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Banks open, citizens are now to forget the last two weeks

Back in the days of the iron curtain, the East Germans had department stores and they were ‘open’

Open in the sense that the doors were open, but not open in the sense they could discharge their raison d’etre, namely supplying goods people wanted to buy with hard currency. This was not entirely their fault. The East-Mark was a joke currency and whilst people would go in and buy anything that was for sale, it was simply a case of get it whilst it was available, because the supply chain wasn’t exactly efficient either.

Now what has this jaunt down memory lane got to do with contemporary events you ask? Well the media has been reporting that the Cypriot banks are now open. Of course you can’t draw out vey much or cash cheques and quite how the import supply chain is going to work seems to have been missed by everyone*

But what really got my spidey-senses tingling was a talking head on the TV this morning explaining that this was the best possible outcome for Cyprus. Now setting aside the normalcy bias this seemed an astonishing statement. Talking-head explained that if Cyprus left the Euro, their currency might depreciate by more than 40% and really the government was helping its hapless populace (sic). You see, they aren’t criminal looting scum, they are helping. Not Orwellian at all.

So let’s set aside that their banking system will now die. The currency controls aren’t worth a damn because it will just mean a slow death not a fast one. It may allow breathing space for some kind of re-capitalisation, but no-one wants to do that; that’s what started this whole farce in the first place. Let’s set aside that devoid of 40% of their cash, large numbers of businesses will clearly go bust then watch unemployment zoom (and then watch it get ugly). Let’s also set aside that the tourist industry (which I guess is their second biggest industry) will be decimated. Would you go there as a cash rich foreigner? You may as well paint a bulls-eye on your back. Let’s set aside that any kind of major purchases (cars, houses, holidays) are now more or less impossible without government permission (so bye-bye property rights) and this thieving is the kind of nonsense we expect to see in South America.

None of that matters because a new Cypriot pound might depreciate against the Euro by more than 40% so this is the best option ~ apparently. Well of course, it might well depreciate but then, imagine what a weak currency might do for the tourist industry. Perhaps not looting savers in the first place would have protected the existing banks. Even if they went bust (but were not looted) others could set-up, and in a few years the currency might recover. Currency fluctuations are temporary, looting is for life. But no, this is the best option, because the telly-box says so.

* If you can’t take money out of Cyprus, how can you import stuff?

10 Comments

  1. john b says:

    “quite how the import supply chain is going to work seems to have been missed by everyone”

    Because it’s blazingly obvious: the same way it does in other countries with currency controls, e.g. the world’s second-largest importer.

  2. John Galt says:

    I’ve never been to Cyprus, so I might be oversimplifying, but isn’t the top right-hand bit effectively part of Turkey, i.e. very non-EU and quite partial to money laundering?

    So couldn’t I buy a handful of gold coins, diamonds, paper instruments, stuff them in somewhere private, walk across the border and flog them in the Turkish Republic of Northern Cyprus and capital controls would be an irrelevance?

    Has someone pointed out that Cyprus is an island, so imports are a bit essential or is this just another way of corrupt officials and bureaucrats who authorise transfers through the ‘capital controls’ to get richer.

    So everybody makes money except the poor bloke on the Nicosia omnibus who gets stiffed for the cost.

    Same old, same old…

  3. CountingCats says:

    I don’t think there is a lot of movement across the internal border. The two sides tend not to interact much – a foreign occupation tends to have that affect.

    I know, I know, the north isn’t occupied by Turkey in a formal sense, but to all practical purposes it is.

  4. Single Acts of Tyranny says:

    @john b – if you mean China, it is true the currency is manipulated but to imagine there is a valid or meaningful comparison between China and Cyprus is stretching a point.

  5. CountingCats says:

    John b,

    China controls its currency, true, but it hasn’t just looted bank accounts. People are a tad less nervous when dealing with China, and there are mechanisms already in place.

  6. Barman says:

    There are huge movements (both ways) across the border to the ‘Occupied Areas’…

    Previously you could drive/walk across without the customs guys batting an eyelid… I suspect they will be more vigilant now…

    @CC A great overview of the situation as I see it… Cypriots are being very positive and stoic but I’m sure it will end in tears and disaster… I’ve been encouraging them to dump the €uro for ages but they just can’t see it…

    As an example of how the controls work:

    My cash was in a 90-day account – I could move €1,000 per day with no penalty into my current account where I could spend it with a debit card, cheque or draw cash from an ATM.

    Now, my cash is frozen for the next three months! I can have no access to it at all until the notice period expires (end June) when I can get €5,000 of my cash – the remainder being re-invested for another 30 days.

    So, no cash whatsoever for 90 days then €5,000 per month thereafter until I have drained the account.

    As a sample of one, it is obvious what effect this will have on the local economy – no eating out, no purchases of fuel or unnecessary travel and certainly no purchases at all apart from basic food needs.

    The only reason there is no run on the banks is because they won’t let us have our money.

  7. Single Acts of Tyranny says:

    “The only reason there is no run on the banks is because they won’t let us have our money”

    Yep. The ever Pollyanna-ish Beeb (about all things European) reported that capital controls may last a month!

    Certainly true I would have thought, if wildly understated.

  8. Barman says:

    STOP PRESS:

    They have changed the rules so I can transfer €300 per day from my 90-day account. Amount now transferred and withdrawn from ATM! I shall do so ever day from now on until my account is empty.

    As far as the controls go, we were assured they would only last four days which is obviously absolute bollox. Months, if not years of this lie ahead…

  9. RAB says:

    I gather that all the Russian funny money left the building, as it were, two weeks before the banks closed as they had been tipped the wink as to what was coming. So it’s only the Cypriots and retirees who are gettin clobbered now.

    This incredibly stupid and vindictive action has now set a precedent that will not be forgotten. In effect nobody’s money is safe inside any bank in the Eurozone. The EU has now broken all its own hallowed rules in a desperate attempt to prop up their fantasy money.

    Barman, I have been to Cyprus 4 times, but always to he North. The first time we went, about 15 years ago, the North was rather poor and shabby, but the last time we went there had been considerable developement, many new villas built and roads improved. 15 years ago to get to the good beaches and that monastry at the end of the Panhandle, the roads were so bad they looked like they had been carpet bombed, you could lose a double decker bus down some of the potholes, but now with the new road, you can zip down to the tip in a couple of hours from Kyrenia. Lots of Brit pensioners up there too. How is all this affecting them? Or not at all?

  10. Barman says:

    The North (or ‘The Occupied Areas’ as they are officially known) have spent a vast amount on infrastructure – as you say, new roads, new hotels and marinas… There is a fabulous new marina halfway up the pan handle just in the middle of nowhere…

    The ‘carpetbaggers’ as they are known in the south (many of them live in property built on ‘stolen’ Greek Cypriot land) have traditionally been subject to jokes due to the poor infrastructure in the occupied areas – now the tables have turned and a few websites there have taken the opportunity to poke fun at the problems of the south.

    It seems obvious to me that Turkey is never going to give the occupied areas back… The bizarre thing about this whole incident is that Cyprus joined the EU as they believed it would solve the Cyprus problem – it has done nothing about it at all….

    Meanwhile, while Cyprus has its banks destroyed and its tax-paying citizens robbed in order to qualify for a €10B bailout from the EU… the EU gives €120B away in accession funds to countries which have never paid into the tax pot – including Turkey…

    You couldn’t make it up….

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