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Monday, 25 March 2013

Cyprus: the Euro-group showed character against the large depositholders and the Russian political pressure. Yet, their decision will definitely lead to a breach of trust between the Euro-zone and its citizens.

This morning, the deal was done, concerning Cyprus. The Euro-group, in cooperation with President Nikos Anastasiades of the small island-state, took the decision that depositholders on the island with deposits beneath €100,000 would be safeguarded from any losses.

On the other hand, at every Cypriot bank, the depositholders with deposits above €100,000 would share in the burden. Biggest victims were the depositholders at Laika Bank, who would lose everything above €100,000 and the depositholders at the Bank of Cyprus, who would lose a substantial share of their deposit above €100,000.

The Bank of Cyprus would take over the good parts of Laika Bank, while the bad parts of this bank would be shipwrecked at the expense of the biggest depositholders.

You have to give the emperor what is his: the Euro-group didn’t give in to the pressure that had been put on by the Kremlin, the day before yesterday, through its strawman Alexander Nekrassov.

To put it even stronger, Euro-group chairman Jeroen Dijsselbloem has been boasting against the Guardian and the Financial Times, that today’s approach might be the blueprint for tomorrow’s bank bailouts:

“Taking away the risk from the financial sector and taking it on to the public shoulders is not the right approach,” Mr Dijsselbloem, who is also the Dutch finance minister, said.

“If we want to have a healthy, sound financial sector, the only way is to say: ‘Look, where you take the risks, you must deal with them, and if you can’t deal with them you shouldn’t have taken them on and the consequence might be that it is end of story’,” he added. “That’s an approach that I think we, now that we are out of the heat of the crisis, should consequently take.”

I am not at all happy about this approach by the Euro-group and Dijsselbloem.  I consider it a reckless opening of Pandora's box, without realizing what the consequences might be.

The results of this financial mess:
  • Russian, British and Cypriot depositors who will lose loads of money. Money that was lawfully theirs (until the opposite is proven) and that was probably not so black and of unclear descent, as many pundits and populists have tried to make you believe;
  • Savers and investors all over Europe who are scared sh*tless that their riskfree savings are seemingly not so risk-free anymore as they always thought;
  • This very knowledge will perhaps not lead to massive bankruns all over Europe, but savers will certainly demand a higher interest rate than the insulting rates that most banks in the ‘safe’ European countries pay, currently;
  • A few odd bankruns in Greece, Spain, Portugal and Italy might occur in the coming years, when one of the banks in these countries gets into trouble;
  • Even the banks in former financial powerhouses, like Luxembourg, Switzerland and The Netherlands might notice that ‘riskfree savings' accounts’ are a thing of the past.
    • The amount of risk that savers experience in these countries, due to the events in Cyprus, wil definitely lead to higher demands when it comes to interest payments. In my opinion, interest payments below the official inflation rate in a country will become a no go-area.
  • The Kremlin is outraged and it will definitely look for ways to get even with especially Germany, which undoubtedly will be seen as the architect behind the current solution.
    • It's not yet clear what the repercussions will be, but that there will be serious repercussions, is a certainty in my opinion;
  • Perhaps, these events will form the beginning of Eurocrisis 3.0; 

Besides these acute and future consequences of the Cyprus banking crisis, I truly think that the last two weeks' events will form a serious breach of trust between the European citizens and their pennywise, poundfoolish governments.

Especially in countries like The Netherlands and others, people can’t live without a bank-account anymore. 

No company is prepared to pay its workers’ salaries in cash anymore and no large supplier of utilities allows you to pay your monthly bills in cash. Cash money is slowly, but surely abolished in many shops and supermarkets and paying cash on the internet is virtually impossible.
In other words: people without a bank account do not have a life anymore. People who stash their savings in a vault or an old sock at home, become ‘suspicious types who probably try to evade taxes’ or (according to the worse option) ‘who try to support terrorism’.

There is one more thing: people with savings' amounts above €100,000 are not automatically lawyers, tax evaders, Porsche-drivers, ‘fat cat' bankers and Russian mobsters. Those people are also normal citizens, who have been living frugally and put their excess salary in a savings’ account. People, who sold their house recently and stashed their excess value at the bank. Or people, who inherited some money from their parents.

Especially in countries like The Netherlands, Belgium and many others in Europe, consumers have little choice between banks. In these countries a few, extremely large banks divide the whole consumer market among eachother. The consumer, when he doesn’t want to go abroad with his money (‘very suspicious!’), must do business with these banks, which also operate large business divisions.

The last thing that a saver wants to hear in such countries, is that he lost all his belongings above €100,000, due to a banking crisis that he couldn’t prevent. He also doesn’t want to hear, that he could have known that the smaller bank, which paid him a little amount of interest above the insulting 1.75% that he received at the largest banks, had been a preventable risk. And that this preventable risk will cost him some of his deposits.

Today, the Euro-group has betrayed the trust of tens of millions of European citizens and citizens in other countries; a price for which it will pay dearly, in my opinion. 

When you don’t believe me, than please look at today’s stock rates at the international stock exchanges. Exaggerating or not, the rates at these stock exchanges have always been a fine thermometer for risk in the market. Today’s stock rates were RED, virtually everywhere! Risk on…!

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