By Ambrose Evans-Pritchard
One's first reflex is to gasp at the stupidity of the EU policy elites, but truth is that most EU officials handling the Cyprus crisis know perfectly well that their masters have just set the slow fuse on a powder keg – and they can only pray that it is slow.
The decision to expropriate Cypriot savers – even the poorest – was
imposed by Germany, Holland, Finland, Austria, and Slovakia, whose only
care at this stage is to assuage bail-out fatigue at home and avoid
their own political crises.
This latest debacle has caught me on the hop, literally, since I am
in Tokyo learning about Abenomics, so let me just make a few quick
points before going off for a pint of sake.
The EU creditor states have at a single stroke violated the principle
that insured EU bank deposits of up $100,000 will be guaranteed come
what may, and in doing so they have more or less thrown Portugal under a
bus.
They appear poised to seize large sums from Russian banks – €1.3bn
from state-owned VTB alone, and therefore from the Kremlin – prompting
the condign riposte from Vladimir Putin that the action is "unfair,
unprofessional and dangerous."
They have demonstrated that the rhetoric of EMU solidarity is just
hot air, that they will not force their own taxpayers to share a single
cent of clean-up costs for the great joint venture of monetary union –
in which northern banks, insurers, pension funds, and indeed
governments, were complicit.
Their refusal to pay is entirely understandable in one sense – and if
I were a German taxpayer, I would not care to swallow these losses
either – but then the leaders of these creditor countries can hardly
expect the world to believe that they will in fact do whatever it takes
to hold EMU together. Quite obviously, they will not.
The sooner this is made clear, the better. The sooner they take the
proper course of withdrawing from EMU and organise the break-up the euro
in the least disruptive way, the sooner Europe can recover.
We have already seen the EU solidarity mask slip a few times, not
least in the repeated retreats over Greece, and again when German-led
quartet resiled from last year's summit deal to let the ESM bail-out
fund take some of the weight of recapitalising banks off the shoulders
of the Irish and Spanish states.
What is clear is that Angela Merkel will not risk defeat in the
elections in September by ceding a single vote to Social Democrats
determined to hold her feet to the fire over a bail-out for "Russian
oligarchs, money-launderers, and tax evaders" in Cyprus, or by ceding
votes to the new anti-euro party Alternative fur Deutschland. She will
look after her own political interests, and all the rest is humbug.
It is a fast-moving story. The Cypriot parliament may throw out the
deal. It may be rejigged so that depositors under $100,000 pay less than
the 6.75pc levy agreed, and those above may pay more than 9.9pc.
The creditor powers appear to think that the contagion risk is
manageable now that the ECB has its bond rescue mechanism in place for
Spain and Italy. But they made just such an assumption when they imposed
a haircut so cavalierly on private investors in Greece, only to
precipitate a full-blown crisis across Club Med. And don't forget, the
reason why Cyprus has gone belly up is because of the knock-on effect on
Cypriot banks from the Greek haircuts.
It is far from clear that the ECB backstop for Italy still exists,
given that there is no compliant government in Rome able to meet the
rescue conditions.
Portugal is not safely out of the woods. Its slump has been deeper
than expected. Its debt dynamics are nearing the danger zone faster than
feared. Citigroup, Nomura, and many others think it almost certain that
Portugal will need a second rescue, and probably debt-restructuring.
What happens then? Are savers going to wait patiently for their own
scalping as this becomes clearer?
As for Spain, we learn from leaks in the Spanish press that officials
from the ECB and the Commission warned Eurogroup ministers that the
raid on Cypriot savers posed a grave contagion risk to Spanish banks,
threatening to set off deposit runs.
EMU commissioner Olli Rehn promised that there will be no losses
imposed on depositors in other countries, but the decision will be made
in Berlin, the Hague, Helsinki, Vienna. He has no authority to make such
a pledge. He is just a civil servant.
The danger may not be immediate but if the economies of Portugal,
Spain, and Italy languish through this year in deep slump with no green
shoots of recovery starting to sprout in the second half – as many fear –
this new dispensation will be tested. The fatal precedent of haircuts
for depositors will start to matter a great deal. Hell hath no fury like
a saver robbed.
Related Reading:
Fanatics Who Will Do Anything To Save The Euro
Daylight Bank Robbery In Cyprus Will Haunt The EMU
Cyprus Offers A Scary Economics Lesson For America
Willie Suttonomics
The Rape of Cyprus
Cyprus and the Death of Deposit Insurance
The Extraordinary Thing Is That There Hasn't Yet Been A Bank Run Across The Mediterranean
After Cyprus Bank Bailout, Depositors Race To Withdraw Their Cash. Is The Rest Of Europe Next?
Monumental Deceit: How Our Politicians Have Lied And Lied About The True Purpose Of the European Behemoth
The EU's Insidious War On The Nation State Must Be Halted
Václav Klaus Warns That The Destruction Of Europe's Democracy May Be In Its Final Phase
Bubble Times: 20 Facts About The Collapse Of Europe That Everyone Should Know
The UK to the EU: Eeeeeew! Go Away!
Europe's Double Dip Teaches A Lesson About Taxes
A Message To Leftists In The UK & US From Sweden
Suicide-By-Demographics, Post #3,209,598
Leavin' Here: Escape From The E.U.S.S.R.
(European) Union Power!
Ãœber Alles After All
There's No Such Thing As A "Permanent" Tax Cut
Immigration & The Town That Stopped Mincing Words
Hitler's Ghost Haunts Europe
A Lib Dem Gives Voice To Britain's National Sickness
The American People Voted For Big Government. Now, Let Them Pay For It!
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