bank each Monday morning. When she was asked why, she said that her son, who worked in banking abroad, told her that if there would be a levy it would be imposed on the weekend when the banks were closed. 

There is a Spanish postdoctoral research fellow working at one of the universities here, in response to the speculation, two weeks before the lock down transferred  his savings of about 1,000 euros to Spain to avoid any levy.

There are those who did not transfer money out, not because they did not know of the possibility of a levy, but because they simply did not believe it would occur because the President was against a levy, no levy was imposed on Greek bank deposits under the terms of the Greek bailout, they could not believe that the banks would take their money, or various other reasons.

Two days after Moody's slashed Cyprus credit rating to junk, on the 15th of March Anastasiades met with Troika with the intent to secure a financial bailout, a meeting which was publicly known to have been scheduled for some time. The meeting lasted until the early hours of Saturday the 16th March, when, Anastasiades claims under great pressure, he agreed to put the controversial levy on banks before parliament. In an address to the nation Anastasiades stated that he is was against the levy but chose to support the levy imposed by Troika because since Troika insisted on the levy as a prerequisite for financial assistance, to refuse the levy would be to choose disorganized bankruptcy. Therefore he chose to make a decision that he knew he would be criticized for in an effort to gain financial assistance to Cyprus. You can read more about this issue in my earlier post in this blog of 19th March Why Anastasiades was Right to Put Controversial Levy Before Parliament.

Now, I ask you, if you had over 100,000 euros (the amount over which is not insured) sitting in a bank in Cyprus, in light of the above facts known to anyone who watches news, reads papers and has access to news sources (in various languages) and talks to other people, and you knew, as everyone here did, that Anastasiades was on his way to negotiate a bailout with Troika on Friday the 15th, would you, without any additional inside government information, have transferred your money out of Cyprus, just to be safe?

Can you honestly accuse those who did transfer money out of Cyprus before the Troika meeting on the 15th of March as having had inside government information?

Is the fact that people transfered their money out of Cyprus or out of the two beleagured Cypriot banks  evidence that Anastasiades passed around inside information?

Such claims are among the most ridiculous that I have heard recently.

Monday, April 8, 2013

 Did Cypriots Paint Themselves into a Corner by Living Excessively?

The Cypriot newspaper Phileftheros published an anonymous letter written in a Cypriot village dialect, that many Cypriots are saying is clever and effective, spot-on criticism of everything that is wrong with Cyprus including  the following: Cypriot banks paid interest rates much higher  than rates paid  by other European banks despite warnings  that this could not be maintained, Cyprus invested in high risk Greek bonds while other European countries were dumping them, public teachers are paid more and work less than their European counterparts allowing them double their salaries by teaching illegal private lessons on the side, and Cypriots live in much larger houses than other Europeans and drive luxury vehicles, to name a few.

 The letter lists many other such characteristics and highlights the fact that Cypriots have done these things with an attitude of superiority over other Europeans who live simpler, more sustainable lifestyles and that now Cypriots are blaming Europe for the financial situation in which the country finds itself.

When my husband and I moved to Cyprus from California I was dismayed by the culture of excess that I encountered here. I wondered how people, with what I would consider mid-income jobs, owned such huge houses decorated in marble and fitted with top of the line appliances, furnished with Italian furniture costing thousands of euros per piece, and with maids to clean it all.
 I saw a high percentage of BMWs and Mercedes on the roads, their drivers holding cigarettes and cell phones. I saw cars parked on the pedestrian walkways, in the middle of the streets, and blocking driveways not their own. I saw piles of trash discarded in lots, even in posh neighborhoods. I saw that many Cypriots do not recycle, but throw recyclables in the trash (or apparently in the nearest empty lot) a fact that was confirmed by a study stating that Cypriots produce the largest amount of trash per person in the EU.

When my husband and I wanted to buy furniture, we wished for Craigslist, an online community whereby people buy, sell, trade and donate anything legal. This is where we were used to shopping for great furniture, and we are not alone. People from all socioeconomic levels trade on Craiglist. I found out that many Cypriots think it's gross to buy used anything. We learned about Angloinfo, which is primarily used by foreigners, but it does not yet have the search convenience, availability of items or high use that Cragslist has.

