March 20 2013

In the broadcast today: What Does Cyprus Mean for the EUR Future? In light of the proposed bank deposits levy and its rejection by the parliament in Cyprus, we examine the impact of the recent events in the small island nation and explore how they could continue to dictate the future direction of the euro, we analyze the latest trend developments in the EUR/USD currency pair, we keep an eye on the bounce higher of the GBP vs USD, we continue to monitor the USD/JPY pair, we highlight the market’s reaction to the attempts to secure a new bailout for Cyprus, the statement by the European Central Bank, the Bank of England Meeting Minutes, and the U.K. Jobless Claims and Unemployment Rate, we discuss new forecasts from Bank of New York-Mellon and Commerzbank, and prepare for the trading session ahead.

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Cyprus in crisis meetings as levy on savers’ deposits fails to pass parliamentary vote. Church offers assets to help financial crisis. German Greens warn on Cyprus taking Russian help. ECB aid not available unless Cyprus banks become solvent…

Powered by article titled “Eurozone crisis live: Cyprus scrambles to secure new bailout” was written by Nick Fletcher, for on Wednesday 20th March 2013 15.43 UTC

3.43pm GMT

Here’s an interesting chart breaking down Cyprus bank deposits:

3.19pm GMT

More speculation:

Updated at 3.23pm GMT

3.12pm GMT

Interesting piece here from Euromoney earlier this month, talking about the prospect of depositors in Cyprus taking a hit, and the possibility of capital flight to avoid this…

3.04pm GMT

Eurozone consumer confidence improves

Eurozone consumer confidence edged up in March, it appears.

The European Commission said the index improved to -23.5 from -23.6 in February. Still negative though, and presumably taken before the latest blow-up in Cyprus.

2.57pm GMT

Bit more detail from Dow Jones on what Cyprus plan might involve:

Of course, if previous reports are true, the troika wants nothing to do with the proposals.

Updated at 3.01pm GMT

2.45pm GMT

Troika reportedly set to reject Cyprus’s new plan

But this alternative plan may not pass muster:

2.42pm GMT

Cyprus official says still working on alternative plans

If the Cyprus/Russia talks have ended for the day without resolution, there could still be some action on the island itself. AP reports:

A Cypriot financial official said authorities were working on bills which would need parliamentary approval aiming to limit the amount of money leaving the country, and that a decision would be announced later on how long the banks would remain closed. The official spoke on condition of anonymity as they were not authorized to release the information.

A government official said an alternative plan to raise the €5.8bn [orginally to have come from bank savings] had been drafted and was to be presented to the troika, most likely on Wednesday. The plan would raise money from domestic sources, including pension plans and subsidiaries of foreign banks active in Cyprus.

One of those domestic sources may be the country’s influential Orthodox church. Its head, Archbishop Chrysostomos II, said he would put the church’s assets at the country’s disposal, saying the church was willing to mortgage its assets to invest in government bonds.

2.33pm GMT

European Council President Herman Van Rompuy is speaking at the European parliament:

Updated at 2.35pm GMT

2.17pm GMT

Another direct consequence, along with shut banks and queues for ATMs, of Cyprus’s financial crisis:

Updated at 2.18pm GMT

2.07pm GMT

Cyprus deposit levy plan “Orwellian vision” says Pimco’s Bill Gross

Pimco’s Bill Gross, who runs the world’s largest bond fund, is far from impressed with what has been happening with the Cyprus bailout:

1.57pm GMT

Saris says Russian talks constructive but no concrete deal yet

Cyprus finance minister Michalis Sarris has admitted there were no concrete offers from Russia after his first day of talks in Moscow, but plans to stay until a deal is done. Miriam Elder, the Guardian’s Moscow correspondent, writes:

Sarris met his Russian counterpart, Anton Siluanov, before holding higher-level talks with Igor Shuvalov, a deputy prime minister and close ally of Vladimir Putin, the Russian president. The talks ended at about 4pm Moscow time and Sarris cancelled a planned press conference because of the lack of results.

