A bank run on financial institutions in European Union nations such as Italy and Spain—and possibly spreading to other affected countries—is the most likely fallout of the Communist-style asset seizure announced by the EU and the Cyprus government over the weekend.
The astonishing—and almost fictional-sounding—secret plans announced on Saturday morning, March 16, that all bank account holders in Cyprus were having a portion of their bank accounts seized on Tuesday (after a religious long weekend holiday) to prop up the failing banking system, have been widely condemned as one of the most idiotic financial plans ever announced since the great stock market crash of October 29, 1929.
The Cyprus plan, developed by the unelected and secret bureaucrats installed in Brussels as a result of the European Union, worked out their plans carefully: rather, they said, than forcing the Cypriot government into instant bankruptcy and closing down all major banks, they would seize about 10 percent of all private savings over 100,000 Euros held in bank accounts, and just over 6 percent of all private savings under 100,000 Euros.
This money will be used to bail out, surprise, surprise, the banks, whose irresponsible behavior is the primary cause of the disaster in the first place.
Apart from the sheer outrageousness of the sudden levy, the matter has been made worse by the fact that the preparations for the asset seizure were made in secret and only announced once measures had been put in place to prevent bank account holders in Cyprus from withdrawing their cash.
Firstly, the plan was announced over a long weekend holiday, when the only banking group, the Co-Operative Bank, was open. Even that group closed its offices early on Saturday once the news had become public.
Secondly, all online banking facilities in Cyprus were closed down before the announcement was made, preventing deposit holders from moving their money by electronic transfer.
Thirdly, the percentages to be seized on Tuesday morning were all frozen on Friday before the announcements were made, preventing the removal of all the seized money by any means.
The plans were obviously a long time in the planning. An announcement by the Cyprus Central Bank, made on March 8, for example, casually announced that all banks would be closed on Monday, March 18 for “Green Monday” or the start of Lent in the Greek Orthodox calendar. At the time, the meaning of this unusual move was not fully understood, but in retrospect, the move was clearly made ahead of the asset seizures.
The sacrosanct principle that investors would always be able to withdraw their money from a bank no matter what, has now been definitively and brutally smashed. Deposit holders in other vulnerable nations—Spain, Italy, and Ireland in particular—will now see little value in keeping their cash in banks under such conditions.
This is the precursor to an old-fashioned run on the banks. Should this happen, the “financial crisis” is about to get a whole lot worse, as the modern banking system is predicated upon the idea that banks always have higher amounts “owing” than what they actually have in their vaults.
This is the reason why many, if not most, governments have depositor insurance schemes—but the EU/Cyprus move has now negated even this guarantee.
March 19, 2013, may yet go down in history as a new Black Tuesday—and might very well mark the end of not only the common Euro-zone, but possibly even of the European Union itself.
A further ramification could be the opening of the political door to radical parties from both sides of the spectrum, which in turn might lead to consequences unforeseen.