July 6, 2022

Cyprus Rejects Bank Deposit Tax, Scuttling Bailout Deal

The lawmakers sent President Nicos Anastasiades back to the drawing board with international bailout negotiators to devise a new plan that would allow the country to receive a financial lifeline and avoid the specter of a devastating default that would reignite the euro crisis.

Lawmakers rejected the plan with 36 voting no and 19 abstaining arguing that it would be unacceptable to take money from account holders. Some in the opposition party even suggested abandoning a European Union bailout altogether and appealing to Russia or China to lend Cyprus the funds it needs to keep the economy and its banks afloat. One member of Parliament who was out of the country did not vote.

Analysts had also raised the possibility of bank runs and a halt in liquidity to Cypriot banks from the European Central Bank if the measure did not pass, meaning banks might not be able to open their doors Thursday, the day that a scheduled bank holiday was supposed to end.

The measure failed despite a revision that would remove some objections by exempting small bank accounts from the levies.

The original terms of the bailout called for a one-time tax of 6.75 percent on deposits of less than €100,000, or $129,000, and a 9.9 percent tax on holdings of more than €100,000. The levies, a condition imposed by Cyprus’s fellow E.U. members, are designed to raise €5.8 billion of the total €10 billion bailout cost.

Under a new plan put forward by Mr. Anastasiades early Tuesday, depositors with less than €20,000 in the bank would be exempt, but the taxes would remain in place for accounts above that amount.

The rejection drew loud cheers and cries of joy from a crowd of more than 500 protesters who had gathered in front of Parliament since late afternoon, carrying banners denouncing what they said was a confiscation of their private funds. Some wielded unflattering posters of Chancellor Angela Merkel of Germany, a day after a demonstrator breached security at the German Embassy and climbed to the roof, throwing down the German flag.

“Today, Germany is engaging in Nazism again, not with the weapon of force, but with money,” said a pensioner, Dimitris, 67, who would give only his first name.

The central bank governor, Panicos O. Demetriades, had said the revised plan would fall €300 million short of the €5.8 billion demanded by the international lenders. The gap would be considered a breach of the bailout agreement, he said, and “perhaps might not be accepted” by the bailout negotiators.

And even as Mr. Anastasiades submitted the revised plan to Parliament, he had acknowledged that the changes probably would not be enough to secure a majority in the 56-member legislature. “I estimate that the Parliament will turn down the package,” he said on state television as he headed into a series of meetings.

The managing director of the International Monetary Fund, Christine Lagarde, said earlier Tuesday that she was in favor of modifying the agreement to put a lower burden on ordinary depositors. “We are extremely supportive of the Cypriot intentions to introduce more progressive rates,” she said in Frankfurt.

She had urged leaders in Cyprus to quickly approve the plan agreed by European leaders in Brussels last weekend. “Now is the time for the authorities to deliver on what they have commented,” Ms. Lagarde said.

She complained that critics have not recognized the value of the agreement, in that it would force banks in Cyprus to restructure and become healthier.

In Brussels, Simon O’Connor, a spokesman for Olli Rehn, the E.U. commissioner for economic and monetary affairs, said Tuesday that finance ministers from countries using the euro had agreed the previous night in a teleconference that Cyprus could adjust the way the levy would operate.

But Mr. O’Connor said the E.U. authorities were still waiting to see whether the adjustments being discussed in Cyprus delivered “the same financial effect” as the agreement between Cyprus and international lenders in the early hours of Saturday.

“On the parameters of this levy, we will not comment as long as that’s a process that’s still under way,” Mr. O’Connor said.

On the prospect that expatriates in Cyprus may not have access to their bank accounts any time soon, the British Ministry of Defense said Tuesday that it had sent a Royal Air Force plane to Nicosia with €1 million on board to offer loans to British military personnel there.

The money, it said, was meant to “provide military personnel and their families with emergency loans in the event that cash machines and debit cards stop working completely.”

