In the history books, March 16, 2013 will be marked as the day where bank accounts in a Eurozone country started to be pilfered.
As always, prior to this, it was « unthinkable ». The European commission had harmonized deposit insurance guarantees throughout Europe to the 100,000 euros level, and the President of Cyprus had sworn that bank accounts would be left alone. And, as always, later, it becomes « unavoidable », absolutely necessary for saving the financial system. And, of course, it will be « exceptional », one time only, in Cyprus and nowhere else...
Never mind the confusion surrounding the plan, as it was at first targeting all bank accounts (6.75% under 100,000 euros, 9.9% above), and then exempting accounts under 20,000 euros, or the assurances given on the exceptional character of this measure; only fools will fall for that. Even if this taxation fails at the outcome – the Cyprus government opposed it on March 19 – it doesn’t matter... the bell has tolled, and we have to hear it : from now on, bank accounts in weak countries are under threat of spoliation.
If we look back at History, this is not surprising at all, because State bankruptcies have always turned into their people being ruined. Only the modalities differ : bankruptcies, hyperinflation, spoliation, bank defaults... alone or together. But, since March 16, it has suddenly become concrete. However stupefying this announcement is, one must now realise that this risk is very real.
How can such a measure solve the problem? What will foreign depositors, attracted by tax advantages, do? They will surely try to avoid a second hold-up and leave. What will Cypriots who hold significant capital do? They will certainly try to protect it by taking it out of the country. And this capital fleeing the country will only hinder the situation of their banks hoping for a bailout from Europe and the IMF. And how will react those, residents or not, who hold large capital assets in Greece, in Italy, in Spain or in Portugal? This is only going to accelerate the kind of bank-run that we have been noticing for a few months.
But where to go? Germany, where the banking system is not so strong, and which has a lot to lose with a disintegration of the Eurozone (via Target2 credit, since Germany’s commercial surplus is expressed by the credit extended to the importing countries’ central banks)? England, with the printing press running full steam?
Risks are increasing everywhere and the situation is becoming more and more confusing. We need to get back to the fundamentals : ideally we need to get out of paper currencies and into gold, get out of the banking system to avoid all confiscation, and get out of the Eurozone toward a country that really respects ownership rights, like Switzerland.
Or else? We could always follow Francis’ example, the new Pope, and become poor... we’d have much less complicated questions to ask!
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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.