Streetwise Professor

March 26, 2013

Caninophobia->Russophobia?

Filed under: Economics,Financial Crisis II,Politics,Russia — The Professor @ 6:32 pm

In the immediate aftermath of the abortive deposit levy in Cyprus, I confessed being unsure as to why Russian stocks took a bigger hit than about stocks in any other country, including those in the EU where the precedent of expropriating insured depositors would seem to be most salient.

Upon reflection, the most likely explanation is that Cyprus’s financial straits would impede the utility of the country as a tax haven for Russian companies.

Although European and US stocks have rebounded, Russian stocks haven’t.  This got me thinking about the implications of the recent deal for Russian companies.

Capital controls appear to be the key.  If Russian corporates can get their money into Cyprus, receive the favorable tax treatment, and then get it out again, boomerang-like, they are OK.  Conversely, if Cyprus becomes a roach motel, where money goes in but can’t get out, that would really put a tax crimp on Russian corporates.

There have been wildly conflicting claims about the prospects for capital controls in Cyprus.  This seemingly official announcement only adds to my puzzlement:

Capital controls imposed to avert a run on banks in Cyprus after a painful EU rescue plan will be “loose” but will apply to all banks on the island, the Central Bank governor said on Tuesday.

“We aim for some restrictions which, in the words of the president, will be loose,” Cyprus Central Bank governor Panicos Demetriades said. He said the measure would apply to all banks based on the island.

Demetriades said the restrictions would be “temporary” but would not say how long they would last.

“Temporary” I sort of get.  Though I think of the withholding tax, which was a “temporary” wartime measure adopted in 1942.  Better yet, the “temporary” tax on telephone services, adopted to fund . . . the SpanAm War in 1898.  Still on your bill today, folks.

The “loose” part is a mystery.  WTF does that mean, exactly?

My interpretation: Cyprus wants to ensure that Russian companies can continue to boomerang money through the country.  If capital controls are “tight”, Cyprus becomes a roach motel, and Russian money will not check in knowing it wouldn’t be able to check out.

My question: what say the Germans about this?  I sense that the back-and-forth over capital controls is just part of the battle between the Germans and the Russians, in which the Cypriots want to support the Russian side.  I suspect the Germans will consider “loose” to be unacceptable. Meaning that there will be more conflict to come.

The anti-Russian implications of the German hard line on Cyprus are striking, and hard to understand completely, given the fact that Germany has taken a relatively pro-Russian line in Nato.  But perhaps there’s something deeper going on here.  Maybe something personal.  I wonder if Putin regrets setting his dog loose on Merkel-a notorious caninophobe.  Could caninophobia have led to Russophobia?

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19 Comments »

  1. Didn’t somebody say “there is nothing so permanent as a temporary government program”?

    In the oilfield we have our own version: “there is nothing so permanent as a temporary modification”.

    Comment by Tim Newman — March 26, 2013 @ 11:32 pm

  2. In Britain, income tax was introduced in 1799 to pay for the Napoleonic Wars. It was 10% on income over £60 (about £68,000 / US$103,000 in money of today).

    Position limits were introduced to combat price volatility during WW1.

    The moral is that taxes introduced to fund wars are never abolished simply because the war has ended. Having won the war has no bearing on the persistence of the tax.

    Comment by Green as Grass — March 27, 2013 @ 9:59 am

  3. I take it you may have read the Anders Aslund editorial about Putin’s dog summits with Merkel. How small can you get?

    Comment by Howard Roark — March 27, 2013 @ 10:19 am

  4. > Caninophobia->Russophobia?

    That’s how I met you, Professor: when you posted to La Russophoba about a pack of feral dogs that attacked your scientific community in Red Square.

    And the fear of a dog is called Cynophobia. A more specific form – Sinophobia, fear of eating dogs. In Kazakhstan there is Koninophobia, fear of eating horses and Romanian hamburgers.

    Comment by Vlad Rutenburg — March 27, 2013 @ 4:48 pm

  5. http://www.themoscowtimes.com/opinion/article/the-cyprus-crisis-is-a-postmortem-for-russia/477473.html

    Putin’s personal relations with the current EU leaders could hardly be worse, and he does nothing to improve them. Most conspicuously, the president insists on taking his big black Labrador Retriever Koni to his meetings with German Chancellor Angela Merkel, despite knowing that she cannot stand dogs. It is no surprise that Merkel keeps him at a distance. Such infantile pettiness belongs to the sandbox and harms Russia’s national interests. As newly re-elected president, Putin skipped the Group of Eight summit at Camp Davis last May, offering a pathetic excuse that nobody believed.

    But the EU needs Russia as well. As Germany surges, Russia no longer seems too big to enter the EU. With a GDP of nearly $2 trillion, Russia matches Britain, France and Italy, and it is only slightly smaller than Germany. The current concern within the EU is that Germany is becoming too dominant. As a member of the EU, Russia could help rebalance the forces within the union.

