Back on topic, I believe the genie has just been let out of the lamp.
I cannot think of a previous example where a so called developed nation has plundered the assets of the people in such a way. This is not about trying to resolve a difficult situation. This is banditry on a nation scale and now the precedent has been set in the EU, which sovereign state will be next? (yes I know there aren't any in the Euro zone, they are all little more than vassal states to the greater German empire, but try to stay with me).
It is important to note that the Bondholders have not been dealt the same treatment, purely the deposit holders. Cypriot President Nicos Anastasiades has warned of a total financial collapse and euro exit if there's no deal. You can read the statement here:
http://www.moi.gov.cy/moi/pio/pio.nsf/A ... endocumentWhat I love is the 'gun to the head' threats mentioned such as a weakening of Cyprus (surely 'es avin a larf). The final statement about
"It's a decision that leads to the historic and permanent rescue our economy." really had me in stitches.
oh and by the way. The verminous way in which this has been conducted is to switch off all atm machines so nobody can withdraw any money before Tuesday.
Moving back to the core issue. It is well to be aware that in relative terms, the Banks represent some 6 times the Cypriot economy in terms of size. So any decision or circumstance within that sector will have huge repercussions.
At the end of the day, those who are interested or have an interest in this will have an opinion. For what it's worth, here's mine.
Let's assume for this that the Government approves this deal as is. Then it is a fact that depositors will have some of their money seized on Tuesday morning.
You may not care much whether these depositors (including those Russian oligarchs and other non-residents that I mentioned some time back in another thread) have this money seized. After all, that was the risk they ran for putting their hard earned into bankrupt banks!....wasn't it?.......hmmmm....best we review that......
Ever since 1929 when a large percentage of world banks ceased to exist (overnight in some cases) and depositors lost their money, regulators the world over have tried to do anything and everything they can to protect the depositor and quite rightly. Not because the depositor needs protecting is uppermost in the regulators minds, heaven forbid. What is important is that the moment depositors think there is a risk to their savings, they rush to get their cash. Now since no bank anywhere has enough cash on hand to pay everyone a run on a bank can easily cause that bank to go bust....which brings me neatly back to 1929....or should I say 2008. For in 2008 this run on a bank is what happened to Bear sterns, Lehman and other huge banks. however, with Sterns and Lehman the yanking was not conducted by you and me but by other financial institutions. This almost brought the US financial system to its knees. Which is why the Govts of the US and elsewhere have been shoring up banks ever since.
Now we have Cyprus. thanks to this bizarre decision the illusion that depositors don't need to pull their cash out because they are protected has been shattered. People's deposits are no longer safe. Sovereign Governments can now, and will, move to take that money without asking whenever they feel. Any one reading this should take particular note of that last statement.
Furthermore, the Cypriot people must be furious over this move. They have a right to ask...why did this not happen in Greece, or Ireland? The depositors in those countries didn't lose their money.
The more important point (when viewing this in a continental or monetary zone scale) is this. Other depositors at weak banks all over Europe, in places like Spain, Italy, and Greece, will rightly wonder whether this is the beginning of a new era of bank bailouts, an era in which bank depositors are going lose some of their money. I imagine there are many, even now, nervously wondering where a safe haven for their hard earned is. Because, if their banks need further bail outs (which they will) does the deposit holder in those banks then have to suffer the same. Indeed, I imagine many will be taking their cash out over the next week or two anyway just to be safe, and if enough decide this is what they are going to do, this will cause the very run on those banks the EU et al are so desperately trying to avoid. Which kind of leaves the EU twixt rock and a hard place. They cannot do this again, for if they do, then there really will be a run and this would be a total unmitigated disaster and if they don't then the good people of Cyprus will have even more reason to feel aggrieved.
If there is a run on European banks, the EU does not have the moolah to shore them up. The US would need to get involved. And whether the US got involved or not, the shock to the system could be likened to the patient on life support suffering a massive heart attack. This would not be good for the US, China or anywhere else.
So before we all crow, or ignore, or enjoy at the expense of, or even chastise, we should all think very carefully about the blue touch paper this decision may just have lit.