Why and how Germany had it again its own way in Cyprus

Christine Lagarde, Managing Director of the IMF, Jeroen Dilsselboem, President of the Eurogroup, Olli Rehn, Vice President of the European Commission, Klaus Regling, Chief Executive Officer. On 25-3-2013 the Eurogroup reached an agreement with the Cypriot authorities on the key elements necessary for a future macroeconomic adjustment programme. (Eurozone Portal, photographic library).

Christine Lagarde, Managing Director of the IMF, Jeroen Dilsselboem, President of the Eurogroup, Olli Rehn, Vice President of the European Commission, Klaus Regling, Chief Executive Officer. On 25-3-2013 the Eurogroup reached an agreement with the Cypriot authorities on the key elements necessary for a future macroeconomic adjustment programme. (Eurozone Portal, photographic library).

The final agreement reached between the Eurogroup and the Cypriot authorities contains two pivotal elements. The first is a draconian downsizing of the tiny country’s overgrown banking system. The second and less important element is “an independent evaluation of the implementation of the anti-money laundering framework in Cypriot financial institutions, involving Moneyval alongside a private international audit firm, and is reassured that the launch of the audit is imminent”.

Moneyval, is the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism of the Council of Europe. The aim of MONEYVAL is to ensure that its member states have in place effective systems to counter money laundering and terrorist financing and comply with the relevant international standards in these fields.

On both accounts, Germany through its influence on the European Central Bank and the Eurogroup has managed to settle the Cyprus financial crisis in a manner favouring its interests. Let’s start with the downsizing of the Cypriot banking industry and its salvaging by an unseen before haircut of the uninsured deposits. It’s the first rescue of a Eurozone member states’ banking system, or what will be left of it, without any ECB or taxpayers’ help, summing it up into a bail-in operation instead of the bailout used until now.

In the turbulent crisis period of 2009-2011, Germany managed  to swiftly bailout its own banking system with Deutsche Bank and the peripheral Landersbanks first in the line, which were overly exposed to PIGS’s (Portugal, Ireland, Italy, Greece, and Spain) toxic debts. In the rescue of the Greek, Portuguese, Irish and indirectly the Spanish and Italian financial sectors it was the money of the troika of EU-ECB-IMF’s money, plus hundreds of billions from European taxpayers. Not to forget the €700 billion invested by all Eurozone member states in capitalising the European Financial Stability Facility and its heir the European Stability Mechanism EFSF/ESM.

In short, Germany, by contributing only 28% (its share in ECB) in the troika and the ECB’s underwriting of PIGS debts, managed to generously reduce the exposure of its own banks to these debts. According to various sources the common Eurozone plus IMF financing of the PIGS bailouts, led to a reduction of German banks exposure to these toxic debts by anything between €350 and €540 billion. To attain this Germany spent only €196bn that is its share of 28% in financing the €700bn the EFSF/ESM dowry.

At the same time,France undertook a similar, albeit slightly lower burden, in financing the EFSF/ESM resources, without being favoured from any reduction in its exposure to the PIGS toxic debts. The French banks exposure was not made up of loans as in the case of German banks.  The French banks had an extended presence in the Greek banking system through Société Générale’s 99.1% stake in Geniki Bank, and Crédit Agricole’s control of another troubled Greek bank, the Emporiki.

Both those French banks disengaged in 2012 from Greece at great direct cost. How the French government accepted to finance the PIGS bailouts through the EU/ECB’s and EFSF/ESM’s huge spending, with only Germany profiting from that? How come and the French banks paid last year with their own money, the cost of leaving the Greek toxic banking system and only the German banks were favoured by the common EU-ECB-IMF spending? Obviously, these are questions that only the former French President, Nicolas Sarkozy, can answer.

Coming back to the present, Germany managed again, in the case of the Cyprus banking system rescue, to arrange it at no cost at all to Berlin. Cyprus banks had no exposure at all to German lenders. Their financial base was and still is expensive home and foreign deposits, with much from the last ones coming from Russia. Obviously, Germany’s banks had nothing to gain from a bailout of Cyprus. Then, magically ,the troika of EU-ECB-IMF is not to spend not one euro to rescue a Cypriot bank. All the €10 billion will be a loan to the Cyprus Republic. Eurogroup’s announcement earlier today says it explicitly in Annex 8:”The programme money (up to 10bn Euros) will not be used to recapitalise Laiki and Bank of Cyprus”.

The Germans had nothing to gain from the rescue of those banks so they insisted and finally got it their way, not to spend one euro to save “the deposits of Russian oligarchs and an unhealthy overgrown banking system”, as Wolfgang Schauble would have put it. The Germans insisted and had it their way that Cyprus banks are not worth not one EU-ECB-IMF euro and had to be rescued by their own depositors, introducing the bail-in in Eurozone’s salvage operations. Berlin does not accept to spend not one euro if there is more to gain from it.

