The Euro is taking a pounding and some Italian banks are temporarily suspended after the Dutch Finance Minister and Eurogroup head, Jeroen Dijsselbloem, said that the Cyprus bail-out deal was the template for the future.
In an interview with Reuters and the FT he said:
“What we’ve done last night is what I call pushing back the risks.
If we want to have a healthy, sound financial sector, the only way is to say, ‘Look, there where you take on the risks, you must deal with them, and if you can’t deal with them, then you shouldn’t have taken them on’.
The consequences may be that it’s the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take.”
The Euro then dropped against a basket of currencies and the Guardian reports that some Italian banks had to be suspended temporarily as their share prices had dropped by over 5%.
A spokeperson for Dijsselbloem has just said that the template suggestion was taken out of context, probably after a Eurozone grown up stepped in to get the backtracking underway.
Of course opinion over this will be dictated for most people by how much money they have in the bank. If you’re into the bank with a just hefty mortgage then you will care a lot less about this than a business that has wedge in an account ready to pay the bills and wages, or a pensioner whose life’s savings are parked in a high interest account.
Most people with less than the insured â‚¬100,000 (Â£85,000) will have thought ‘phew, not me’. That is until payday comes around and their employer tells them apologetically that the pay account is 30% lighter so they won’t get their full pay. This is despite the business being good and sound.
Both employer and employee would potentially be left with insufficient funds to pay for their mortgages and bills etc. Some could be forced into bankruptcy.
No-one will be spending for the foreseeable future in Cyprus. And if they do the seller will almost certainly demand to be paid in cash, maybe even offering a discount for it. Workers too may now well demand to be paid in cash and why not? Nothing else is safe. But the capital controls now in place will almost certainly remain there to prevent this.
The Cypriot economy is now predicted to shrink by about 10%. What’s the betting on another round of money raising in Cyprus later in the year? But who to take it from next time? And in the final analysis has this deal just delayed the inevitability of Cyprus being forced out of the Eurozone, but after all the money has been taken?
And not one claim that this action was a human rights issue?