REUTERS/John Kolesidis
Last weekend, when Europe announced that to bail out Cypriot banks, there would be a sizable one-off tax on all bank depositors, there was worry about bank runs elsewhere in Europe. Would depositors in Greece, Italy, and Spain start lining up to (further) move their assets into banks in more stable countries, for fear of a similar fate down the line?
So far that part of the story hasn't borne out. There are good reasons to think that mechanistically, Cyprus is a one-off. Other Eurozone countries don't have such gigantic banking sectors relative to GDP. And the notion that Cyprus is a haven for offshore Russian money is well understood.
But what is a real precedent here is Cyprus getting a tough deal because Angela Merkel is in a re-election fight, and playing tough with Cyprus is politically popular. Her coalition partners and opposition parties have made a big deal of not giving Cyprus a blank check.
So Cypriots are told: Tax your depositors or the ECB will let your banks collapse on Tuesday because of German politics.
And this is explosive.
The above picture is of supporters of Greece's Golden Dawn Party (which is basically a Neo-Nazi party) protesting in front of the German embassy in Athens last night, due to the treatment of Cyprus. The leftist Alexis Tsipras has also been making hay over the treatment of Cyprus, and is doing well in the polls, so this is a common point of agreement for the extreme right and the extreme left. The middle ground New Democracy party — the party with which the rest of Europe prefers to play ball — can only get squeezed.
Meanwhile, Italy faces the risk of another election sometime in the next few months. One of the most salient issues in the February election was the notion that the existing Mario Monti government was just a puppet for Germany and Brussels. Now imagine if elections are held tomorrow against the Cyprus backdrop. The parties that are simpatico with Brussels wouldn't do better.
With the ECB at the ready, there are good arguments that financial contagion will be limited regardless of what happens with Cyprus (if it takes the deal, if it goes bust, if it leaves the Eurozone, etc.). But with the economy going to garbage all over the place, this is a big shot in the arm to politicians and parties that are not going to be so friendly towards the status quo.

http://www.zerohedge.com/news/2013-03-23/former-cyprus-central-bank-head-and-senior-fed-economist-european-project-crashing-e

Former Cyprus Central Bank Head And Senior Fed Economist: "The European Project Is Crashing To Earth"

Tyler Durden's picture




Back in August 2011, one of the most prescient European (ex) central bankers, Cyprus' very own Athanasios Orphanides wasoptimistic, but with a caveat: "I am optimistic that with the right actions and effort by all we will pull through this," Orphanides told reporters after a meeting with Finance Minister Kikis Kazamias. They were Orphanides' first public comments since warning authorities in a July 18, 2011 letter that Cyprus ran the risk of requiring an EU bailout unless urgent action was taken to shore up its finances." 
Two years later, following endless dithering and pretense that just because the ECB has stabilized the markets, all is well, and "action was being taken" when none was (because in the New Normal the lack of market collapse is somehow supposed to represent structural changes are taking place, which neveractually happen), Cyprus is beyond the bailout stage - it is now quite literally on the verge of total collapse. This is also why Orphanides, who recently (and perhaps prudently) quit as Central Banker of Cyprus following a clash with the new communist government (and was replaced by a guy named Panicos), no longer is optimistic. "The European project is crashing to earth,” Athanasios Orphanides told the Financial Times in an interview. "This is a fundamental change in the dynamics of Europe towards disintegration and I don’t see how this can be reversed.
It can't. Which is what we have been saying all along. But it apparently takes a former Federal Reserve senior economist to say the perfectly obvious, and for reality to finally hit front and center.
More from the FT's interview with Orphanides:
This week’s events had made “a mockery” of EU treaties, he added. “It suggests that in Europe not all people are equal under the law.”

“We have seen other eurozone countries, the Netherlands, for instance, put national interests ahead of the European interest by trying to bring down the economic model of countries such as Cyprus or Luxembourg.”

He also called into question the credibility of the ECB’s threat to pull the plug on the Cypriot banking system. On Thursday, the ECB warned that if an EU-IMF rescue programme was not agreed by Monday, it would ban the use of “emergency liquidity assistance” to prop up the Cypriot banking system.

According to Mr Orphanides, about €10bn of ELA is being provided via Europe’s Target2 payments system used by its central banks. “If you say it is no longer authorised, it would force the Central Bank of Cyprus to default on its Target2 obligations. Cyprus would then have to leave the euro area.”

