Cyprus is a small island and it was easy to ignore or play down events at first but the situation is now out of control. We live in a new world order, the post Cyprus order and you need to wake up to the reality of that fast.
The Euro was never an economic project. It was a political one. And as such the “believers” brushed aside any economic objections and sought to ensure that everyone joined the club. Some countries were not fit to join (Portugal, Eire Spain, Italy, France, Greece, and Cyprus) but that mattered little. The leaders of those countries and the ECB agreed to lie in order to gain entry.
This was a concerted lie by the political elites across Europe – a class distinct from the folks they nominally represent. And so today as the Euro collapses the political elites of Poland, Rumania and elsewhere are still applying to sign up. Hey, I know the Titanic is going down but is there any chance of me jumping off a floating currency lifeboat and getting on board your fine vessel? Madness.
And one reason that it is madness is that we have no idea how Cyprus will play out. The initial plans for state bank robbery have been shelved and so if you have less than 100,000 Euros in your bank account that money is, pro tem, safe. But it is impossible to withdraw it in more than small tranches. If you have more you will lose some of it. Perhaps 40% or 60% or potentially all of it. The idea that bondholders should lose everything if a bank fails seems fair to me. The idea that depositors should lose cash is just obscene.
What will be the effects?
For one you will see a growing scandal of how the political elite looked after its own and its friends. The family of the Cypriot President took its cash out of the banks a few days before the robbery was announced. The list of those that took out large sums is HERE
The chasm of mistrust that exists between the political elite across Europe and those they are meant to govern grows wider by the day. At some stage somewhere folks will say that enough is enough.
Secondly, the economy of Cyprus will seize up. 100,000 Euro is not actually that much. There are pensioners (many of them British), small businesses and others who have lost everything. They simply will not be able to pay staff, bills and debts. They will go bust. The knock on effects on the Cypriot economy will be disastrous.
Some within the Evil Empire claim that it is only dodgy Russians or largely dodgy Russians who are effected. My guess is that your average dodgy Russian stashed his ill-gotten gains in various islands. So he will be hit but not wiped out. Once again it will be the Cyprus based middle classes and small businesses that are really whacked and the negative multiplier effect of them not being able to pay bills will smash the local economy.
Once again EU austerity measures will simply make a situation worse.
But this will also spread beyond Cyprus. Already there are hints that Slovenia is in a similar position. Once again its banks passed EU stress tests a couple of months ago but we now know that such tests are meaningless.
And the precedent has now been set. The EU itself says that going forward if a country’s banks need bailing out it will not just be a new international loan that is offered – citizens of the country affected must also pay. State sponsored bank robbery is now deemed legitimate. Work hard, save and it can all be stolen from you.
This is of course a vicious circle. You now have to be quite certifiably mad if you live in a European country where the economy is a mess (i.e. France downwards) to keep your cash in a bank. There have not been large scale bank runs yet but you can bet there is a drip drip of withdrawals and the next time there is a Cyprus type incident that will turn into a flood. And you might as well get capital out of such a country before the EU (illegally) extends Cyprus type capital controls elsewhere.
What rather worries me is that Call Me Dave and other Western leaders refuse to stand up to this theft. It is as if they agree that the State has a right to seize whatever it wants whenever it wants.
And so what is the solution? There is only one. Cyprus would be better off leaving the Euro, devaluing its currency, taking the hit of bank failure now and restarting. The two fastest growing European economies (Iceland and Albania) have both faced a similar storm in the past 15 years. Their response was to take the hit and then rebuild with a floating currency. It is the only way.
Of course if Cyprus left the Euro and started its recovery other countries which should never have joined the Euro in the first place will start to realise that such an option is better for them than more German imposed austerity. Spain, Greece, Slovenia, Italy, Portugal, Eire will all be on the way out. Right now their leaders (part of the pan European political Elite) cannot face such a solution although their people must increasingly yearn for it. But at some stage someone has to break ranks. And then the floodgates are open.
Until that moment happens the EU will continue down a path which can only be described as sheer madness. Folks across Southern Europe will trust banks, paper currencies and their political leaders ever less and gold, cash under the mattress and anti-politics ever more.
Now who can find me the best quote from Huhne, Mandelson, Pantsdown, Blair, Heseltine, Howe or one of the other “guilty men” describing the dire consequences for the UK if we did NOT join the Euro? A bonus prize if you can find one of them apologising for getting it so dreadfully wrong.