Is there no depth to which Brussels bueaucrats will sink in order to rescue their beloved empire-building Euro? Poor little Cyprus, with its 850,000 population, is being forced to do the unthinkable: To steal up to ten percent from all local bank balances without so much as a nod to the Europe-wide guarantee on deposits up to €100,000.
This ill-advised and vindictive measure will have disastrous consequences for the Eurozone as a whole. If it goes through the Cypriot parliament, I believe the theft of savers’ cash will signal the end for the Euro. Even if the measure fails in parliament, the damage has been done. Who will trust Brussels in future? I foresee runs on banks throughout southern Europe as Greeks, Spaniards, Portugese and Italians totally lose what little faith they have left in the banking system and in the ability of the European Union to protect their interests.
It took the advent of the Euro and the protection of Brussels to persuade many southern Europeans to lift up their beds and transfer savings to the banks. Now beds all over the south will be bulging again.
The Euro has always been a disaster waiting to happen. Common currencies work well in federated states where there is a single culture and, ideally, a single language. Few Americans question the flow of cash from the rich north-eastern to poorer states. There is a common culture and a feeling of all being in the same boat. Even in Britain, everyone acknowledges that the rich south-eastern area subsidises northern England and Scotland. It works only because of common consensus and a commen monetary policy.
Europe, on the other hand, is a collection of disparate states with many languages, cultures and economies. A strong Euro that fits Germany has never been suitable for the poorer southern countries. They are saddled with an over-valued currency and acute lack of competitiveness while the select club of richer northern European nations enjoys an under-valued currency. If Germany were to leave the Euro, which is probably the most sensible way to rescue the currency, the new Deutschemark would soar in value to the detriment of the German economy. Germany does not want this, of course; far better to grind down the southern nations in return for a lower-value currency that enables all those VWs, Mercedes and BMWs to sell abroad like hot cakes.
German Chancellor Angela Merkel has foolishly supported this precedent-setting theft of cash from Cyprus bank accounts. I normally think she acts sensibly but I thought she had more sense. Frau Merkel and the other leaders of Europe are supping with the devil on this issue they will surely come to regret their haste. Already the Irish and Spanish governments have had to assure savers that such a thing could not happen in their countries. But why not? The precedent has now been set and public confidence shattered.
Bank accounts have always been sacrosanct and nothing short of a bank failure could touch them. To cover that eventuality, all European governments offer insurance on all deposits up to €100,000. All that has now changed and it is clear that bank guarantees mean nothing when Brussels wants to help itself to your cash.
Paradoxically, what is happening in one of Europe’s smallest economies is sowing the seeds for the eventual breakup of the misbegotten Euro. The Napoleons of Brussels are about to meet their Waterloo.
by Mike Evans, 18 March 2013