“The ECB will have forced Cyprus out. This is the one thing Mario Draghi doesn’t want to happen – he does not want to be the ECB president who triggers the break-up of the euro. It is painful to watch.”

So far, global financial market reaction to the Cyprus crisis has been subdued. But Mr Orphanides warned that would change. “I don’t think that the full extent of the shattering of the trust that we have seen in this case . . . has been seen fully yet.

“Banks’ funding costs in the [southern eurozone] periphery will rise further – there is no way we will avoid that. This, in turn, will make the recession in the periphery deeper, adding to the misery that the mishandling of the crisis has caused so far.”

“Financial markets are over-influenced by what happens in London or New York – there, the intricacies and processes of European politics are not very well understood.
We couldn't agree more.
As a reminder, Mr Orphanides was governor of Cyprus’s central bank from 2008 until last
year, when he was replaced after clashing with the island’s then
communist government. As member of the ECB’s governing council, Mr
Ophanides’ views were respected because of his background as a senior
economist at the US Federal Reserve. He has since returned to academic
economics in the US.
We can't wait until the world of very serious economist, some of them even with Nobel prizes, turn on one they proudly praised as their own, as recently as months ago.
In the meantime, Orphanides is absolutely correct.

http://www.zerohedge.com/contributed/2013-03-23/liar-liar-banking-system-fire-watch-i-spit-fact-burns-down-sham-formerly-know

(  Some editing here to cut to the chase.... ) 

Liar, Liar Banking System On Fire! Watch As I Spit Fact That Burns Down The Sham Formerly Know As The EU Banking System

Reggie Middleton's picture





On Monday, 25 June 2012 I penned "No Capital Controls In The EMU? Liar Liar Pants On Fire". Let me excerpt the first paragraph so as to bring those who have not read it up to speed before we jump into current events...
I have outlined the upcoming EU bank runs up to two years in advance (see the many links below). Whenever one expects a bank run, the first things TPTB do is institute capital controls to stem said bank run - which of course makes the bank run that much more necessary to get your capital out - wash, rinse, repeat! Remember, by treaty, no country in the EMU may use capital controls without automatically being removed from the union. Well, do you believe that to be fact that will last? Yeah, I don't either. Simply watch as the money bleeds from the banks and the bumbletrons attempt to staunch the flow using mechanisms that will simply exacerbate the flow. Even more incredible is the fact that even to this date, with the existence of publications such as BoomBustBlog, entire nations as well as their financial advisors, leaders, regulators and politictians STILL DO NOT EVEN COMPREHEND the nature of the modern bank run. You cannot stem the tide with capital controls, you can only exacerbate it. 

Now, As Predicted Last Year, The French and the Greeks Are In A Race For The Biggest Bank Run!

 On Saturday, 23 July 2011 I penned "The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!" wherein I went through both the motive and the mechanism of a European bank run, focusing on Greece and France as impetus.
Okay, I'm writing this on 3/23/2013, referring to the events of yesterday. I apologize to my paying subscribers for being 9 months and a few miles/kilometers off, but as the more intellectually capacitive among you know, this stuff is not an exact science. Now, yesterday's headlines...

Cyprus passes laws for capital controls

Lawmakers in Cyprus passed legislation to impose capital controls on its banks and create a "solidarity fund" to pool state assets, according to media reports late Friday. The measures will help fulfill conditions for Cyprus to get a euro-zone bailout. With a Monday deadline, Cypriot lawmakers still need to vote on measures needed to restructure banks in Cyprus and possibly place levies on deposits.
I appeared on the Max Keiser show in London yesterday, and broke down the Cyprus issue as simply as could be done. In essence, "What is a bank???!!!"


In "The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!" I detailed for my readers and subscribers the mechanics of the modern day bank run, particular as I see (saw) it occurring in Europe.
image015image015

You see, the problem with this bank holiday thing is that the real damaging bank run will not be staunced by the conventional bank holidays, et. al. because it is a counterparty run that will cause the damage, not depositors. TPTB in Europe don't have the chops to stem this one, at least not from what I've seen. As for how that institutional bank run thing works, we excerpt "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style": 
The modern central banking system has proven resilient enough to fortify banks against depositor runs, as was recently exemplified in the recent depositor runs on UK, Irish, Portuguese and Greek banks – most of which received relatively little fanfare. Where the risk truly lies in today’s fiat/fractional reserve banking system is the run on counterparties. Today’s global fractional reserve bank get’s more financing from institutional counterparties than any other source save its short term depositors. In cases of the perception of extreme risk, these counterparties are prone to pull funding are request overcollateralization for said funding. This is what precipitated the collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity by skittish counterparties, and the excessive capital/collateralization calls by other counterparties. Keep in mind that as some counterparties and/or depositors pull liquidity, covenants are tripped that often demand additional capital/collateral/ liquidity be put up by the remaining counterparties, thus daisy-chaining into a modern day run on the bank!