Unfortunately, the only one country which could have blocked it, France, joined the German club. Paris could not appear politically as “helping the Russian oligarchs and their Cypriot servants”. The German publicity machine had worked very well on that to block a possible veto from Paris. As for the anti-money laundering framework in Cypriot financial institutions, including the supervisory authorities, again Berlin had it its own way, managing to put a private auditor to control a sovereign state.

 

 

 

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Syria: Civilians caught in crossfire, UN refugee chief urges Jordan to open its border

Miguel Arias Cañete European Commission

EU should invest more in climate and not sit back on its laurels and watch

Partner countries get €3bn in loans to prop up economies affected by pandemic

Here are five tips to make your message clear in a crowded world

Autonomous vehicles could clog city centres: a lesson from Boston

Banks launch green charter to help shipping reduce its carbon footprint

What is a ‘vaccine passport’ and will you need one the next time you travel?

Migrants, asylum seekers detained in Hungary ‘deliberately deprived of food’: UN human rights office

A new approach to scaling-up renewable power in emerging markets

Think you’re safe at home? Think again. 5 household demons to be mindful about

Syrian refugees in Jordan and Lebanon should be free to earn a living

Migration crisis update: mutual actions and solidarity needed as anti-migrant policies thrive

End ‘cycle of violence’ in Gaza, UN deputy chief tells forum on Palestine

Macro-Financial Assistance: Europe’s way to control Ukraine?

The UK’s River Thames has come back to life – with a seal population to prove it

Commission takes further action to ensure professionals can fully benefit from the Single Market

MEPs push for high ambitions at the COP25 in Madrid

Close to 7,000 evacuated from Syrian towns after enduring nearly 3-year siege

Coronavirus could trigger a hunger pandemic – unless urgent action is taken

Intensifying Negotiations on transatlantic Data Privacy Flows: A Joint Press Statement by European Commissioner for Justice Didier Reynders and U.S. Secretary of Commerce Gina Raimondo

5 Black heroes of the environmental movement

Why digital inclusion must be at the centre of resetting education in Africa

Here’s how we can rethink the way we eat meat

Europe’s richest regions actively seek investment from China’s biggest banks

A Union that strives for more: the first 100 days

Why rich countries are seeing more poverty

Mali just took a huge step towards universal healthcare

Can Europe and the US reverse their nationalist and xenophobic drift? Is the West becoming belligerent?

On the first day of 2019, over 395,000 babies to be born worldwide: UNICEF

3 ways business leaders can build digital trust

First EU collective redress mechanism to protect consumers

FROM THE FIELD: For refugees and migrants in Europe, healthcare’s essential but a challenge to find

GSMA head urges regulators to help Europe regain leadership

EU budget: Commission helps prepare new Cohesion programmes with Regional Competitiveness Index and Eurobarometer

A breath of fresh air: How three disused industrial areas became beautiful parks

New rules to help consumers join forces to seek compensation

Eurogroup: IMF proposes Germany disposes

Launch of Pact for Youth: European Youth Forum calls for real business engagement

We need to measure innovation better. Here’s how

Internet milestone reached, as more than 50 per cent go online: UN telecoms agency

Young activists share four ways to create a more inclusive world

ILO discusses world of work response to global refugee crisis

Tougher defence tools against unfair imports to protect EU jobs and industry

The EU Commission does nothing about the food retailing oligopoly

Do the giant banks ‘tell’ Britain to choose a good soft Brexit and ‘remain’ or else…?

Is Eurozone heading towards a long stagnation?

Euronest: delivering reforms is the best way forward for EU’s Eastern Partners

Gender equality and medicine in the 21st century: an equity unachieved

How we measure stakeholder capitalism will determine our recovery

The European Union’s Balkan Double Standard

Sustainable Development Summit: ‘We must step up our efforts – now’, Guterres declares

Is there a de facto impossibility for the Brexit to kick-start?

World Migratory Bird Day highlights deadly risks of plastic pollution

Migration surge leaves children stranded, begging on Djibouti’s streets

Cross-border cooperation: the EU Interreg programme celebrates 30 years of bringing citizens closer together

2,300 migrant children in Central American ‘caravan’ need protection, UNICEF says

Bringing nuclear test ban treaty into force a ‘central pillar’ of global disarmament push, says UN chief

HPV vaccine: the silver bullet that saves women

Are we at the edge of anti-vaccination health crisis?

Wednesday’s Daily Brief: #NoTobacco Day, China’s economy, family farming, #ClimateAction

More Stings?

Advertising

Comments

  1. Wow! At last I got a weblog from where I can truly obtain useful facts concerning my study and knowledge.

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s