The ministry also said that it offered to pay the salaries of employees in Cyprus into British bank accounts. “We’re determined to do everything we can to minimize the impact of the Cyprus banking crisis on our people,” the ministry said in a statement.

James Kanter contributed reporting from Brussels, Jack Ewing contributed from Frankfurt and Julia Werdigier contributed from London.

Article source: http://www.nytimes.com/2013/03/20/business/global/cyprus-rejects-tax-on-bank-deposits.html?partner=rss&emc=rss

Staying Alive: A Business Owner Confronts the Specter of Layoffs

Staying Alive

The struggles of a business trying to survive.

In my last post I imagined an exchange between myself and two tiny visitors. Three weeks without a sale, an extremely unusual event, had forced me to take a hard look at the numbers and explore what to do next.

A little devil on one shoulder advised me to reduce expenses by firing staff members, while a little angel on the side pleaded that I should either take the hit myself, or slash advertising expenses and spare my workers. I didn’t much care for either option. I don’t want to cut my pay, I fear that cutting advertising will make the sales slowdown even worse, and don’t want to lose any of my hard-working and productive employees. (And that’s the only kind I have.)

In response to my request for advice, readers chimed in with some further questions, observations, and suggestions:

Question from Kris: Do you see this slowdown the same time each year?

Nope. In my 25 years in business, I have noticed two consistent slow periods: the two weeks before Christmas, and the first two weeks of April (which perhaps is related to the pall that paying taxes casts on our national mood). Otherwise, sales are pretty steady, but they do vary greatly in size and sometimes come in clumps. We frequently go a week without a sale and go two weeks without a sale maybe three times a year. But I had never gone three weeks without closing something. And that spooked me.

Question from The All Knowing One: It seems like the market for high-end conference tables is limited. It’s not an item people buy every day. What about adding other types of furniture, like dining-room tables and chairs, desks, maybe beds, etc.?

Been there, done that. And I’ve written many times about the difference between the residential and business furniture markets. For those who didn’t see those posts, selling to homeowners involves a very long sales cycle, with a lot of hand-holding, and the jobs are difficult to produce efficiently. And there is also ferocious competition from overseas producers. I lost money in that market for many years and I don’t plan to return any time soon. So even though I have a huge catalog of residential furniture, I don’t want to divert my efforts into a difficult business.

Another from The All Knowing One (an odd moniker for someone with so many questions): Are you still having weekly conferences with your staff and sharing financial info?

Yes, we have a meeting every Monday, and I have been clearly explaining the potential problem as it has developed, including the same numbers I detailed in my last post.

Which brings me to Adam, who observed: If I read that my boss was considering layoffs I’d be kinda ticked about finding out about it first on a blog on the internet.

As I said, I have been sharing the numbers at our meetings. However, the blog post was my first attempt to clearly lay out the problem and possible solutions. It’s hard for me to give that kind of logical exposition while speaking off the cuff, so I used the blog as a vehicle to communicate my thoughts on the situation. Yesterday, after seeing Adam’s comment, I asked my two salesmen their reaction to the post. One of them, who has been with me for many years, said he read it but wasn’t worried at all — he trusted me to do the right thing, and that whatever decision I made would most likely be a good one. The other, who is a new hire, said that he was disturbed by it, because he assumes that as the last hired, he would be the first one laid off. But he took some comfort from my stated desire to keep all of my staff.

From Ted: I think you should call the Angel the one that is trying to save your business and keep your family happy, and the Devil the one that wants you to keep spending money unrealistically by keeping your work force.

Funny, as I was writing it I started to consider the same point. But in the end I decided to go with the conventional liberal-lefty attributions. Kudos to you for realizing that it could be flipped and still make as much sense.

From Doug: Google Analytics will show you if your referrals are from paid search or natural search. If it’s natural (are you paying someone to get you on page 1?) then you can cut Adwords.

