There is a situation playing out in Europe right now that’s seen the government of Cyprus, as a condition for the participation of the European Central Bank and the IMF in an ostensibly forthcoming bailout, attempt to put Cypriot depositors on the hook for a recapitalization of the Nation’s, apparently, teetering financial system. When first announced these measures were to include a one-time “tax” on all deposits between roughly 6.6% and 10% but, recognizing the distressing irony in skimming Euros off of those deposits under EUR100,000 (which are supposed to be guaranteed by a program not unlike our own Canadian Deposit Insurance Corporation), the Cypriot government rejected the original measures and sent the European Commission back to the drawing board. As the deal currently stands the “bail-in,” or depositor haircut, will apply only to accounts with deposits over the EUR100,000 threshold . It is still not clear, however, exactly how much these depositors are going to be forced to give up when the bailout deal is finalized.
Meanwhile withdrawal limits, transfer limits, and other forms of capital controls are continuing to put stress on the country’s economy and fray depositors’ nerves. From the New York Times;
“One of the customers lined up at a Bank of Cyprus branch, a 27-year-old businessman who would give only his first name, Miltos, shook the stack of papers in his hand. It represented nearly €40,000 of bills he owed the suppliers of his small telecommunications company.
The long bank closure had damaged his business “terribly,” said Miltos, standing under a warm sun. Unless he could persuade Bank of Cyprus to let him transfer more than the €5,000 limit for the month that the government has decreed, he said he feared he might soon go out of business. “I’m trying to hold on by tooth and nail,” he said.
The capital controls are aimed at clipping the wings of money that might otherwise fly from the county. They include prohibiting electronic transfer of funds from Cyprus to other countries, while capping at €3,000 — about $3,900 — the amount of cash that can be taken abroad. Daily withdrawals from automated teller machines will be limited to €300 per person, an improvement on the €100 cap that had been in place the past few days.”
Alberta’s primary export, unrefined though it is (bitumen), is one that is in demand and not going to get significantly cheaper in the long run. The fundamentals for the continuing rise in the price of oil (scarcity, developing world energy demand, for example) remain firmly in place, and Alberta’s situation promises only to improve if/when our representatives nail down a pipeline agreement and allow Albertan oil to access the higher, international, Brent Crude benchmark rather than the lower West Texas Intermediate price. This bodes well for Albertan commerce as, for the foreseeable future, oil will remain a powerful and important driver in this Province’s economy.
At VR we are quite optimistic about the future course of the Albertan economy. We have a vibrant private sector in this province and people flock here from all over the world. Immigration within Canada is already in full swing, with more and more Eastern Canadians venturing out West in search of greater opportunity, ensuring demand for goods and services will continue to grow (see here). Similarly, immigrants from outside Canada will continue to arrive in greater numbers, seeking their fortunes in the dynamic economic centers of this country. They bring with them their own unique brand of entrepreneurialism and they are motivated. This is good news because they will be replacing retiring boomers in both the workforce and as business owners. (See Jey’s previous article on the Boomer Generation here.)
Since beginning my work at VR I cannot count the number of different accents I’ve heard coming from the seemingly always occupied meeting room at our office. Businesspersons from all over the world come here seeking essentially the same thing because the way financial success is measured doesn’t change. Coupled with the previous generation of entrepreneurs divesting themselves of their interests and the influx of, literally, new blood rushing into the province, we see ample opportunity for us to make the connection between business owners who feel they have grown things as far as they are able, and those with ambitions to evolve and grow the businesses that make up Alberta’s bustling economy.
There is much more drama to come before policymakers can honestly call the situation in Europe “fixed,” in my opinion, but I believe Canadians, Albertan’s especially, will be able to enjoy that bit of political theatre from afar.
Submitted by Kenji Miki