What an extraordinary couple of weeks we have been through since the all-powerful Troika, made up of the European Central Bank (ECB), the International Monetary Fund and European Commission, hit upon the bright idea of raiding depositors in Cypriot banks. At one fell swoop this saved Chancellor Merkel from the electorally risky embarrassment of having to go back to her hard-pressed burghers to ask for yet more help for yet another southern European financial miscreant, and simultaneously imposed a somewhat Lutheran justice, eradicating Cypriot banking practices, as the ultimate atonement for its sins.
Details of the first cut of the Cypriot rescue deal emerged over the weekend of 16th and 17th ,and quite put me off my parallel turns as my highly-tuned 107kg hulk swooped down the slopes in Beaver Creek, as that first deal indicated the Troika were in fact intent on wiping out all banking (at least within the Eurozone), by agreeing to extract a levy or tax from all depositors, even those with under Eur 100,000 in the bank, who had naively thought they enjoyed protection under the European Bank Deposit Guarantee Scheme.
Luckily, this deal was promptly rejected by the Cypriot Parliament, so President Anastasiades and Finance Minister Sarris had to return to Brussels last weekend to cut another deal, after Moscow had responded with a firm 'nyet' to their requests for help.
In the final cut, thank goodness, the Troika agreed to a revision which limited the raid on depositors to those with over Eur 100,000 in the bank i.e. only nasty Russian oligarchs and genteel English retirees. All seemed hunky-dory, as it appeared that maybe the powers-that-be were not after all trying to wipe out fractional reserve banking and all its attendant sins and sinners. By this time I was in Val d'Isere and was able to enjoy that most important of ski holiday institutions - the long mountain lunch - to its full degree, sure in the knowledge that ATM's would still be working when I returned to the village.
Then, lo and behold, the head of the Eurogroup, and Dutch Finance Minister, Mr Dijsselbloem had to say his piece in a Reuters/FT interview, including his now famous 'template' comment. He came across as something of a cross between Vlad the Impaler and Henry VIII's Lord Chancellor Thomas More in his zealous determination to protect tax-payers' pockets by wiping out (burning at the stake) all bond-holders, shareholders, depositors, window-cleaners and the bloke that delivers sandwiches to the bank in the morning, so as to make an example of them and teach the rest of us to conduct thorough due diligence before we 'invest' in a bank. (Since when did my mum become an 'investor' such that she should conduct due diligence before making a deposit?).
As I write, the markets are on tenterhooks to see how today's reopening of Cypriot banks goes, whether Italy suffers a downgrade over the nerve-rackingly long Easter weekend due to its ungovernability, and creeping up on the outside is Slovenia's looming debt crisis.....
Why is it that I always seem to have to write these pieces just before some binary event or other, usually of Eurozone origin, meaning that by Tuesday (in this case), I could look extremely foolish?!
Oh well here goes: my feeling is that the Cypriot crisis will fade from memory over the next few weeks and won't lead to wider Eurozone contagion. There - I've said it.
The fact is Vlad had it just about right, apart from any suggestion that depositors are investors, and once the over-Eur 100,000 threshold had been reinstated. Over-leveraged banking models are so-noughties now, and if interest rates on deposits are too good to be true, they probably are (and even my mum should be able to work that one out).
Cyprus is a special case and plays what will come to be seen as a tragic bit part in the general political backlash against evil bankers and their partners in crime (figuratively speaking of course), along with bonus caps (which just lead to massively increased fixed costs as the banks surreptitiously raise bankers' salaries because they don't grab any horrible headlines), and ever more Byzantine reams of regulations (which just make life hard or impossible for small, non-systemic banks), and demands for more capital (which means banks don't lend to small companies).
If we have learnt anything over the last year characterised by the extraordinary survival of the Euro, it is that the political will to keep the dream alive is truly PRODIGIOUS, and that the ECB doesn't want to make itself redundant. Watch out for next Thursday and M.Draghi's next masterful post-meeting press conference. I suspect he'll pull it off again, with soothing words and maybe a rate cut thrown in for good measure, and we will all come away confident in the Euro's survival (until the next time).Suggest a correction