March 27 2013

In the broadcast today: Will the EUR Damage Last beyond the Cyprus Debacle? As the Cyprus debacle continues to raise anxiety levels by creating uncertainty and a sense of distrust throughout the euro-area, we examine the damage that has been inflicted on the EUR and ponder its long term implications for the single currency, we analyze the bearish breakout in the EUR/USD currency pair, we note the resumptions of the downtrend in the GBP/USD pair, we keep an eye on the USD/JPY currency pair, we highlight the market’s reaction to the capital controls proposed by the government in Cyprus, the U.K. GDP, the Euro-zone Economic Sentiment, and the U.S. Pending Home Sales, we discuss new forecasts from Bank of New York-Mellon and Morgan Stanley, and prepare for the trading session ahead.


USA 

Restrictions on how much money can be taken out of the country, including bans on checks cashed. Will banks re-open on Thursday? More protests due this afternoon. Bank of Cyprus CEO ‘fired’. Malta and Luxembourg: we’re not like Cyprus…



Powered by Guardian.co.ukThis article titled “Cyprus crisis: tough capital controls agreed – live” was written by Graeme Wearden, for guardian.co.uk on Wednesday 27th March 2013 16.10 UTC

4.10pm GMT

We’re still waiting for an official announcement from the Cypriot government on the capital controls.

In the meantime, Greek newspaper Kathimerini (which broke the news of the decree alongside the WSJ/Dow Jones this afternoon) has this report:

Cyprus decides on capital controls, including ban on checks being cashed.

3.47pm GMT

And here’s more reaction:

3.45pm GMT

Hats off to Janine Louloudi, a freelance journalist working in Nicosia, for translating the government decree on capital controls into English (you can download it here).

3.16pm GMT

Nathan Morley, reporter at the Cyprus Mail, explains how the ban on cashing cheques will hurt people:

3.06pm GMT

The instant reaction to Cyprus’s capital controls splits into two camps — one warning that the new measures will have a chilling effect on its economy, and the other predicting that the measures will last much longer than seven days.

2.57pm GMT

There’s no information about restrictions on ATM machines (although here may be more details still to leak). But, of course, people are already limited to taking out just €100 per day.

2.50pm GMT

Capital Controls annouced

Details of Cyprus’s capital controls are now hitting the newswires.

Here are the key points (mainly via Dow Jones and Reuters).

• All savings accounts must run until their expiry date – with no early withdrawals allowed.

• Cashing of cheques will be suspended, but ‘cheque deposits’ will be allowed.

• Payments out of the country are suspended, with certain exemptions:

a) Individuals will only be allowed to take €3,000 in cash on each trip out of the country.

b) Import payments will be allowed when ‘the relevant documents’ are provided to the authorities.

c) Cypriots will only be allowed to transfer up to €10,000 per quarter for fellow citizens who are studying abroad.

• All credit/debit card transactions abroad will be capped at €5,000 per person, per month.

• The measures will apply to all accounts, regardless of the currency it uses.

• They will run for seven days

Reaction to follow

Updated at 3.25pm GMT

1.53pm GMT

We’re running a poll today, on how long it will take for the restrictions on Cyprus’s financial system to be lifted:

How long will the capital controls in Cyprus last?

12.22pm GMT

The cash-only economy

These photos from Cyprus today show how customers at at petrol station in Nicosia are only allowed to pay by cash.

11.55am GMT

Early details of capital controls…

Capital controls to be imposed in Cyprus will limit foreign transactions and capital outflows but not movements of money within the country itself, according to the head of its chamber of commerce.

Phidias Pelides made the comments to reporters after meeting government officials, saying:

We have been assured that limitations will not affect transactions within Cyprus at all.

Where there will be limitations is on what we spend abroad and also on capital outflows.

(via Reuters)

That would prevent the threat of capital racing out of Cyprus, draining its banks and creating a deeper liquidity crisis.

We still don’t have confirmation that the banks will definitely open on Thursday….

Updated at 12.04pm GMT

11.46am GMT

Over on Twitter, Economist Hulk is explaining the nitty-gritty of economics to the masses (once HULK gets his follower count-up, anyway):

Another distinguished fund manager with too much time on his hands? Or perhaps a journalist desperate to throw off the chains of impartiality and shout what s/he really thinks.

