As time goes on, we must bring ourselves to the evidence : Cyprus did serve as a general rehearsal for the experimentation of a plan that will be reproduced elsewhere. Eurogroup President Jeroen Dijsselbloem’s declaration about Cyprus being a « template », followed by a retractation, is actually a true one.
The European Commission, more specifically Michel Barnier, the commissioner in charge of banks, is preparing a proposition to include deposits over 100,000 euros in bank bailouts. This is a laudable intention, since it keeps taxpayers from contributing, but might this argument only be a pretext?
With this proposition, in case of a bank failure, the losses will first be incurred by the owners and shareholders, followed by « junior » and « senior » debtors and, lastly, depositors over 100,000 euros. Only if the whole of these contributions were insufficient would public money be used, through the European bailout fund, the MES.
Well, that’s the theory, but what of it, really? When a bank shows bad results, it means that shareholders have already been hit! Large European banks have already lost around 90% of their stock value since the crisis (for example, Société Générale’s stock was 170 euros in 2006, and is now 25 euros), so not much is left there. And the debtors are gone. The only real wealth remaining is in the bank accounts. So let’s not delude ourselves : they will bear the grunt of the needed money.
But are bank accounts under 100,000 euros really safe? Surely not! We have to understand that the only reason those smaller accounts in Cyprus have been left unscathed is that Europe and the IMF have agreed to bring in 10 Billion euros. If the crisis were to hit a large country like Spain, Italy or France, way more than 10 Billion euros would be needed, probably hundreds of Billions of euros. Who can believe such a feast would be accomplished? Who can believe that Germany would have its debt explode to save the bank accounts of the Spanish, Italian or French people?
Furthermore, those who were holding more than 100,000 euros are busy emptying their accounts and spreading them over smaller ones, so the number of such accounts will dwindle like snow under the sun. Also, this directive will bring about a bank run at the first serious signs of crisis.
By refusing to go against the great banking oligopolies and the opacity of their operations, against this « too big to fail » logic that encourages irresponsability, the European Union is avoiding troubling questions. This proposition is actually an admission of lack of power, and the depositors will pay for it.
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Philippe Herlin Finance Researcher / Member of the Goldbroker Editorial Team
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.