As the Cyprus Parliament rejected almost universally-panned bailout terms that even the ECB’s staunchest supporters were hard pressed to defend, and the aftermath of the ham-handed bank rescue is being felt around the world.
Markets saw a mass sell-off and banks a run on deposits as the ECB’s terms sought to tax deposits within Cypriot banks. Though intended to punish and raise money from what amounts to rich Russian tax-dodgers keeping money there, the average Cyprian would soon find their own formerly unassailable savings coming under a tax, something legally in a gray area, at best, in the EU.
“It would be very hard to overestimate the damage caused by the weekend decisions by the ECB, Cypriot leaders and leaders of the euro zone,” penned NACM Economist Chris Kuehl, PhD in his daily column for FCIB members. “The decision to rescue the banks of Cyprus on the backs of depositors may have triggered the biggest bank meltdown Europe has yet seen, and it is simply beyond comprehension that the authorities involved in this decision could not have foreseen the reaction. Prior to this decision there was a sense that the powers that be in the ECB, IMF and euro zone at least knew what they were doing, even if their course of action was unpopular. That veneer of confidence has taken some very significant hits.” He added that, short of a reversal, people in other EU countries could find themselves asking: "Why wouldn't they do this to us?"
-Brian Shappell, CBA, NACM staff writer
Extended story will be available in this week's edition of NACM eNews, available Thursday afternoon at www.nacm.org, in the Resources section.