Sunday, March 17, 2013

Cyprus - an update

 Update to the update: the Cypriot parliament will vote Tuesday evening. The original plan will most likely not be approved. If they will accept some different proposal e.g. a 20,000 € freshhold isn't known. It might just happen that Cyprus becomes the first country to leave th Eurozone.

Sueddeutsche tells us that the vote on the bail out has been moved to Monday. It is not clear if there is a majority for the plan to just steal take away up to 9.9 % of savings. Also, the President of the European Parliament Martin Schulz thinks that at least people with savings of under 25,000 € should be spared.

So they made this deeply damaging decision and on the next day they don't even know if they can find enough votes for the law? We now possibly have a situation where the deposit protection scheme in the EU might be wrecked beyond repair, a bank run is happening in Cyprus and at the same time the bail out plan might not even make it through the parliament there? What?! This is just outright brain dead.

At the same time the President of the European Parliament also has some at least less damaging ideasbut the 25,000 € freshhold idea is too little too late. Martin Schulz's comment shows that the only - at least somewhat - democratic EU institution, again, wasn't even involved in the decision making in the first place.

I think the whole thing has become a self-fulfilling-prophecy no matter what the decision in Cyprus will be. A bank run cannot be avoided once if the banks reopen. If the vote is NO people will just understand it as a "NO not Right Now" and the banking sector will just be days away from crumbling. In case of a Yes Cypriots and foreigners alike will fear that this is just a first step. Capital will flow out of the island. Ever more control over the movement of money will become necessary and in the end the savers will pay the price. The remaining question is: will there be spill over effects on other countries? I think yes at least for Greece. In the other crisis countries, the savers will be very wary of their banks and righfully fear that this will be the first but propably not the last time.

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