Cyprus turned to Russia for a lifeline, seeking a five-year extension on a €2.5bn loan granted in December 2011 that is due to mature in 2016. It has also asked Russia to refinance the loan and lend an additional €5bn.

“We had a very good first meeting, very constructive, very honest discussion,” Sarris said after meeting Siluanov. “We’ve underscored how difficult the situation is.” However, he said there were “no offers, nothing concrete”.

Sarris said he would stay in Moscow until a deal was reached. “We’ll now continue our discussion to find the solution by which we hope we will be getting some support,” he said. Asked by reporters whether that meant simply renegotiating a loan, Sarris said: “No, we are looking at things beyond that.”

Full story here.

1.50pm GMT

There is much agreement that the Cyprus situation needs to be resolved quickly.

But perhaps there are different definitions of “quickly.” Some would take that to indicate today or maybe tomorrow. But perhaps not:

Because last weekend’s agreement worked out so well…

1.42pm GMT

Abandoning tough reforms not the answer, says ECB’s Asmussen

More from ECB board member Joerg Asmussen who warned about the (lack of) solvency of Cypriot banks earlier.

Speaking at conference he said abandoning the tough reforms and raising spending instead would not solve the debt crisis and would merely shift the problems to the future. He said:

It is an illusion to think that more debt is the answer to this debt crisis. Recent research has shown that high public debt levels in the euro area hamper growth, with a serious negative effect starting when debt exceeds 90% of GDP.

1.36pm GMT

Updated at 1.45pm GMT

1.07pm GMT

Cyprus so far today

Here’s a handy Reuters roundup of Cyprus developments so far today:

Cyprus pleaded for a new loan from Russia on Wednesday to avert a financial meltdown, after the island’s parliament rejected the terms of a bailout from the EU, raising the risk of default and a bank crash.

Cypriot Finance Minister Michael Sarris said he had not reached a deal at a first meeting with his Russian counterpart Anton Siluanov in Moscow, but talks there would continue.

Russia’s finance ministry said Nicosia had sought a further €5bn, on top of a five-year extension and lower interest on an existing €2.5bn loan.

Cyprus is seeking Moscow’s help after parliament voted down the euro zone’s plan for a €10bn bailout on Tuesday.

Cypriots balked at EU demands for a levy on bank deposits to raise €5.8bn, an unprecedented measure that opponents said would have violated the principle behind an EU-wide guarantee on deposits of up to €100,000.

Moscow has its own interests in ensuring the survival of banks in Cyprus, a haven for billions of euros squirreled abroad by Russian businesses and individuals.

The European Central Bank’s chief negotiator on Cyprus, Joerg Asmussen, said the ECB would have to pull the plug on Cypriot banks unless the country took a bailout quickly.

“We can provide emergency liquidity only to solvent banks and… the solvency of Cypriot banks cannot be assumed if an aid program is not agreed on soon, which would allow for a quick recapitalization of the banking sector,” Asmussen told German weekly Die Zeit in an interview conducted on Tuesday evening.

Austrian Chancellor Werner Faymann said he could not rule out Cyprus leaving the eurozone, although he hoped its leaders would find a solution for it to stay.

Full story here.

Updated at 1.46pm GMT

1.00pm GMT

…this may not be completely implausible.

12.39pm GMT

French authorities search Christine Lagarde’s flat

Away from Cyprus and indeed the UK Budget, it seems French authorities have searched the Paris flat of IMF boss Christine Lagarde.

The move is part of an investigation into her handling of a 2008 compensation payment of €285m to businessman Bernard Tapie. There are claims that Lagarde, then finance minister, acted illegally in approving the payment. She denies any wrongdoing.

12.36pm GMT

UK Budget speech begins

A reminder that our live coverage of the UK Budget – George Osborne is now speaking – is here.

12.31pm GMT

Confusion over reported Cyprus bank sale

As mentioned BTL, there are reports that Cyprus Popular Bank has been sold to Russian investors, something which has gave a lift to markets and the euro.

However, in this atmosphere of speculation and rumour, it may not be correct:

Updated at 12.34pm GMT

12.17pm GMT

Deposit protection scheme should be respected, says Cameron

David Cameron repeated his promise that any Briton in Cyprus sent by the government (foreign office, ministry of defence etc) would not lose out in terms of their savings.

