Krauthammer isn't optimistic about the Cyprus Precedent:
“The first thing that strikes me is how tiny this whole thing is,” Krauthammer said. “I mean, it could have ripple effects the way, you know, Sarajevo did in 1914. Little things can develop into big things. But the bailout is $13 billion.
And there certainly is the potential for wider developments:
The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, told the FT and Reuters that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.
"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'," he said.
"If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders."
What is really tragically funny is that the rest of Europe needs Europeans (and others with deposits in European banks) to believe that Cyprus is unique and that nothing like this could happen elsewhere. Yet some EU big shot explicitly says that Cyprus could be the model for other crises. And to add to the humor, the very lack of immediate panic to the Cyprus solution is used as justification for repeating the Cyprus solution!
Mr Dijsselbloem argued that the lack of market contagion surrounding Cyprus showed that private investors could now be hit to pay for bad banking debts.
Which raises a profoundly philosophical question: are you effing kidding me?
Hey, nothing bad has happened yet! Keep on going!
This will not turn out well:
The more significant development was the fact that the European Union has now made it official policy, under certain circumstances, to encourage member states to seize depositors' assets to pay for the stabilization of financial institutions. To put it simply, if you are a business, the safety of your money in a bank depends on the bank's financial condition and the political considerations of the European Union. What had been a haven -- no risk and minimal returns -- now has minimal returns and unknown risks. Brussels' emphasis that this was mostly Russian money is not assuring, either. More than just Russian money stands to be taken for the bailout fund if the new policy is approved. Moreover, the point of the global banking system is that money is safe wherever it is deposited. Europe has other money centers, like Luxembourg, where the financial system outstrips gross domestic product. There are no problems there right now, but as we have learned, the European Union is an uncertain place. If Russian deposits can be seized in Nicosia, why not American deposits in Luxembourg?
Something had to be done to keep the Cyprus banks from going down and pulling other European banks down with them (with their economies following them down in short order). But this is the solution that the big-brained lads and lasses in Brussels came up with.
Yep, some damn fool thing near the Balkans could spin out of control. My only hope is that there will be a bright spot. After World War I, two empires were hit hard. The Russian empire lost a lot of land in the west; and the Austro-Hungarian Empire dissolved. Maybe the European Union proto-dictatorship will not survive this crisis. It certainly deserves a severe haircut on its way to the dustbin of history.
