The Cypriot parliament has now thrown the ball back to the EU with its rejection of the bailout. It has also opened up the door to the Russians to get involved in the EU’s internal problems by sending a delegation to Moscow. The Russians may still come out of this with a charge over Cypriot gas reserves in return for a taking equity in the bust Cypriot banks.

The EU now has to go back to the drawing board and come up with a better deal for Cyprus or else face political, diplomatic and economic defeat. If the Cypriots get a better deal from all this, many here will argue that their tactics of saying no will have served them better than our stragety of being the “best boy in the class”.

And all this carnage suffered in order to protect the euro, for which our political leaders are prepared to destroy trust within the EU both between countries and between the people and the State.

It is difficult to describe the proposed weekend bailout package to Cyprus as anything more than theft. The confiscation of 6.75% of small depositors’ money and 9.9% of depositors’ funds over €100,000 is without precedence. Now the EU is rowing back because the Cypriots won’t bear it, but a precedent has been set and the they look incompetent.

On Saturday the EU tried to confiscate people’s savings. This is a breach of fundamental property rights. Although the EU tried to present this as a one-off, it is not willing to rule out similar measures elsewhere. Why should we expect any kind of limitation to what measures the troika and EU might take when the crisis – in Spain, for example – really starts to bite?

If you can do this once, you can do it again and if you can confiscate 10pc of a bank customer’s money, why not 50pc?

This is just the latest in a series of measures designed to protect the euro. Remember, the euro was supposed to protect us, not the other way around.

But the weekend’s efforts to steal deposits in Cyprus and now the involvement of Moscow, reveals just how many moving parts have to be assessed in order to get a handle on the politics and thus, economics of the EU. The level of spin coming out of Brussels, swallowed, it must be said, by all sorts who should know better, reveals the fact that no one is in charge. It is this very lack of political leadership at a time when economic growth is falling and debts are rising, which makes so many of the EU’s decisions seem like second rate compromises.

On Saturday, the EU broke known corporate finance rules by trying to expropriate deposits in Cyprus to pay for its banking collapse. Based on the experience of the Great Depression and more recently, the Asian crisis, most policymakers realise that the most crucial initial reaction to a banking crisis is to prevent a run on bank deposits.

This is why trying to steal people’s deposits and dress this up as a ‘tax’ is precisely the worst thing to do as it engenders the very panic that the authorities are trying to avoid.

In addition, by going after depositors, the EU is breaking one of the understood rules of the game (to the extent that there are rules). That rule is that depositors are different.

Depositors are a different type of bank creditor to any other sort. In an insolvency situation, they ought to be regarded as “trust creditors” or “creditors in trust”. They deposit their money, in the main, because they trust the system. They are not investors in the traditional sense like shareholders or bondholders. They trust the system to look after their savings and as such, they need to be protected. If you actively break that trust, as the EU tried to do at the weekend, you do so at you peril.

And of course the peril or risk here is that depositors in other countries with still-unresolved banking crises, such as Spain, will see the Cypriot deposits being looted, think “we’re next” and take their money out of the banks.

This deposit flight is the bank run which is the very upshot that the authorities are most keen to avoid. Bank runs happen quickly, which is why they are called bank runs, not bank strolls or bank ambles.

The truly intriguing thing about this episode is that everyone knows all this. The people in power are not stupid.

They know that gouging people’s savings will cause panic, as we have seen in Cyprus, so why do it? Why not impose all losses on bondholders, orchestrate an organised sovereign default or change the terms of the deals?

Only politics explains what is happening. The first thing to put into the mix is the German election in September. It is clear Ms Merkel will do nothing to upset her voters before that. It is also becoming obvious that Germans and other creditor nations are becoming a bit fed up of bailouts. Equally, the southern periphery is fed up of austerity and is voting against Germanic policies in the Mediterranean. Finally, in Cyprus there is the Russian factor. Because so many of the large depositors in Cypriot banks are Russian, there is a movement within the EU to teach Cyprus a lesson about unregulated banks, money laundering and safe havens for dodgy money.

But now that move, designed to satisfy all these varying concerns, has backfired, satisfying none, where does that leave the EU? The Cypriots will not accept the deal. This puts the EU on a collision course with Russia and, maybe more crucially, blows out of the water the notion that we are working towards a banking union where all EU savers will be treated equally.

This latest crisis reveals that the crisis hasn’t gone away. In fact, it has morphed into a different beast. With Germany in election mode, nothing serious will be done until October at the earliest and thus Europe will be rudderless for more or less the rest of this year.

We will stumble from one mini-crisis to another, making enemies unnecessarily and scaring the wits out of the people in the process because they know once you let this deposit-robbing genie out of the bottle, it’s very hard to put it back in.

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