Nor would they be short of cash, thanks to the plane full of euros sent out to the island, he said at prime minister’s question time in response to Labour leader Ed Milliband.

As for the many thousands of British citizens in Cyprus, he said the government could not insure them against any losses in their Cyprus bandk accounts. But they would get the benefits and payments they were entitled to.

Asked how much the UK government knew and when, Cameron pointed out that the UK was not involved in the bailout discussions since it was not in the euro. Nor would it be contributing up to £1bn which it would otherwise have been liable to.

On the issue of bank trust – potentially damaged by any raid on savings – Cameron said:

We made it very clear to Cyprus… when you have a deposit protection scheme…[it] should be respected.

12.06pm GMT

There’s a bit of the blame game going on, it would appear.

The European Commission has said the weekend deal was unanimous and it felt it had to support the proposals even though it did not agree with all aspects of them (which, I do wonder? Could it be the hit to smaller depositors?)

Meanwhile there was this reported from the French:

Meanwhile EC vice president Olli Rehn will apparently not join President Jose Manuel Barroso’s mission to Russia but will instead stay in Brussels to deal with the Cyprus problem.

11.51am GMT

Cyprus Russia talks reportedly end

Reports are emerging that the talks between Cyprus and Russia have ended without a deal, and will continue tomorrow.

On the other hand:

11.30am GMT

It’s not just a gas deal Russia wants apparently:

11.27am GMT

Spain likely to change economic forecasts, says Rajoy

Spain is likely to change its economic forecasts, prime minister Mariano Rajoy said earlier.

In his weekly appearance in parliament he said (quotes from Reuters):

International organisations have changed their forecasts on a number of occasions and there are factors that, no doubt, will oblige us to do that… I believe we will change our forecasts.

The current prediction is for a 0.5% contraction in GDP but analysts believe this could be revised to 1.5% in April when Spain gives its new forecasts to Brussels.

11.19am GMT

A host of speculation is emerging about what Cyprus might actually plan in plan B:



11.05am GMT

German and Portugal in successful bond sales

Staying with Germany, the country earlier sold €3.3bn of 10 year government bonds.

No surprise there was strong demand, given events elsewhere. The sale attracted 1.6 times the amount on offer, up from 1.2 times at a similar sale in February.

The average yield was 1.36%, the lowest at a 10 year auction since July 2012.

Meanwhile in Portugal, the country sold €1.5bn of Treasury bills, including €1.2bn of 18 month bills. The yield on these fell to 1.506% from 1.963% at a similar sale in January. Yields on the remaining €300m of three month bills edged up from 0.737% in February to 0.757%.

So not a bad result all round, under the circumstances.

10.58am GMT

Merkel regrets Cyprus vote decision and awaits new proposals

Angela Merkel regrets the outcome of last night’s vote in the Cypriot parliament, according to snaps on Reuters.

But the German chancellor accepts the decision and now awaits a proposal from the Cypriot government to the Troika. She will look at all the proposals the government makes.

Hammering home the point made by the ECB earlier, she said Cyprus does not have a sustainable banking sector.

Savers in Cyprus with more than €100,000 in the bank should be ready to contribute to any bailout (it was the plan to hit savers with more than €20,000 that scuppered the vote).

10.54am GMT

Cyprus banks update

No real surprise, I suppose, if true:

10.44am GMT

More thoughts on Russia’s possible involvement in easing Cyprus’s financial woes. Norman Villamin, chief investment officer for Europe at Coutts said:

Russia, with probably the greatest direct economic interest and social and historical connection to the island, is at this point a passive participant in plan to save Cyprus. The challenge will be to bring the Russians to the table and get them to share the burden.

Having displayed the stick (deposit levy) to get Russia to the table, the most obvious next step would be to dangle some carrots (such as offshore drilling rights) to facilitate a solution. This is not without precedent, as part of the Greek bailout programme included asset sales/privatisation.