    The Cyprus affair shows how unsustainable Russia’s current policies are. Economically, Russia is ripe for the EU, but before it can be considered for membership, Russia first needs to become democratic, cooperative and law-abiding.

    Comment by Vlad Rutenburg — March 27, 2013 @ 4:52 pm

  6. Could Merkel also be suffering from Putinophobia and Puttanophobia (fear of Berlusconi)?

    Comment by Vlad Rutenburg — March 27, 2013 @ 4:59 pm

  7. “But the EU needs Russia as well. As Germany surges, Russia no longer seems too big to enter the EU. With a GDP of nearly $2 trillion, Russia matches Britain, France and Italy, and it is only slightly smaller than Germany. The current concern within the EU is that Germany is becoming too dominant. As a member of the EU, Russia could help rebalance the forces within the union.”

    Only if anyone trusts them to do such a thing – the problem with any autarchy (not just the Rus) is that they are inherently fragile and subject to pressures somewhat different than the Bureaucratic imperatives found in the rest of Europe. The historical parallel or example is that while the Tsarist Regime could work perfectly well within Metternich’s Concert of Europe, it had a hell of a time dealing with republican regimes, despite being much more stable, or at least more legitimate than the current regime. . Being as large as it is makes the digestion problem potentially worse. If I was a Eurotard, I would worry about the potential for malicious interference or behavior, particularly to appeal to a domestic (Russian) audience. G-d alone knows there has already been enough of that over the CAP battles of the 80’s and the current Euro-skepticism.

    Finally, as far as there being an inherent contradiction in German Policy – why should they be special? Last time I looked the Krauts have shown the ability to screw up as often (or more so) than anybody else. In honor of Vlad correctly pointing out that the correct work for dog fear is Cynophobia – the root being Kginoi, let’s consider another word derived from dog – Cynic from the root word meaning dog-like, originally an insult to describe the extreme asceticism (or disdain of property and possessions) of Diogenes and the like. The key to the Germans’ inability to stretch for the Rus may be best summed up by that Great modern Cynic philosopher, Cyndi Lauper when she noted that “Money Changes Everything”.

    Comment by Sotos — March 29, 2013 @ 9:02 am

  8. I don’t think Russia even considers becoming a EU member. In fact, from all one can onsever, it has quite opposite tendencies. Therefore, the even the contemplation on the subject whether Russia is right for EU or not is an academic exercise at best.

    Comment by MJ — March 29, 2013 @ 9:57 am

  9. Off topic
    Hey Professor is Kim Jong-un actually going to kick this party off?

    His interesting target selection suggests no love lost for US liberals.

    Comment by pahoben — March 29, 2013 @ 10:42 am

  10. I don’t know how it came out to be “onseverbut I meant “observe.” :)

    Comment by MJ — March 29, 2013 @ 11:05 am

  11. In Russian, the word for dog-study is KINOlogia, which many mistake for the study of films.

    Comment by Vlad Rutenburg — March 29, 2013 @ 7:56 pm

  12. In Russian, the word for dog-study is KINOlogia, which many mistake for the study of films.

    Or the study of 1990s rock groups.

    Comment by Tim Newman — March 29, 2013 @ 11:25 pm

  13. …and I thought Rodman had it straightened out.

    Comment by pahoben — March 30, 2013 @ 8:24 pm

  14. Russian news is making a big deal out of Putin sending Shoigu a directive to prepare for war. God knows which trouble spot he is referencing.

    Comment by pahoben — March 31, 2013 @ 10:46 am

  15. I guess south bank of the Caspian.

    There must be rational Russian intelligence and military analysts taking the position that maybe nuclear weapons in Iran isn’t the best of ideas.

    Comment by pahoben — March 31, 2013 @ 11:17 am

  16. @pahoben. Sounds like Putin is taking cues from Kim Jung Un.

    The ProfessorComment by The Professor — March 31, 2013 @ 2:00 pm

  17. LOL

    Comment by pahoben — March 31, 2013 @ 3:17 pm

  18. > Russian news is making a big deal out of Putin sending Shoigu a directive to prepare for war. God knows which trouble spot he is referencing.

    What is puzzling to you? Putin realizes that if Kim launches a nuke at Los Angeles, the farthest it will get will be downtown Vladivostok.

    Comment by Vlad Rutenburg — April 1, 2013 @ 5:54 am

  19. “There must be rational Russian intelligence and military analysts taking the position that maybe nuclear weapons in Iran isn’t the best of ideas.”

    Yeah, but
    1. Who is listening?
    2. Who in the leadership will say no to you know who?
    3. Most politicians suffer from Attention (Receipt) Deficit disorder that cause s their mouths to flap open and to say anything that gets them a headline or builds up their ego.

    Finally these guys around you know who are the fruit of instability: whatever their intellect tells them, emotionally they are geared towards (or at least insensitive to) risk, particularly if they have already made it. The image of children playing with blasting caps comes to mind.

    Comment by sotos — April 1, 2013 @ 7:12 am

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