UPPERDATE: OH, SNAP! President Anastasiades is said to have told European Monetary Minister Olli Rehn (Zero Hedge), “When I warned you that there would not be a parliamentary majority to pass the agreement, you didn’t want to listen. Give my regards to Mrs Merkel.” Something tells me this won’t end well.
UPDATE: It appears that Cypriot President Nicos Anastasiades doesn’t have the votes in Parliament to pass the deposit “tax” tomorrow (Zero Hedge). The wheels are already coming off
In a desperate attempt to keep Cyprus in the euro without costing Angela Merkel her job, the European Union has, for the first time, demanded that depositors – i.e., the folks who put their money in banks assuming that it will be safe there – cough up cash for the bailout.
In theory, this was designed to punish Russian depositors who were either avoiding tax at home or hiding dirty money. In practice, of course, the Eu went after the small depositors because, as Slick Willie Sutton put it, that’s where the money is.
The plan was announced on Saturday. The Cypriot government was supposed to agree to it today, but delayed the vote to tomorrow. Naturally, ATMs in Cyprus were drained yesterday (CNN). Banks are closed today, and may be tomorrow as well.
Meanwhile, the markets went bonkers, seeing the deposit tax as more of a precedent than a one-off (Telegraph). The Russians are furious (Telegraph), to the point that Gazprom is proposing an alternate bailout – if Cyprus hands over natural gas exploration rights (Greek Reporter).
Yet Angela Merkel got what she wanted – favorable German press (Telegraph), so it’s all good. As Ambrose Evans-Pritchard put it:
One’s first reflex is to gasp at the stupidity of the EU policy elites, but truth is that most EU officials handling the Cyprus crisis know perfectly well that their masters have just set the slow fuse on a powder keg – and they can only pray that it is slow.
In particular, slow enough to avoid exploding until after the German election in September.
To be fair, no taxpayer in Germany signed up for endless bailouts when the euro was being drawn up. In fact, the German people never had a choice in this at all (all of the major parties in Germany were and are slavishly europhilic, although a euroskeptic alternative has arisen for this election). The bigger problem is seventeen countries, all with varying economic cycles, chained together to one currency.
To the European elite, however, the currency is a vital step towards full political union. Postchristendom is a dream that will not die, and damn the reality (damn the people as well).
Don’t believe me? Take a loot at what Daniel Hannan noticed (Daily Mail):
Justifying the confiscation of savings in Cyprus, Joerg Asmussen of the European Central Bank explained that it was necessary to prevent ‘worries over the reversibility of the euro resurfacing’.
All hail the dream…
There is talk – already – about redoing the savings tax (6.75% on deposits under $100,000 and 9.95% on those over $100,000) to hit only $100,000-plus deposits. One problem: that would mean a deposit tax of roughly 15%, easily more than enough incentive to move money out of Cyprus into somewhere else…meaning that tax won’t bring in the money it was planned to raise, and the EU will likely have to make up the difference, leaving them to look elsewhere for the money.
This where Cyprus suddenly starts looking less and less unique.
So, to wrap up: Cyprus is in economic and political chaos; the world’s financial markets no longer take Europe seriously; depositors in the eurozone are wondering if they’re next; and Russia is oscillating between saber-rattling and looking to buy up Cypriot gas…
…but it’s a win for Angela Merkel, and the euro lives on, so that’s supposed to make it all OK.
@deejaymcguire | facebook.com/people/Dj-McGuire | DJ’s posts