The challenge is that this needs to be completed today, or authorities need to extend the bank holiday. With this in mind, it seems to me the Russians have a bit of an advantage in the negotiation. The only real pressure the troika could exert would be to cut off funding for the Cyprus central bank, which is reliant on the emergency liquidity assistance scheme (ELA). This would potentially raise the cost to Russia for not stepping in.

What are the near-term implications for asset markets? We have seen the euro push to recent lows, Spanish and Italian stocks sell off and yields on their government bonds rise (prices fall). Further downside from here requires a policy error, which though not impossible, I would be hesitant to suggest is the base-case scenario. Like flare-ups in the eurozone before, I believe a face-saving agreement will be found. It’s not likely to solve the broader crisis, but once again kick the can a bit further down the road.

10.31am GMT

No ECB liquidity without bailout, says Bank’s Asmussen

The statement from the European Central Bank following the Cyprus parliament’s rejection last night of a savings levy was not exactly clear about what it meant.

The ECB reaffirmed “its commitment to provide liquidity as needed within the existing rules”, but at Swordfish Research’s Gary Jenkins said earlier, these rules seem to be made up as they go along.

Now come some newspaper comments from ECB board member Joerg Asmussen, from Die Zeit via Reuters.

Asmussen said Cyprus’s banks were not solvent unless they were recapitalised quickly, and the ECB can only provide liquidity to solvent banks. He said:

We did not threaten (to cut off liquidity), but just pointed out as a matter of fact that we can provide emergency liquidity only to solvent banks and that the solvency of Cypriot banks cannot be assumed if an aid programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector.

He was also quoted as saying that no other country in the eurozone had a banking sector crisis comparable to Cyprus.

Updated at 10.31am GMT

10.16am GMT

German Greens warn on Cyprus seeking Russian aid

Germany’s Green party is not happy at the idea of Russia helping to prop up Cyprus. According to Reuters, co-chair of the Greens Cem Oezdemir told German radio:

I would probably not have voted ‘no’ if I’d been in the southern Cypriot parliament because of the possible consequences and because I don’t think Cyprus should align itself with Russia.

We know this is not just about Russian money but Russia’s geostrategic interest in the island. It can’t be in the interests of Europe for it to have a foot in the door of an EU member state and thereby have an influence on the expansion of the European Union.

Oezdemir, of Turkish extraction, is clearly worried about the outlook for Turkey’s membership of the EU. He has proposed making a bailout for Cyprus conditional on reviving talks about reunification of the island, which has been divided since 1974.

10.08am GMT

Meeting at Cyprus central bank on Plan B

More on Cyprus’s Plan B discussions, courtesy of AP:

Government spokesman Christos Stylianides says a meeting was under way at the central bank to discuss a ‘Plan B’ for raising funds, but also for reducing the €5.8bn that must be found domestically.

Central Bank deputy governor Spyros Stavrinakis says no decision had been taken on when banks, which have been shut since the weekend, would reopen.

The new plan being worked on Wednesday has not yet been presented to the EU and International Monetary Fund, he said.

Updated at 10.28am GMT

10.01am GMT

Here’s some video from yesterday’s vote in Cyprus and the subsequent celebrations, as well as the church’s offer to support president Nicos Anastasiades.

9.35am GMT

Bank minutes and UK unemployment

Breaking news:

Members of the Bank of England’s monetary policy committee voted 9-0 to keep interest rates on hold.

They also voted 6-3 against more quantitative easing, with Mervyn King, Paul Fisher and David Miles wanting a further £25bn to take the total to £400bn.

Meanwhile UK unemployment figures showed a 1,500 fall in the claimant count to 1.542m, the lowest since June 2011. But the fall was less than the 5,000 drop expected by economists. The jobless rate was steady at 7.8%

9.28am GMT

George Osborne’s budget

For those interested in the UK chancellor’s set piece, my colleagues Graeme Wearden and Andrew Sparrow are providing full coverage of the budget on a live blog here.

Updated at 10.25am GMT

9.22am GMT

Markets calm as Cyprus talks continue

Time for a quick look at the markets, and the mood seems fairly calm so far.

