Por onde anda o MEE

Karl Whelan faz hoje, em Has Cyrpus already left the euro?, uma pergunta óbvia: por que não recapitalizar os bancos cipriotas através do Mecanismo Europeu de Estabilidade e abdicar dos potencialmente corrosivos controlos de capitais?

Some of the coverage of today’s events in Cyprus has been drawing the conclusion that the plan to restructure Cyprus’s banks is going well because there has been no “bank run”.  However, the only reason there isn’t a massive bank run in Cyprus today is the imposition of severe capital controls (full details here).

The controls have frozen accounts over €100,000 in Cyprus’s main banks and have limited cash withdrawals to €300. The large deposit withdrawals that really destroy a bank are not possible. And most ordinary people in Cyprus know full well there is no point in queuing up to withdraw all their money because such withdrawals are not allowed. Hence, no bank run.

As it is, it is hard to see how the capital controls can be lifted without a complete reworking of Cyprus’s agreement with the EU. Depositors with over €100,000 still do not know how much they are going to get back, while those with under €100,000 may still feel worried that their turn to take a hit may come around again.  The likely collapse of the economy may trigger a sovereign default which would further hit the banks and further increase creditor losses.

The capital controls could be lifted if the ECB allowed the Central Bank of Cyprus to provide unlimited amounts of Emergency Liquidity Assistance to facilitate massive deposit flight.  However, neither the ECB nor the Central Bank of Cyprus are likely to be interested in doing this.  The ECB are very touchy about allowing ELA and worry a lot about how to end such programs. The Central Bank of Cyprus are aware that they are supposed to take the credit risk associated with ELA lending which differs from regular Eurosystem lending in which the risks are shared among participating central banks.

For these reasons, the capital controls are likely to remain in place. As long as they do, Cyprus is a member of the euro in name only.

As long as Cyprus is a member of the euro in name only, the question will remain as to whether it can ever return to being a normal member of the euro or whether it will be better off to set up its own currency.

One way to ease a return to Cypriot euros being equal to euros elsewhere is for Europe’s leaders to reverse course on Cyprus.  This would involve ESM taking over the Cypriot banks and putting in enough money to ensure these banks are well-capitalised and safe beyond question.  Since this outcome seems unlikely, Cyprus’s euro membership seems to hang in the balance.  The fear that capital controls are coming to their country will also be influencing behavior in other euro area countries in the coming weeks.

Ler também The bahamian dollar and the cypriot euro, por Matt Yglesias.


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