Yes and no. Looking at Google Analytics, I can see that 42 percent of my traffic is organic, and 22 percent is from pay-per-click. But what I can’t easily see is which type of traffic drives the phone calls that make up the majority of my inquiries. I understand that there are ways to set up the Web site so that I can trace those calls, but I haven’t done it yet. Up to the end of August, everything was going great guns, and I didn’t have any reason to change anything.

From David Fisher: Cut and cut NOW. Cut hours or layoff staff…or both. Whichever causes the least disruption to your business and production and keeps your doors open and a roof over your head. I waited for things to “get better” and believed the constant refrains of my (non-paying) clients and it wiped me out…I am still trying to re-build.

David, this is excellent advice and I, too, went through a similar episode in 2008. I told that story here and here. Fortunately for me, this time is different: my clients continue to pay on time, and I have a decent cash cushion. So I haven’t reached the point of desperation yet. But, having been there, I know how bad things can get. That’s why I started thinking hard about what to do before I needed to.

So here’s what I decided to do: nothing at all. I’m a big believer in the idea of “reversion to the mean,” which means that unusual events are most likely to be unusual events, and that it’s far more likely that what will happen next is what usually happens. Nothing about our marketing had changed, and we continued to get new inquiries at the same rate as we have the rest of the year. That told me that potential clients were not reacting to the news of stock market gyrations and European debt problems.

We were still sending out the same kinds of proposals that we usually did, and those proposals had gotten us work in the past. We contacted everyone who had received a proposal, but that we hadn’t heard back from, and many of them told us the jobs were still alive, but they didn’t know exactly when they would place an order. We still had work to do and money to do it with. Those two things told me that I should keep all my staff at least until we finish the jobs we have and our backlog goes to zero — cutting back on production would only slow the stream of cash we get when a job is done. And eliminating people would reduce our build capacity and our ability to take quick-turnaround jobs.

I wrote that post on Sunday, Sept. 26. We had sold one job in the preceding week, bringing our monthly sales to $19,366. (Previously, our average month this year had been $165,000.) Monday, Tuesday and Wednesday we received no more orders. Then on Thursday the dam burst. Five new orders came in, totaling $73,402. And on Friday we got four more, totaling $56,985. Our sales for the month of September totaled $149,753, and sales for the year added up to $1,495,963. That’s just $4,037 shy of my target of $1,500,000. Phew!

And whatever happened that week is continuing. We have booked five more orders, totaling $212,461. That’s right — we’ve sold more than a month’s worth of tables in three days. So in the space of a week I’ve gone from worrying about layoffs to sweating about how to get the work out the door. Which is also a problem, but the right kind of problem.

Is there a moral to this story? Maybe this: if you set up a system that reliably produces results, a sudden hiccup may not mean that all is lost. And it’s a good idea to have systems to track your cash supply, so that you can start planning for any scenario. Thanks to everyone who offered advice. I’m mighty happy that I haven’t had to take any of it.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.

Article source: http://feeds.nytimes.com/click.phdo?i=51aee7e630dbbab6ee0871bb7f4de0ea

Economic Scene: A Mission Not Yet Accomplished

For the second straight year, the recovery seems to be at risk of stalling. The economy grew at an annual rate of only 1.8 percent last quarter — eerily similar to the 1.7 percent growth last spring, just when job growth started slowing down. Fully 80 percent of people say the economy is in fairly bad or very bad shape, according to a New York Times/CBS Poll last month. More people say it’s getting worse than getting better, the opposite of a few months ago.

White House advisers and Ben Bernanke, the Federal Reserve chairman, argue that the bad news is a merely a blip caused by bad weather, a temporary cut in military purchases and other one-time factors. They may be right, too. Stock market investors certainly share their optimism: the Standard Poor’s 500 index is near a postrecession high.

But both Wall Street and Washington were also optimistic around this time last year — too optimistic. The unfortunate truth is that the recoveries from financial crises have a habit of disappointing.

