Cyprus clinched a last-ditch deal with international lenders to shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for a 10 billion euro ($13 billion) bailout.
Swiftly backed by euro zone finance ministers, the plan will spare the Mediterranean island a financial meltdown by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a “good bank”.
Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki’s debts and recapitalize Bank of Cyprus through a deposit/equity conversion.
The deal has caused friction between Russia and Germany, which orchestrated the bailout. As noted in the excerpt above, many wealthy Russians had money in Cypriot banks, but have now seen their assets disappear over night.
Paul Krugman may have picked a fight with the wrong country. Desparately trying to show that austerity doesn’t work, Krugman posted a graph showing stale GDP growth in Estonia, a tiny Eastern European country, during the worldwide recession. This caught the eye of Estonian President Toomas Hendrik Ilves, who blasted Krugman on over four separate tweets earlier this week:
Let’s write about something we know nothing about & be smug, overbearing & patronizing: after all, they’re just wogs: http://krugman.blogs.nytimes.com/2012/06/06/estonian-rhapsdoy/
Guess a Nobel in trade means you can pontificate on fiscal matters & declare my country a “wasteland”. Must be a Princeton vs Columbia thing [Ilves went to Columbia for undergrad.]
But yes, what do we know? We’re just dumb & silly East Europeans. Unenlightened. Someday we too will understand. Nostra culpa.
Let’s sh*t on East Europeans: their English is bad, won’t respond & actually do what they’ve agreed to & reelect govts that are responsible.
The problem with Krugman’s conclusion is that Estonia is actually one of the few Eurozone countries that is doing quite well; a point that Dan Mitchell, an economist at the Cato Institute, noted yesterday:
At the G8 summit at Camp David this weekend, the leaders issued a statement calling for more growth (ie. more government spending) instead of austerity.
CAMP DAVID, Md. — Leaders of the world’s richest countries banded together on Saturday to press Germany to back more pro-growth policies to halt the deepening debt crisis in Europe, as President Obama for the first time gained widespread support for his argument that Europe, and the United States by extension, cannot afford Chancellor Angela Merkel’s one-size-fits-all approach emphasizing austerity.
Pointedly recognizing “that the right measures are not the same for each of us,” the leaders of the Group of 8 nations, at a meeting hosted by Mr. Obama at Camp David, committed to “take all necessary steps” to strengthen their economies. They said they wanted to keep Greece in the euro zone and vowed to work to promote growth in Europe, though behind the scenes distinct differences remained over what kinds of stimulus policies to pursue.
“Our imperative,” the leaders said in their statement, “is to promote growth and jobs.”
From the Telegraph, by way of Disinfo comes an obituary for the Euro:
What was once deemed unthinkable is now, I believe, inevitable: withdrawal from the eurozone of one or more of its member countries. At the bottom end, Greece and Portugal are favourites to be forced out through weakness. At the top end, proposals are already being floated in the Frankfurt press for a new “hard currency” zone, led by Germany, Austria and the Benelux countries. Either way, rich and poor are heading in opposite directions.
When asked on Sky if, in five years’ time, the euro will have the same make-up as it does today, Jeremy Stretch, a currency analyst at Rabobank, the Dutch financial services giant, told me: “I think it’s pretty unlikely.” The euro was a boom-time construct. In the biggest bust for 80 years, it is falling apart.
What’s interesting here is that the Euro is not falling apart at all because of the problems that Henry Kissinger predicted - that traditional rivals Germany and France could not coordinate together, but instead due to less developed economies they included in the party hemorrhaging the value of the monetary confederacy. The days of optimism that formed books like The United States of Europe is apparently over.
Related reading: Is the Euro doomed?
After years of inflation percents that contained about as many zeros as the United States Federal Budget, the government of Zimbabwe admited defeat against market forces and decided to allow foreign currency to be used for internal transactions. From the BBC-
Zimbabweans will be allowed to conduct business in other currencies, alongside the Zimbabwe dollar, in an effort to stem the country’s runaway inflation.
The announcement was made by acting Finance Minister Patrick Chinamasa.
BBC southern Africa correspondent Peter Biles says the Zimbabwean dollar has become a laughing stock. A Z$100 trillion note was recently introduced.
This will most likely lead to “Dollarization” or “Euroization” of the economy of Zimbabwe, which will lead to a dramatically increased standard of living.