Ahead of UK unemployment and Bank of England minutes, not to mention the budget, the FTSE 100 is up 0.32% at 6463. Germany’s Dax is up 0.55% while France’s Cac has climbed 0.6% and Italy’s FTSE MIB has added 0.44%. Spain’s Ibex is up 0.51%, while Athens is effectively unchanged.

Updated at 10.28am GMT

9.11am GMT

And here comes Plan B…whatever that might turn out to be.

Updated at 9.39am GMT

9.07am GMT

Russia’s role in the Cypriot financial crisis is one of the more intriguing aspects of the whole situation. With some €20bn of Russian money estimated to be in Cyprus bank accounts, you can see why Russia was unhappy about the prospect of any levy on deposits. But quite how the country will assist Cyprus is still unclear. Carsten Brzeski at ING Bank said:

There were several reports that Cyprus was trying to get financial support from Russia. Other options could be the increase of other taxes or privatisations. A combination of several options has recently been proposed by Russian energy giant Gazprom which according to media reports has offered Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas in Cyprus. Clearly an option with far-reaching geopolitical consequences.

8.53am GMT

Sarris says no loan deal with Russia yet but talks continue

Cyprus’s finance minister Michalis Sarris has said there has been no decision on a loan from Moscow yet but talks are continuing, according to Reuters.

Last night an idea circulating was that Russia would help out financially in return for some of the island’s energy rights.

Meanwhile Austrian finance minister Maria Fekter said the European Central Bank would not provide liquidity indefinitely to Cypriot banks. The banks, currently closed, are dependent on emergency funding from the ECB and last night it said:

The ECB takes note of the decision of the Cypriot parliament and is in contact with its troika partners

The ECB reaffirms its commitment to provide liquidity as needed within the existing rules.

But Fekter told reporters (quotes from Reuters):

[If Cyprus does not come up with a new plan] then the banks won’t open on Friday because the ECB will not provide any more liquidity. That is a more horrible scenario than what is on the table now.

We will certainly help out the Cypriots but only under conditions that make sense. Certainly neither the ESM [bailout fund] nor the ECB can allow a bottomless pit.

Updated at 10.24am GMT

8.32am GMT

Church offers its assets to help Cyprus out of financial crisis

From the profane to the sacred. It seems everyone is pitching in to help Cyprus out of its crisis, with the church now offering its worldly goods. According to an AP report:

The head of Cyprus’ influential Orthodox church, Archbishop Chrysostomos II, says he will put the church’s assets at the country’s disposal to help pull it out of a financial crisis, after lawmakers rejected a plan to seize up to 10%t of people’s bank deposits to secure an international bailout.

Speaking after meeting President Nicos Anastasiades on Wednesday, Chrysostomos said the church was willing to mortgage its assets to invest in government bonds.

The church has considerable wealth, including property, stakes in a bank and a brewery. Tuesday’s rejection of the deposit tax has left the future of the country’s international bailout in question.

Updated at 10.25am GMT

8.22am GMT

And here’s Michael Hewson at CMC Markets:

The Cypriot MP’s obviously didn’t get the EU memo that states that you must vote yes, and if you don’t, you keep voting until you do.

The saga has now moved onto the next stage of what is turning into a high stakes game of Russian roulette, quite literally, as the Cypriot finance minister Sarris flies off to Moscow in the hope of some better terms, perhaps in exchange for gas exploration rights and future revenues given the fairly sizeable amount of Russian money (about €20bn) frozen in Cyprus’s banks. All the while Cyprus banks remain closed, probably until next week, while contingency plans for capital controls are being prepared for when they re-open to prevent a haemorrhaging of cash in the event a deal is done.

As things stand a deal with Russia may be the most likely option for Cyprus, unless the EU blinks and softens the terms of the deal, which could be a tough sell for the German parliament in particular in an election year. In the absence of a deal a number of Cyprus MP’s have said they will leave the euro.