Updated at 11.51am GMT

11.31am GMT

Malta and Luxembourg are not Cyprus, say Malta and Luxembourg

Malta and Luxembourg have both denied claims that they could suffer the same fate as Cyprus as they both operate outsized banking sectors.

Malta’s banking sector is eight times its GDP — even more that Cyprus’s is was. But the governor of the Central Bank of Malta, Josef Bonnici, insists that it’s in much better shape.

Speaking to Reuters, Bonnini said Malta’s banks weren’t carrying the foreign sovereign debt that helped cause Cyprus’s crisis:

The problems facing Cypriot banks include losses made on their holdings of Greek bonds, whereas Maltese domestic banks have limited exposure to securities issued by the (euro zone bailout) programme countries.

Luxembourg’s banking sector is about 20 times its annual GDP, and is understandably worried by recent comments from Brussels. Its government said it is:

concerned about recent statements and declarations” on the alleged risks of outsized financial sectors.

Our Europe editor, Ian Traynor, wrote on Monday evening that Cyprus’s fate has alarmed Malta and Luxembourg:

Malta’s finance minister sat next to his German and Cypriot counterparts at the first Cyprus bailout meeting in Brussels 10 days ago and was extremely chastened by what he witnessed.

After experiencing Wolfgang Schäuble, the German finance minister, up close, he wrote an article in the Malta Times saying God help his country if it encounters similar problems in the eurozone.

Then there is Luxembourg, which along with Austria, is the eurozone’s biggest champion of banking secrecy.

Cyprus’s banks have been tamed – are Malta and Luxembourg next?

Updated at 11.35am GMT

10.51am GMT

Key event

The central bank of Cyprus has confirmed in the last few minutes that the draft capital controls are ready.

A spokesperson for the bank said it hopes to brief the public on the situation by the end of the day, and repeated the line that they will be kept flexible, if possible.

Banks to reopen tomorrow, then?….

10.32am GMT

Economic confidence across the eurozone and the EU was already low, by historical terms, before this month’s drop:

10.25am GMT

Economic confidence across the eurozone has fallen this month, reversing four months of gains and sending the euro sliding further.

The data suggests the Cyprus crisis has alarmed business leaders across the region, undermining efforts to bring the eurozone out of recession.

Economic sentiment slumped by 1.1 points to 90.0, according to the EC’s monthly measure, driven by falling optimism among manufacturers.

10.06am GMT

Protests planned in Nicosia tonight

Protests are mounting in Cyprus as the full extent of Monday’s EU-IMF bailout sinks in.

The communist Akel party, in collaboration with a group of private citizens, is planning a mass demonstration at 5.30pm local time, or 3.30 GMT, outside the offices of the European commission.

They will protest against policies that many fear have put the tiny nation state on the Greek path of economic self-destruction.

From Nicosia, my colleague Helena Smith reports:

“There is a lot of fury and growing fury,” said Giorgos Doulouka, the party’s spokesman. “We all know what awaits us, that these polices are going to lead to a huge decrease in the GDP of our country, recession and cuts in pensions and benefits because the government won’t be able to meet budget targets.”

The protest, which is expected to draw thousands, will move onto the presidential palace. Anger has been underscored by panic among employees over what awaits the Bank of Cyprus, following the Greek Cypriot finance minister’s announcement Tuesday that the lender will undergo restructuring and internal recapitalisation.

Helena has also just spoken to the former central bank governor Afxendis Afxendiou who says he thinks the banks, closed for the past 11 days, will re-open tomorrow.

9.55am GMT

Bank of Cyprus CEO fired – reports

Back in Nicosia, it appears that the chief executive of the Bank of Cyprus (BoC) has been dramatically fired.

Local media are reporting that Yiannis Kypri was ousted by the country’s central bank, following the appointment of a special administrator to run BoC.

Reuters’s Nicosia bureau has the details:

Cyprus’s central bank has fired the chief executive officer of the Bank of Cyprus, an official at the island’s largest commercial lender said on Wednesday.It follows the appointment of a special administrator to run the bank, which was saved from collapse this week under a painful European Union bailout for Cyprus.

The bank’s chairman, Andreas Artemis, submitted his resignation on Tuesday.An official at the bank, who declined to be named, said local media reports that CEO Yiannis Kypri had been removed from the post were “valid”.

The source was unable to confirm reports that the central bank had demanded the resignation of the entire board.

