Of all the insane policies that politicians have crafted during this financial crisis, this decision to confiscate deposits is the worst. If it is proceeded with, then the trust the public must have to use the banking system for payments will evaporate–certainly in the Euro region itself, and especially in the states that are already suffering under the EU’s yoke of austerity. Though there are undoubtedly unique aspects to the Cypriot banking system (in scale only; I doubt that there is any European financial center that does not assist Russian money laundering to some degree), no-one in the public is going to believe the assurances of EU politicians that this will never be repeated in any other country.
The result would be widespread withdrawals from EU bank accounts, and hence a fall in bank reserves–which could in turn cause European banks to call in loans since deposits far exceed reserves, and when bank liabilities fall, so must their assets. The damage done by austerity would be amplified overnight by a credit crunch.
So for the sake of capitalism, I hope the Cyprian Parliament votes it down, that public protests and demonstrations stop it, that Putin threatening to “turn off the gas” stops it… Basically, anything is better than letting the EU proceed with this madness.
