Fun and games in the Mediterranean.

0 251

Cyprus.  Do you have any idea where it is?  It’s a little island in the Mediterranean not far from Greece.  Like Greece, they’re part of the Euro and like most of the southern Euro group, they’re broke.  But over the next week, Cyprus could be the most important place on earth.

APTOPIX GREECE RIOTSAccording to the new President of Cyprus, the two largest banks are on the verge of collapse and they need a bail out and they’re looking to the European Central Bank for cash.  Stop yawning, this one’s different.  From Reuters

In a radical departure from previous aid packages, euro zone finance ministers want Cyprus savers to forfeit up to 9.9 percent of their deposits in return for a 10 billion euro ($13 billion) bailout to the island, which has been financially crippled by its exposure to neighboring Greece.

The decision, announced on Saturday morning, stunned Cypriots and caused a run on cashpoints, most of which were depleted within hours. Electronic transfers were stopped.

The move has to be approved by the Parliament which meets to address the issue on Tuesday.  There’s going to be a fight over this.

The money isn’t just being taken, there’s a quid pro quo.  Sort of.

The proposed levies on deposits are 9.9 percent for those exceeding 100,000 euros and 6.7 percent on anything below that.

They would be compensated with shares in the banks.

There’s more to the deal, but the “more” is simply promises made by politicians against theoretical future revenue streams.  Oh, and lots more promises are being made by politicians all over Europe and they’re targeted at the likes of Greece, Spain and Italy, all of whom are broker than Cypress and will  require significantly more in terms of bail out money.

Making bank depositors bear some of the costs of a bailout had been taboo in Europe, but euro zone officials said it was the only way to salvage Cyprus’s financial sector, which is around eight times the size of the economy.

European officials said it would not set a precedent.

In Spain, one of four other states getting euro zone help and seen as a possible candidate for a sovereign rescue, officials were quick to say Cyprus was a unique case. A Bank of Spain spokesman said there had been no sign of deposit flight.

Wanna bet?

Why is this important?


Aside from the fact that the International Monetary Fund (IMF) is coming to Washington to get us to pony up, this move most certainly will set a precedent in Europe and don’t believe anything you hear about the European economy being in “turn around” mode.  Britain is in their third recession in the last half dozen years, France is a lost cause and will likely need a bail out in the next year or two and the northern countries – Germany primarily – are tired of paying for everyone else’s sloth.

Here in the US, we’ve already got a precedent close to this, it’s called Social Security.  The government taxes us and is supposed to dedicate specific social security taxes to a fund from which it will pay benefits.  Remember “the Social Security Trust Fund”?  It’s nothing but US Treasury Bonds and individual citizens have no legal right to one cent of the “fund.”  Congress has been spending the SS tax revenue for decades and today, Social Security payments are larger than the incoming tax revenue.  That will cause a hit to the general fund tax revenue to redeem the bonds.  Social Security is $18 trillion dollars in the hole.

The next move you can expect to see, and it’s been on the table for a long time, is government confiscating your 401K and replacing it with some form of annuity.  They’ll theoretically use the revenue to pay down the national debt but it won’t take long for the politicians to have that annuity underfunded just like Social Security and Medicare.

Would US politicians do this?  Well, it would be fair you know.  Forcing the wealthy – that would be people who save – to allow the less fortunate to live with some dignity.

Remember this every time you hear President Obama and his minions talking about fairness.

 Mob with Torches

You might also like