Of credible threats and plans We compared the Eurogroup to an EM crisis talking shop earlier. Well, selected quotes from Eurogroup Working Group conference call notes, from Reuters: The (Cypriot) parliament is obviously too emotional and will not decide on anything, if Cyprus does not even feel that they can attend the call it is a big problem for us We have never seen this Markets believe that we will find a solution and that we will provide more money and this might not be the case Sorry to EM crisis talking shops. For what it's worth Deutsche's George Saravelos has summarised what might be considered the current "plan": (i) The splitting up of the bank requiring the bulk of recapitalization (2bn EUR) into a good and bad bank, with the latter being liquidated. Deposits up to 100k EUR would be transferred to the "good bank," while the liquidation of the "bad bank" would save 2bn EUR in recapitalization needs. This bank accounts for slightly more than 10% of system-wide deposits. Other banks would remain a going concern and be recapitalized. Note that Cyprus does not have a bank resolution framework, so this would need to be submitted to parliament separately for approval. (ii) The creation of a Sovereign Wealth Fund, where government, church and pension fund assets will be transferred. It is not clear how large the assets of the first two are, albeit local press is mentioning the possibility of transferring the central bank's holdings of gold, amounting to 500mio, as well as future gas rights. Pension fund assets are significantly larger at more than 2.5bn EUR, but are owned by semi-public institutions and would therefore need to be seized. (iii) The remaining 1bn EUR remains to be found, potentially to be covered through a small deposit levy on outstanding deposits above 100k EUR, or an investment from Russia. On the latter front, finance minister Sarris remains in Russia, but local press reports little progress in securing direct investment at the time of writing. A restructuring of the existing loan by five years and at lower interest rates is more likely. Note that a large delegation from the European Commission led by Barroso is also in Russia this morning. Indeed Germany was making sounds on the newswires at pixel time about that missing €1bn. Saravelos sees part one as credible, part two as fuzzy with "the transfer of central bank assets potentially running against central bank independence and the quality of pension fund assets still unknown" while three is up in the air if not unlikely. And from JP Morgan's Alex White (our emphasis): Given the small size of the total sum required (€5.8bn), the patchwork approach is likely to hit the target numbers on paper. However, it could create significant difficulties for the Troika. Firstly, it will be hard to assess the real value of the assets involved (the Troika would be worried about proposed assets turning out not to have their paper value). Secondly, most aspects of the plan will offend some part of the Troika (any approach involving central bank assets is likely to disturb the ECB, while a raid on pensions may impact the IMF's view on long-term debt sustainability). Thirdly, the specific intention of Eurogroup policy has been to have a substantive bank levy, in order to address concerns about bailing out Russian depositors. Finally, the key decision-makers are likely to be left with the sense that Cyprus is still trying to wriggle around the fundamental choice it has been offered by the region; choose a future as an EMU member or Russian offshore financial haven. At the same time as fleshing out their Plan B, the Cypriots are likely to continue in their attempts to divide the Troika and the Eurogroup; hoping to encourage more dovish voices to take on Germany. In our opinion, it is clear that there is substantive division to exploit - with France likely remaining a key target for Cypriot pleas - although we think they are unlikely to succeed in doing much more than creating further confusion. Plan B could, in theory, be voted on as early as today; but any vote will remain meaningless until the measures are reviewed and approved by the Troika - which we expect will take time. Not exactly concrete... Other suggestions include issuing a bond linked to future natural gas revenues. Probably worth visiting an alternative plan at this point. There's still the Russian "hail Mary" pass which might feature in part three of course but as has been argued elsewhere it looks unlikely and wouldn't come cheap anyway. Now of course, this is all being played out against the threat of ELA being cut from Monday. SocGen's Sebastien Galy called that a "credible threat." It's worth noting that quite a few of the people we talked to this morning didn't see it that way and expected an eventual fudge. But others we respect, such as Lorcan Roche Kelly at Trend Macro, see this as a very hard line - why else would the ECB have mentioned Monday, 25 March 2013 in their release. So maybe "threat" was the wrong word. Maybe the ECB will in fact let Cypriot banks go bust and stop allowing them the kind of leeway seen elsewhere if they don't pay attention to the negotiating stick being waved in the air.