The reaction of BoC’s staff will be interesting. Yesterday, hundreds of employees held a demonstration at the bank’s HQ and were clearly furious with the actions of the central bank.

Updated at 10.04am GMT

9.44am GMT

UK GDP

A gobbet of economic news…. Britain’s economy only grew by a measly 0.2% during 2012, not 0.3% as previously thought. That’s according to new data from the Office for National Statistics, which also confirmed that GDP shrank by 0.3% in the last three months of 2012,

France’s economy also shrank by 0.3% in the last three months of 2012, separate data from Paris showed. Europe’s larger economies ended last year on a low.

9.30am GMT

Here’s a video clip of Paul Mason, Newsnight’s economics editor, holding a draft copy of the capital controls that should be announced in Cyprus today.

The document is littered with ‘xx’s, showing that bank managers (as of last night) didn’t have any clear idea what the capital controls would be. That doesn’t bolster confidence that they’ll all be ready to reopen tomorrow morning….

Updated at 9.35am GMT

9.25am GMT

Moody’s: eurozone overestimates its ability to curb contagion

Eurozone leaders and top officials may be kidding themselves if they reckon they’ve prevented the Cyprus bailout causing damage to other countries, a senior executive at Moody’s warned today.

Bart Oosterveld, managing director of sovereign risk at Moody’s, told Reuters that policymakers are overestimating their ability to contain the crisis.

Here’s the key quotes:

Policymakers appear very confident that market conditions are benign enough and that they have the tools to avoid contagion to other peripheral economies and their banking systems.

We think that that confidence may well be misplaced.

So far, Cyprus has remained largely a local difficulty – with the bond yields of Spain and Italy unaffected (so far). OK, the euro has lost ground – but that won’t cause alarm in Brussels (and will please countries with a strong export sector…. )

Updated at 9.28am GMT

9.06am GMT

Euro hits four-month low

The euro fell to a new four-month low against the US dollar this morning, to $1.2818.

Traders blamed the aftermath of the Cyprus bailout. Confusion reigns over whether Europe is moving towards a system where large depositors and bond holders, rather than taxpayers, will be tapped when a bank fails.

Kit Juckes of Société Générale explains:

Anger at the treatment of Cypriot depositors won’t abate and the damage to confidence in Europe’s financial system and leadership is done.

Updated at 9.10am GMT

8.46am GMT

Capital controls: further reading

The government of Cyprus said yesterday that capital controls could be lifted in a few weeks. But in the past, these restrictions have lasted much longer.

Here’s Bloomberg’s take: Cyprus Capital Controls First in EU Could Last Years

Cyprus is on the verge of an unprecedented financial experiment: imposing controls on money transfers in an economy that doesn’t have its own currency….

“Thanks to political mismanagement, we now have a first: capital controls in the euro zone,” said Nicolas Veron, a senior fellow at Bruegel in Brussels and a visiting fellow at the Peterson Institute for International Economics in Washington.

“How long is temporary? It could turn out like Iceland, extending to many years.”

The BBC has a handy explainer: Cyprus crisis: What are capital controls and why does it need them?

And there’s a good Q&A on the Wall Street Journal.

Updated at 9.10am GMT

8.29am GMT

Michalis Sarris: Capital controls will be within ‘realms of reason’

Good morning, and welcome to our rolling coverage of the crisis in Cyprus following its bailout.

A historic day looms, as Cyprus prepares to become the first member of the eurozone to impose restrictions on the flow of money in its economy.

Finance minister Michalis Sarris says the new capital controls should be ready by noon Cyprus time, or 10am GMT. He’s already defended them in a TV interview saying:

I think they will be within the realms of reason

Banks will open on Thursday … We will look at the best way to limit the possibility of large sums of money leaving, and not imposing punitive conditions on the economy, businesses and individuals.

The capital controls are meant to prevent hordes of savers descending on Cyprus’s bank branches and cleaning the vaults out. So what might they be?

Based on the legislation passed by the Cyprus parliament, and a report by the BBC’s Paul Mason (who’s seen a draft version), it will probably include:

* Limits on cash withdrawals (currently €100 at ATM machine),
* restrictions on access to savings accounts,
* limits on paying by cheques (possibly a ban),
* restrictions on the use of credit and debit cards,
* and a ban on taking large sums of money out of Cyprus.

We’ll get the details soon, along with other developments through the day…..

Updated at 8.32am GMT

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