- by New Deal democrat
If you want to know why Mish is on our blogroll despite major disagreements, his post this afternoon is a good example. He notes:
Here's one for the thick book of EU lies and hypocritical statements "Deposit guarantees only protect against bankruptcy, not levies"Wow. Just wow.
Guarantees on deposits in the European Union are only there if a bank completely collapses, and does not protect from fiscal steps decided by parliaments, the European Commission said on Tuesday, defending a decision to impose a levy in Cyprus.
Let's just assume for purposes of this post that some sort of bank levy is the least awful option for Cyprus to obtain a loan from EU and related agencies. Let's also posit that deposit insurance is a good thing, and inciting runs on banks is a bad thing. Given that, it seems clear that the EU ought to have a co-ordinated message on the order of
We regard deposit insurance as sacrosanct, and we will always honor it. In no way did we insist that Cyprus levy on insured deposits vs. uninsured deposits over Euro 100,000. Nor will we ever do so in the future.That at least places the responsibility for breaking the cardinal rule on the government of Cyprus, not the EU.
The sole authority which decided to levy on insured deposits was the Cypriot government. They are sovereign and we have no legal right to compel them not to do so.
Instead, the European Commission has told savers in Greece, Italy, Spain, Portugal, and Ireland that "we reserve the right to do the exact same thing to you that just happened in Cyprus."
If I were a depositor in one of those countries, I wouldn't necessarily run to the bank tomorrow, but I would certainly be thinking about diversifying my deposits over the next few months or year to banks in Germany, the UK and the US. In view of the statement Mish quotes, it would be irresponsible and irrational not to do so. So while there might not be bank runs in those countries, I would strongly suspect that starting immediately there might be a loping walk.