An editied version published as: "Europe's Broken Promise" , PECAT, The Belgrade, Serbia Weekly Magazine, March 19, 2013
So you still want to join the EU and buy into the Euro? Think again.
If you haven’t noticed the EU promised to bail out Cyprus’ banking and financial system over the weekend. The bailout was not engineered with finesse and a scalpel; it was bludgeoned into place with a meat cleaver. To add insult to injury, the EU broke the promise that had safeguarded bank depositors since the Great Depression, government insured checking and savings accounts.
Well the promise to safeguard depositors is no more. It’s gone with the wind, now its sauve qui peut, every man for himself.
In 1929 banks were failing or closed by bank holidays. People were jumping out of windows committing suicide because of financial desperation. In 1933 the United States instituted a plan to insure deposits, the Federal Deposit Insurance Corporation. The idea was relatively simple: every bank and savings and loan was ordered to purchase insurance to cover any loss by depositors, now up to $250,000, and advise the public that the "deposits are backed by the full faith and credit of the United States Government." Since the start of FDIC insurance on January 1, 1934, no depositor has sustained a loss.
Europe more or less followed suit. In 1994 the EU ordered that all member nation Deposit Guarantee Schemes meet the minimal level of € 20,000 raising it to € 100,000 in 2010.
Since the inception of the present financial crisis, recession or whatever you want to call it, depositors have been spared and suffered no loss. Depositors in Ireland, Spain, Greece and Portugal were protected. They were the big boys but then crisis hit tiny Cyprus, the second smallest country in the EU after Malta.
The Big Boys, Germany and France, did a number in beating up on Cyprus last week. In order to receive a bailout Cyprus had to agree to a “tax” of 6.75% on all deposit below € 100,000 and a “tax” rising to 9.9% on deposits above that sum.
Now the press communique announcing the proposed bailout calls the measure a “levy”. Whether you call it a tax or a levy it is nothing more than a pretty euphemism for theft. Or you could call it nationalization, expropriation or confiscation but it still boils down to outright theft.
What happened to deposit insurance? It appears that in the case of Cyprus it’s dead. Insurance is still nominally in effect but it has been eviscerated by the EU’s unfettered power to levy, to confiscate. To use insurance parlance the EU has imposed the right to impose unlimited “deductibles” to be set at its discretion.
To add insult to injury it’s been reported that the International Monetary Fund “during the negotiations had even gone so far as to suggest a 40 percent haircut on certain deposits or to freeze deposits for up to five to 10 years.” Can you believe that in this day and age someone is seriously proposing confiscating 40% of deposits and freezing the rest for 10 years?
So I repeat my question, do you still want to join the EU and buy into the Euro?