The EU – stoutly defended today [17th March], by German Chancellor Angela Merkel, has ordered Cypriot banks to hand over up to 10% of their deposits as a guarantee of responsible conduct following an offered bail out of €10 billion.
This raid on the savings of the prudent – who are not responsible for the management of Cyprus’s economy – is expected to raise €6 billion.
The country’s banks immediately informed customers that they were free to withdraw money from their account at will – except for the percentage to be levied by the EU on their deposits.
They may have imagined that this would somehow be reassuring but it served to inflame anger further in reinforcing the impotence of those who, not unreasonably, see themselves as victims of a Euroheist.
Political agreement on accepting the bail out on the given terms has so far proved impossible to gain to the necessary degree. A vote on the matter has had to be postponed to tomorrow – 18th march, to allow tine for desperate internal negotiations.
The real damage though, extends far beyond Cyprus and is even more profound.
The government of Cyprus is preventing a run on its country’s banks by freezing operations for the time being.
The EU levy on deposits and the bank’s freeze on deposits applies only to the Cyprus operations of Cypriot banks – not to Cypriot banks operating elsewhere. So deposits in Cypriot banks in, say the UK or Greece, are not to be affected.
The supposedly protective measure may actually bring about an even more serious run – on European Banks.The economies of Spain, Portugal and Italy have been recognised for some time as quite likely to need bailing out at some stage not too far distant.
With Cyprus running into trouble before these economies and now seen to have suffered this raid on personal savings by the Eurozone countries in return for a bail out – what would you do if you were a citizen of Spain, Italy or Portugal?
The strong likelihood is that you would get your money out of the banks in your own country now and transfer it probably not only to a non-national bank but to one operating in another country.
This could see dangerous but understandable early runs on Spanish, Italian and Portugese banks.
It is also not improbable that UK banks could be the beneficiaries. This country’s banks could be seen as the safest of all deposit hosts since it is not a member of the Eurozone and is therefore beyond such instructions from that group.
