There could not be a clearer signal to savers: move your money out now writes CPS Director Tim Knox in The Times.
To view the full article, visit The Times website (£).
“Might today be a good day for Cocomat? For Cocomat is a very rare private company: a successful, relatively small Greek manufacturer and retailer. It makes and sells beds and mattresses. It has stores in New York, Barcelona, China and … Cyprus.
The news that depositors in Cyprus will have up to 9.99 per cent of their savings confiscated as part of an EU/European Central Bank deal to bail out the Cypriot banks will surely lead to an immediate run on the banks there. Already the ATMs are said to be running out of cash. An extra two days’ bank holidays are being considered to give the authorities time to prepare for the deluge that is surely coming.
So savers in Cyprus must today be thinking that the only sensible thing for them to do would be to buy a Cocomat mattress under which they can store what is left of their money.
Yet it would be a grave mistake to assume that a run on the banks will be limited to Cyprus. The principle of deposit insurance has now been fatally undermined throughout the EU. If the Cypriot Government can be forced by the ECB to renege on one of its most important promises — that deposits of under €100,000 are guaranteed by government — then why should anyone expect breach of trust to be limited to that one country?
Anyone with savings in any of the banks in the highly indebted Mediterranean countries will now be anxiously looking for somewhere to put their money. Greek, Spanish, Italian and Portuguese banks are notoriously weak, as are many other banks throughout the EU. There could not be a clearer signal to savers: move your money out of your local banks to what are (at least for the moment) considered to be safer havens.
And where would these safer havens be? Probably not in the eurozone. If it can happen in Cyprus, then surely it could happen anywhere under the same jurisdiction.
It might not be just a banking crisis. At a time when banks are being criticised for not lending enough to small businesses, what measure could be more counter-productive? If banks have fewer deposits, then lending will be reduced even further. This could be the trigger that detonates the next major European economic crisis.
Yes, the Cypriot banks were in a mess. Yes, there was dodgy oligarch money parked there. Yes, letting the problem banks go bust might have been messy. But this policy, apart from being immoral, could not have been worse — for banking, economic and constitutional reasons. Time to batten down the hatches.”
To view the full article, visit The Times website (£).
Date Added: Monday 18th March 2013