When I wanted to buy shoes for our baby, I discovered that there was almost no middle market. Any shoes I found that were a reasonable price (and there were few) were poor quality. Cypriots were paying 60 euros and more for baby and toddler shoes from Poblosky and Kickers. I was stunned. How can so many people with normal jobs spend this amount of money on children's shoes? And why do they want to? Most American mothers would think this stupid. I now order shoes (and clothing) for my child online where I can find good quality at normal prices. I would like to shop in Cyprus but I am not willing to waste my money! I'm waiting for the middle market to develop.

When I express my surprise at the culture of excess, many Cypriots are themselves surprised and say to me, "But you're American!" It's true that there is a small cross section of America which live famously excessive lifestyles, but most Americans do not live like this. We say things like "Reduce, Re-use, Recycle." Alternative fuel cars are trendy. There is a middle market. We pay as little as possible for the level of quality that we want or can afford.  Everyone recycles. 
I was also having a difficult time reconciling the high frequency of excessive lifestyles with the fact that 30-35% of Cypriots self-identify as Communist. What kind of Communists are these? There are Communists in Cyprus living more posh lives than most of America, a country considered the most extremely capitalistic in the world!

Certainly not all Cypriots are excessive, I also know many who live moderate and frugal lifestyles, but so many  people who should be living mid-income lifestyles are living like they are wealthy, that I have wondered how it is sustained.

Although I do say it sometimes, I generally try to avoid starting sentences with "In America..." because people don't like it and I don't want to give the wrong perception that I think America or Americans are better than Cyprus and Cypriots. America has its problems for sure. My husband and I choose to live in Cyprus for its many good qualities and we are raising our child here because we believe Cyprus is a nice, safe place to raise children.

But come on, recycle already!

Saturday, April 6, 2013

President, Governor of Central Bank Receive Death Threats

Letter with death threats to President and Governor of Central  Bank

The newspaper Politis received a typed letter in the Greek language addressed to the President and Governor of the Central Bank threatening to kill the two men and their families, and that grandchildren would be targeted first, if plans to levy bank accounts were followed through. 

“You have destroyed us following a very well prepared plan and you continue to destroy us showing indifference to what will become of us and our children and grandchildren.”  The letter a also states that its writer or writers will operate “from coast to coast across all Cyprus and will punish all those who brought us to this wretched state” and calls the President and Governor of the  Central Bank   "traitors to the Nation." The letter is singed by "Rescue Team of Deposits -  Sworn to  Death" and claims to have professional killers at the ready. The Ministry of Justice is investigating the crime.

How common are death threats against Cyprus' presidents? Cypriots are saying that death threats against their presidents are not common at all. Even Christofias, who had the most disastrous presidency in the history of the Republic, formerly identified, even by his own committee, as primarily responsible for the Evangelos Florakis Naval Base explosion, the worst peacetime military accident ever recorded in Cyprus, seems to have not received death threats beyond graffiti and chanting of crowds.

This contrasts sharply to the United States in which every president in the history of the  country has received death threats. President Obama reportedly receives 30 death threats a day.

Thursday, April 4, 2013

Bank Workers Strike in the Midst of  Long Delays for Bank Transactions

Bank workers went on strike at 12:30 today as bank transcations, some pending from before the closure almost three weeks ago, have still not been completed. Many people have not yet received their March salaries and business transactions are on hold as banks state that a large backlog of transactions has caused delays.

However, customers of Laiki, now under administration, noticed that Laiki was able to add quarterly interest on loans and overdrafts the day the banks re-opened. 

The bank workers union, ETYK, called the strike over concern for the future of the employees of Bank of Cyprus and Laiki, particularily with respect to lay-offs and pension funds. 

The banks in Cyprus are open to the public for notoriously short hours, typically locking their doors at 1:30.

Wednesday, April 3, 2013

President's statement on Resignation of Finance Minister

President of Cyprus, Nicos Anastasiades

The Cyprus Press and Information Office published the following English translation of the President's statement on the resignation of Sarris yesterday:

It is with sadness that I accepted today the resignation of the Minister of Finance, Mr Michalis Sarris. I want to thank Mr Sarris for his valuable services during the course of the difficult negotiations with the Troika. The negotiations were concluded today with significant successes regarding the aims that were pursued. But if there is something which I respect in particular but which I also want to extol with regard to Mr Sarris’ act of resignation, is the high political ethos and political sensitivity that he has demonstrated. The decision by Mr Sarris to submit his resignation, for reasons of political correctness, in order to facilitate the work of the Investigative Committee constitutes a phenomenon of a new approach with regard to what is happening in the Cypriot political life. For one more time I want to thank Mr Sarris warmly for the excellent cooperation we had.-2.4.2013