Crises do so much damage that they leave businesses and households predisposed to believe the worst and to pull back at the first hint of economic weakness. Households are slow to resume spending. Banks are slow to lend, especially to small businesses. Companies are slow to hire.

All this is why the typical financial crisis has caused unemployment to rise for almost five years, according to historical work by the economists Carmen Reinhart and Kenneth Rogoff. We are well ahead of that timetable, thanks to aggressive action by the Fed, the Obama administration and, in its final months, the Bush administration. But our working assumption should be that this recovery will remain at risk for a long time.

If it stalls out for a second year in a row, the consequences could be particularly bad. The specter of a “lost decade,” like Japan’s, would become commonplace. Pessimism would feed yet more hesitation from businesses and households. For Mr. Obama himself, of course, the raid in Abbottabad could become a version of President George H. W. Bush’s Gulf War: the foreign policy triumph that turned into an electoral footnote.

I suspect that Mr. Obama’s advisers have remained publicly optimistic over the last few months because they consider optimism to be one of the few economic tools they have left. The sensible step for Congress would be to pair long-term deficit reduction with a mix of short-term tax cuts and aid to states, whose budget cuts are leading to layoffs. But Congress hasn’t shown itself capable of separating the short term and long term. So the odds of new legislation to help the economy anytime soon are roughly nil.

Even so, there are still two steps the White House can take, and now is the time to start planning them. If policy makers wait to take action until the recovery has undeniably stalled — as they did last year — they will have waited too long.

The first step is to remember the economy’s vulnerability when negotiating a deal over the debt ceiling. Congress and the administration have until August to increase the federal government’s authority to borrow money, and Republican leaders say they will insist on spending cuts as part of any agreement.

There are still plenty of sensible cuts for the two parties to make. Tax breaks (which many economists consider a form of spending) for both businesses and individuals can be reduced. Military spending, which has risen more than 70 percent in inflation-adjusted terms over the past decade, can be cut, too. Many social programs, meanwhile, don’t focus enough on outcomes and waste money in the process.

But it would be folly to start making these cuts immediately and potentially put people out of work. Last month’s deal to avert a government shutdown did a good job of minimizing the number of cuts that would affect the economy this year. Policy makers would be wise to repeat the pattern in the debt ceiling talks, making more future cuts and fewer immediate ones.

The second step involves the only way in which I can imagine Congress taking action to help the economy.

At the end of this year, about $225 billion of temporary tax cuts and emergency jobless benefits are scheduled to expire. These provisions were part of the compromise bill in last year’s lame-duck Congressional session that also extended the Bush tax cuts. The Bush tax cuts were extended through 2012, however, while the other provisions — including a payroll tax cut for households and a tax cut for expanding businesses — expire at the end of 2011.

Given the legitimate concern about the deficit, many members of Congress will want to let these temporary tax cuts lapse. But if the economy remains weak, continuing them for one more year will make sense.

Their economic impact is not small. Moody’s Analytics estimated that the economy would have 1.1 million more jobs at the end of 2012 if the tax cuts and jobless benefits were extended. Yet their impact on the long-term debt is minimal. Tiny changes in Medicare could more than pay a one-time, $225 billion bill.

Somewhere — in the White House or in the halls of Congress — somebody should be coming up with a plan to sell an extension of these measures. Persuading a financially battered public that it deserves another short-term tax cut isn’t likely to be too difficult.

Above all, Washington should avoid the temptation to get giddy about any one piece of economic good news. Those bits of encouraging news will happen. We may even get one on Friday, when the Labor Department reports on job growth in April.

The big lesson of financial crises is that too much optimism exacts a steep cost. You can make a case that the long hunt for Osama bin Laden offers the same lesson. A tough job is not done until it is undeniably done.

Article source: http://feeds.nytimes.com/click.phdo?i=2dde58087938cbb7bfa2b30f2741d94c