Cyprus Postmortems: Part IIStephen Lendman Capital controls limit withdrawals, restrict non-cash transactions, freeze check cashing, and convert checking accounts into fixed-term deposits. Finance Minister Michalis Sarris signed into law a temporary decree. It caps cash withdrawals per person per bank at 300 euros. It effectively ban(s) cheques and control(s) cash outflows from the country. It permits only 1,000 euros per person to travel abroad per trip. Higher amounts require special approval. Business payments are capped at 5,000 euros per day. Others up to 200,000 euros require approval of a special four-member committee. Amounts above 200,000 require similar approval. Distributing company payrolls require supporting documents. Theyre needed for student tuition and living expenses. Theyre required to send funds to first degree relatives studying abroad. Other payments or transfer of funds require the prior approval of the committee, taking into account the liquidity buffer situation of each credit institution in question. It wont be possible to prematurely break fixed-term deposits unless the funds are used to repay a loan within the same bank. As long as capital controls remain, when fixed deposits mature, depositors will only have access to either 5,000 euros or 10 per cent of the total, depending which is higher. Theyre required to put that amount either in a current account or a new fixed-term deposit in the same bank, depending on his (or her) choice. Residual amounts will be kept in the original deposit an extra month. Financial transactions, payments or transfers not finalized before controls were instituted are subject to the same restrictions. Banks are warned not to execute cashless transfers that facilitate the circumvention of the restrictive measures. They apply to all accounts, payments and transfers regardless of currency. Exemptions include: Central Bank internal audit head, Yiangos Demetriou, said measures in place will be reviewed after four days. Expect no loosening any time soon. Whether clever lawyers and accountants find innovative exits remains to be seen. Ahead of reopening, truck loads of euro notes arrived at the Central Bank in Nicosia. They came under heavy police escort. Helicopters hovered overhead. Cash will be distributed among Cypriot commercial banks and cooperatives. Depositors be warned. Eurozone banking is irrevocably broken. Bank-held deposits no longer are safe. Eurocrat diktats can be imposed anywhere. Economics Nobel Prize recipient Christopher Pissarides said Cyprus finds not all nations are equal. He came home end of January. He helped President Nicos Anastasiades campaign. He didnt expect what happened. The way Eurocrats treated Cyprus shows that far from the currency bloc acting as a partnership of equals, it is a disjointed group of countries where the national interests of the big nations stand higher than the interests of the whole. Meanwhile, the haphazard decision-making in the eurogroup continues. It reached a new low. It casts serious doubts on the ability of this group to make the decisions to push Europe forward to financial stability and economic growth. Nicosia looks eerie. Streets are deserted. People are glued to television for late news. There is total desperation. The smiles have gone. Nothing like this ever happened before. Stories circulate about wealthy Russians and others getting overseas calls to move assets and businesses there. The future is indeed bleak. It is not clear what is coming next and from where. The Daily Telegraphs international business editor, Ambrose Evans-Pritchard, headlined Cyprus has finally killed myth that EMU (EU Economic and Monetary Union) is benign. The punishment regime imposed on Cyprus is a trick against everybody involved in this squalid saga, against the Cypriot people and the German people, against savers and creditors. All are being deceived. Its not a bailout. Cyprus gets no debt relief. A potential economic death spiral looms. Capital controls shattered EMU monetary unity. A Cypriot euro is no longer a core euro. We wait to hear the first stories of shops across Europe refusing to accept euro notes issued by Cyprus, with a G in the serial number. Violating insured bank deposit security means anyones money can be stolen. Itll happen if creditor state leaders think doing sos in their best interests. Monetary union has become a danger to property. Eurogroup chief Jeroen Dijsselbloem calls it a template for future EMU rescues. (U)ninsured deposit holders can expect eventual haircuts. The Dijssel Bomb confirms creditor powers. Theyll impose them if push ever comes to shove. At the same time, the German bloc (lies) about the real cost of holding the euro together. The accord pretends to shield EMU creditor states taxpayers from future losses. The cost of Cyprus new credit line shifts to the ECB. It will have to offset the slow-motion (Cypriot) bank run with its Emergency Liquidity Assistance (ELA). Its likely to be a large amount. Much will show up on the Bundesbanks balance sheet and its peers. Itll do so through the ECBs Target2 payment nexus. Money will leak out of Cyprus unless (Eurocrats) encircle the island with razor wire. According to Jeffries Marchel Alexandrovich: In saving 5.8 billion euros, the other euro area countries will likely be on the hook for four to five times more in contingent liabilities. But, of course, the former represents real money that gives politicians a headache; the latter is monopoly central bank money. Ahead of Germanys September elections, Angela Merkel will do anything (to) disguise the true cost of the EMU project. Paul Krugman says Cyprus should leave the euro. Staying in means an incredibly severe depression. Normuras Dimitris Drakopoulos believes no one knows whats coming. The economy could go into a free fall. Cyprus lost its core industry. Its assets equal eight times GDP. Nothings there to replace it. Tourism wont work. EMU membership made it shockingly expensive. Prospective tourists wont know what to expect on arrival. Seizing money irresponsibly was an act of state madness. What happened shows EMU went off the rails. Stabilitys endangered. It should be dismantled before it destroys Europes post-war order. Southern European countries have their own crises. Their denouement will arrive when (they) conclude that recovery is a false promise (and) break free of EMUs contradictory regime. Economist Yanis Varoufakis addressed The Good, the Bad and the Extremely Ugly (Aspects of the Cyprus Deal). The latter two way outweigh the former. The Memorandum of Understanding hasnt been presented. The deal is utterly incomplete. Its unknown what degree and type of austerity will be imposed upon a collapsing social economy. Its almost certain to be an austerian package bound to crush weaker Cypriots. Wiping out foreign depositors will devastate Cypriot banking and tourism. Transferring 9 billion of ELA money from Laiki Bank to the Bank of Cyprus flies in the face of basic banking resolution principles. Doing so reflects Eurocrat tyranny. Its unclear how capital controls will be implemented. Its uncertain theyll work. Cypriot euros are no longer exportable. Restricting them to Cyprus flies in the face of monetary union. Eurocrat demands are exceptionally ugly. They jeopardized sacrosanct deposit insurance guarantees. They compromised Eurozone integrity. They sacrifice(d) the (EUs) single market principle according to which capital controls are verboten. The ugliest part of the deal exposes the illusion of genuine Eurozone-wide banking union. Dijsselbloem said so in no uncertain terms. The combination of (a) the denial of the need to effect public debt consolidation, (b) the derailing of a meaningful banking union and (c) the heavy-handedness with which Cyprus was treated over the past week, spell a new, uglier, state of affairs in Europe. Eurocrats spurned unifying moves. They chose authoritarian/divisive ones instead. Doing so pushes Eurozone countries in precisely the opposite direction to that dictated by political and economic sustainability. I would not be surprised if what happened doesnt reflect a major turning point. It may become the moment in history when Europe moved beyond the pale. It might have been worse. Cyprus state broadcaster CyBC said German Finance Minister Wolfgang Schaeuble proposed a 40% haircut on all deposits. Realistically, he added, very little will be returned. Euro expert Bernard Connolly looks prescient. Before its introduction, he predicted the euros failure. He called it a harebrained idea doomed to fail. He said one or more of Europes weakest countries would face rising deficits, troubled economies, and a downward spiral from which there is no escape unaided. When that happens, the country concerned will be faced with a risk of sovereign default. It only remains for it to happen. Expect perhaps eventual EMU collapse. Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.His new book is titled How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War.Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.http://www.progressiveradionetwork.com/the-progressive-news-hour/ 