8.18am GMT

The unprecedented attempt to seize savers’ cash as part of the bailout of Cyprus and the subsequent failure to get it through parliament has caused much comment. Here’s Gary Jenkins of Swordfish Research:

On Monday I said that I wouldn’t vote for the Cyprus bailout as initially proposed (at least I wouldn’t do so and remain in the country) and even though the proposal was amended to exempt all deposits under €20,000 it did not receive a single vote in favour. The ECB responded by confirming its commitment ‘to provide liquidity as needed within the existing rules,’ which of course they tend to make up as they go along. The Luxembourg Finance Minister Luc Frieden said that it was necessary that Eurozone finance ministers meet ‘as soon as possible’ to negotiate a new rescue package. One could argue that as they were the lot who negotiated the last one that maybe they should try and find someone else to do it for them.

He went on to say that: ‘What matters now is to undertake all necessary measures to ensure the stability of the Eurozone.’ Maybe they could think about some kind of deposit guarantee scheme, or even a banking union? Oh, wait a minute…

In an alternative universe the initial deal did protect all deposits under €100K, the bailout has been agreed and all is well with the (alternative) world. (By the way, Wales won the 6 Nations in this universe as well…).

But in this universe they have opened Pandora’s Box and we now know that deposit guarantee schemes are potentially worthless. Now here I must stop myself for a minute because of course such schemes are only of value when the sovereign is independently solvent. It’s not as if some friendly civil servant cycles up to your door the next morning with a suitcase containing your cash.

So what happens next? There are a myriad of potential outcomes which range from Cyprus raising money from elsewhere (Russia being the hot favourite), a renegotiation of the terms with the Eurozone all the way to a disorderly default and an exit from the Euro. At this stage any renegotiation would probably only be at the margins. Maybe the eurozone would make up the difference to allow deposits of, say under €50K to be protected.

From a Eurozone perspective a default and an exit would lead to some immediate volatility and some doubts about the solidity of the eurozone. Ironically however the biggest risk to the eurozone would probably be the medium term one of the ‘new’ Cyprus recovering economic wise quicker than the stressed countries remaining in the eurozone.

8.14am GMT

Today’s schedule

Aside from the many meetings in and concerning Cyprus, here are some of the other things to look out for today:

9.00 Eurozone current account

9:30 UK Bank of England Minutes

9.30 UK average earnings

9:30 UK unemployment

10:30 Germany to Sell €4bn 10-Year Notes

10:30 Portugal Holds Auctions for Three-, 18-Month Bills

10:30 Portugal to Sell 546-Day Bills

10:30 Portugal to Sell 91-Day Bills

12.30 UK Budget

15:00 Eurozone consumer confidence

18:00 US Federal Reserve rate decision and economic projections

18:30 Fed’s Bernanke Holds Press Conference in Washington

Updated at 10.47am GMT

8.03am GMT

Cyprus in crisis talks as savings levy rejected

Good morning and welcome back to our rolling coverage of the latest developments from Cyprus and the rest of the eurozone and beyond.

The Mediterranean island is in the spotlight after Tuesday’s rejection by its parliament of the controversial levy on savers’ deposits. Finance minister Michalis Sarris – who tendered his resignation only to have it rejected by the island’s president Nicos Anastasiades – is in Russia for talks to drum up financial help.

It has asked Russia for a five year extension of an existing loan of €2.5bn and a reduction in the 4.5% interest rate.

Sarris told reporters in Moscow, according to Reuters:

We’re hoping for a good outcome but we cannot really predict.

The president, who let’s not forget is barely a month into the job, is holding a meeting with party leaders and the governor of the central bank. He is also due to hold a cabinet meeting as well as talks with officials from the Troika – the EU, European Central Bank and International Monetary Fund.

The country is desperately trying to fill a €5.8bn gap now the savings levy has been voted down. Banks remain closed, but may or may not open on Thursday. There have been suggestions that – given next Monday is a bank holiday – things may remain closed until at least next Tuesday.

Details of yesterday’s developments are in our story here.

Meanwhile there is a busy day ahead elsewhere, not least for the UK with the Bank of England minutes, unemployment and the Chancellor’s setpiece, the Budget.

Updated at 8.54am GMT © Guardian News & Media Limited 2010

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