Today’s news takes the place of yesterday’s news and, already, there’s less talk about Cyprus in the media. They would even have us believe the bulk of the crisis is behind us, since there hasn’t been the expected bank run when these reopened. Well... that’s only because the restrictions have been maintained! There’s no need to run to your bank if withdrawals are limited to 300 euros per person per day! The bank run will come sooner or later because, of course, many investors are looking to leave the island for good.
In Cyprus, confusion is growing, and there is talk of a 60% tax on bank accounts exceding 100,000 euros! Actually, no one knows, and we have to wait. The central bank has indicated that the final decision would be made « in no more than 90 days after the end of the evaluation »... And whatever amount is left won’t be available to the account holder, but rather put in a frozen account for six months to prevent any withdrawal. But we can’t know for sure, because many local businesses could not survive such conditions.
Meanwhile, we learn that many well-informed Cypriots took their money out in the days preceding the crisis (the President has promised an exemplary investigation, so we can rest assured...), and that clients of the british branch of cypriot bank Laïki, whose accounts were transferred to its competitor, Bank of Cyprus, will not be touched. We know that the Russians are all tax evaders... and that the British are all honest, retired people, of course.
But there’s a myth the european authorities and the media have instilled into the minds of Europeans that we have to deal with : deposit insurance for deposits under 100,000 euros. As a matter of fact, in Cyprus, those won’t be touched, but only because Europe and the IMF brought in 10 billion euros! The island’s needs amounting to 17 billion, 7 billion had to be provided, thus this tax on the « big » accounts. But, if it hadn’t been for that 10 billion euros coming in, all accounts would have been in jeopardy.
If such a banking crisis were to happen, say, in Spain, it would not call for 10 billion euros of bailout money, but for hundreds of billion euros... in other words, impossible. Eurogroup’s president, Jeroen Dijsselbloem, boasted of Cyprus’s re-structuration as being a « model ». The « model », in reality, is the financing of banking losses by the depositors, not insurance for deposits under 100,000 euros! Let’s recall that, in the first version of the plan, those deposits were taxed (by 6.75%).
For any account holder, believing in this 100,000 euros number and feeling out of harm’s way may prove to be a fatal mistake.