Tuesday, March 19, 2013

It's Troo-dos anyone believe it?

Portugal, Ireland, Greece, Spain. Who’s next? Cyprus.

These are the European Union countries whose banking systems are in such a mess that some belevolent uncle agrees to pay off their overdrafts, provided that they promise to be more financially astute in the future. Of course, the benevolent uncle doesn’t have any money either, so what he’ll do is offer negligible returns to his investors until he gets his money back, or get taxpayers to refund him.

We all trust the banks with our savings, those same banks play fast and loose with our money plus a whole load of additional imaginary money, and then when it all goes wrong, we the savers – the ones who trusted the banks because they told us we could – have to pay for those rather expensive mistakes.

What genius thought up the latest idea for Cyprus? Basically, all bank depositors have between 6.75% and 9.9% of their deposits stolen in a one-off burglary perpetrated by the same organisations who have been trusted to look after everyone’s money. Never mind the alleged money laundering by Russian oligarchs; hundreds of thousands of Cypriots and expatriates stand to have up to a tenth of their life savings stolen, replaced by shares in clearly worthless banks that could collapse given an unexpected gust of wind.

This is so wrong. Investors are supposed to receive interest and borrowers are supposed to pay interest.

Naturally, the good citizens of Cyprus are concerned, and they queued over last weekend to withdraw what cash they could until the ATMs emptied or were shut down. It can hardly be a coincidence that Cyprus banks chose to stage this stick-up over a holiday weekend. And they’re planning to stay closed until Thursday. I think arguments will rage behind closed doors and the outcome will be that depositors will not be robbed.

However, the damage has already been done. No amount of promising not to do it again can restore savers’ faith that their money’s safe in the bank’s safe. The EU and the banking industry, by demonstrating a willingness to consider such measures, may have signed their own death warrant.

If banks cannot be trusted, and recent events illustrate that this is indeed the case, an awful lot of people will withdraw their savings the instant the banks re-open, and there will be a run on every bank in Cyprus, as savers all switch their investments to Sokunda-Matres Bank: no interest, no overdraft, no charges.

And how will the depositors in other bailed-out countries react? I fear panic withdrawals from every bank in southern Europe and the consequent catastrophic collapse of the Euro.

In the short term, I’m just glad that I didn’t open a bank account last time I was in Cyprus.



Duffy said...

From what I'm reading this was an attempt to milk the Russian oligarchs who have parked their money in Cyprus. As you said this is a confidence destroyer. I don't know where I'd put my money if I were there. Probably hold cash or something. I'd not make that same mistake twice. There is already quite a bit of alarm here and some on the left want to recreate this brilliant policy here. I would be very curious to see who in Cyprus pulled all of their money out just prior to this announcement. I'd wager that many politicians and their cronies got out before the announcement.

Mme Cyn said...

And of course the Russians will now take their money out and send it to Argentina or --ahem-- somewhere closer to my backdoor. What a wreck.

nzm said...

Air traffic control in Cyprus must be working overtime with all those Russian oligarchs flying in on private jets to "check on" their accounts.


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