I try to avoid commenting on economic events, and hopefully my pessimism means that the nadir has already been passed.--ES
In order to bail-out Cypriot banks, Cyprus's bank-depositors are being asked to contribute to the bail-out. Not just the rich Russians who treat Cyprus as a money haven, but also local depositors. It is quite predictable this will lead to bank-runs in Cyprus and any other country where citizens have good reason to fear future bank bail-outs (Greece, Spain, Portugal, and Italy come to mind, but even other countries dealing with the aftermath of real estate bubbles -- the Netherlands and Ireland -- may move back into the danger-zone). This development is quite ironic because nearly all of the European regulators' and politicians' actions since the start of the financial crisis has been in the service of preventing another liquidity crisis rather than confronting the reality that a majority of Europe's politically well-connected banks are insolvent if they were forced to do honest accounting (and absent more bailouts). Given that Europe's technocrats are running out of money and good options in light of ongoing economic sluggishness (and decline), I think the Euro's end may be nearing. We will either see (a) attempts to inflate our way of this (officially unthinkable in Germany); (b) a split-up of the Eurozone (officially unthinkable in Brussels), but not impossible in the aftermath of bankruns; (c) Greece-style austerity in a good chunk of the EU leading to considerable political instability (and more economic decline)--this is being tested in Spain; (d) attempts to postpone the big crisis decisions and muddle through until after 22 September (when Germany holds Federal ections) when German tax-payers can be asked to foot the bill for a genuine restructuring of European banks.
UPDATE: Cyprus' parliament has not approved this yet. Apparently they are trying to change the terms. The banks will stay closed for at least two more days. (They had been closed for a holiday-weekend.) One wonders at what point barter will replace cash.
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