Posted on March 18, 2013 by WashingtonsBlog
Ground Zero of Financial Repression
You’ve heard that the tiny European country Cyprus is threatening to grab between 3 and 13% of bank depositors’ funds in return for a bailout of the country by the European Union.
Zero Hedge reports that Germany’s Finance Minister and the IMF originally demanded that 40% of bank deposits be looted.
Sajiyat Das notes:
Irrespective of the fate of Cyprus, the solution adopted will exacerbate the European debt crisis.
Many commentators note that the deposit grab may cause panic among bank depositors in Spain and other vulnerable countries as well. Indeed, many are asking whether this could be a modern Creditanstalt situation. Another common analogy is that this could be “worse than Lehman” failing.
On the other hand – given that the entire economy of Cyprus is smaller than that of Shreveport, Louisiana, and that Cyprus is mainly a parking spot for hot money from Russian oligarchs and mafia – some say that the whole crisis will quickly blow over.
What’s the bigger picture? Bank deposit grabs may spread to other vulnerable European countries. The New York Times reports:
Jeroen Dijsselbloem, the president of the group of euro area ministers, declined early Saturday to rule out taxes on depositors in countries beyond Cyprus.
And the chief economist of the German Commerzbank has called for private savings accounts in Italyto be similarly plundered:
A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product.
Indeed, Zero Hedge has been warning about this kind of scenario for years.
Why are they doing it? (more…)