Make no mistake - modern day bank runs are now caused by institutions!


A reader has convinced me to consult with him on a specific situation, regarding overseas monies and the (lack of) safety of those funds, which prompted me to dig up the Sovereign Contagion Model that we developed in 2010. Long story short (if it's not already too late), my next extensive series of posts on this topic will likely spark bank runs throughout the periphery and the core of Europe, for much of the assets that depositors think are there are simply not, and I proffer ample proof for all to see. For the banks, it's too late to pull the evidence down from your various web sites, for I already have it safely stored and distributed. Keep in mind, once the fissures form in one section of the already weakeed EU, cracks widen in the other sections... 
Description: foreign claims of PIIGS
Description: foreign claims of PIIGS


France news item - Hollande loses his Budget Minister...

http://www.france24.com/en/20130320-france-budget-minister-resigns-hollande-loss-press

Hollande loses key ally as budget minister resigns

Hollande loses key ally as budget minister resigns
© AFP

The resignation of France’s budget minister is a major blow to François Hollande’s Socialist government, which is struggling to get the country out of the red.

By FRANCE 24  (text)
Jérôme Cahuzac’s resignation as the French budget minister made headlines in France on Wednesday, shining a spotlight on an important but –until now– little known member of President François Hollande’s inner circle.
Cahuzac, 60, a former mayor and French MP with a long track record with the Socialist Party,stepped down on Tuesday after judges opened an inquiry into allegations he held a secret Swiss bank account.
The claims have given new ammunition to the conservative opposition UMP party, which tabled a vote of no confidence in the government at the National Assembly on Wednesday.
The motion, planned even before Cahuzac dramatically stepped down, had virtually no chance of passing the Socialist-controlled chamber.
A victim of the pesky investigative press
While Cahuzac’s resignation caught the French off-guard, the allegations have been festering since December.
The claim he stashed money away until 2010 was made by Mediapart, a subscription-based news website known for its investigative reports.


Launched by a former Le Monde editor in 2008, Mediapart honed its craft with stinging reports often targeting the right-wing government of Nicolas Sarkozy.
Cahuzac has denied Mediapart’s allegations, telling reporters in December that the final outcome of the affair would either ruin him or the news group.
The left-leaning daily Libération said Hollande had no choice but to accept Cahuzac’s resignation, though maintaining that “there was no concrete evidence” the former minister ever had an illegal Swiss bank account.
Le Parisien daily said Mediapart, for now, could boast of having the upper hand in an article titled “Mediapart: 1 – Cahuzac: 0”.
“Until now he has been used to winning his fights. This time, Cahuzac has chosen to abandon the political boxing ring to prove his innocence,” the newspaper wrote.
Avoiding a ‘political catastrophe’
The French media have pointed out that the ministerial exit represents a double blow for Hollande, who will likely face embarrassing questions over the affair, and has lost a competent ally tasked with whipping the country’s finances into shape.
The right-leaning Le Figaro, which routinely criticises Hollande, said the president had lost a “major chess piece” with Cahuzac’s departure.
It showed sympathy for Cahuzac, who opposed the president’s failed bid to tax France’s top earners at a 75% rate. Hollande has introduced a series of tax hikes and cuts to deliver on his promise to balance France's budget by the end of his term in 2017.
“Resigning is a personal tragedy if one is innocent. But staying on would have been a political catastrophe, whether he is guilty or not,” Le Figaro noted.
Bernard Cazeneuve, who was until Tuesday a junior minister in charge of European affairs for Hollande, will replace Cahuzac at the Finance Ministry.
“One can’t replace Jérôme Cahuzac, only succeed him,” Cazaneuve told RTL radio on Wednesday, admitting he lacked his predecessor’s “fine-tuned knowledge” of the French budget.





Italy still has no Government....