Would you trust a European bank with your savings now? It was the accident waiting to happen. Cyprus, the Eurozone bailout that failed. Amidst worries that, as the BBC says: that Cyprus is "teetering towards the brink of bankruptcy,” the country’s political leaders meet for emergency talks after its parliament overwhelmingly rejected an international bailout deal.
Cypriot President Nicos Anastasiades met party leaders to hammer out a Plan B after a one-off tax on savings was unsupported by any members of parliament.
What does this mean? Well, it means the whole future of the euro is in question, because when those Cypriot banks re-open, if in fact they ever do, it may trigger not just a Cyprus bank run, but a Europe-wide run on the banks.
Germany says banks in Cyprus may never reopen if a bailout is not agreed. Apparently Cyprus' finance minister is in Moscow to seek help from Russia, which holds multi-billion euro investments there. In fact large amounts of the deposits in Cyprus banks are Russian funds and it is they who will feel the pinch worst if the authorities decide to ‘tax’ deposits. Telling people it’s only for amounts over 100,000 euros won’t be much consolation.
But the Russian talks seemingly came to nothing. Michael Sarris said after talks with Russian finance minister Anton Siluanov: "There were no offers, nothing concrete," but he added, "We’re happy with a good beginning." That’s what the BBC reported, but what then? If I was sitting in Europe with euro deposits in any of the PIGS banks: Portugal, Ireland, Italy, Greece or Spain - I’d be grabbing my savings book and removing my money sharpish. If they can do it in Cyprus, which is now in the EU, why can’t it happen anywhere?
The trust in Cyprus has broken and it will now be seen as the bank trying to get customers’ savings. In reality you only ever loan money to your bank and now people realise exactly what this means. The fact they said they were not going to do it, then changed their mind, does not inspire confidence. This sets a dangerous precedent.
Cyprus has long had a slightly dodgy reputation for money laundering, which has not attracted the best press. Cyprus has also come to the aid of other European countries that were struggling, such as Greece. And the upshot is that now residents, expatriates and British military personnel stationed on Cyprus find their money may not be their own. A sobering thought. Cyprus banks offered good interest rates so investors took advantage of that. But will there be any money there when and if the banks re-open?
