As is painfully clear to even the most naive observer, the biggest threat for Europe from this point on, now that Cyprus is officially “unfixed” is what happens when… if the Cyprus banks reopen – will the deluge of bank withdrawals drain 10% of the savings as the country’s central banker warned earlier today, 20%, 50% or all of it? It is certain that any and all foreign “oligarch” accounts will be promptly pulled never to be heard of again, and after being treated like third grade European citizens, we doubt the locals will care much for having their cash in a banking system that Europe has shown is equal to all the other “united” banking systems, which however also happen to be just that much more equal. And once foreign TV crews show lines of people scrambling to pull money in Cyprus to the local viewers in Greece, Italy and Spain, will those countries also get comparable ideas? That is precisely the Pandora’s box that Europe has now opened, and which it is scrambling to close. How? With the dreaded “contingency plans”, among which are such last ditch efforts as capital controls, including “imposing limits on daily withdrawals from bank accounts; capping the amount of money that can be electronically taken out of the country and making these transactions slower to clear; and introducing border checks to cap the amount of cash leaving in the country,” most recently utilized in the banana-est of republics such as Argentina.
The contingency measures, described by three European officials, may not need to be implemented if the deposit outflow looks containable. But the plan includes imposing limits on daily withdrawals from bank accounts; capping the amount of money that can be electronically taken out of the country and making these transactions slower to clear; and introducing border checks to cap the amount of cash leaving in the country.
One official also said the IMF had been tasked with developing a plan to merge the country’s two biggest banks—Laiki Bank and Bank of Cyprus—putting their healthy assets into a smaller entity and the nonperforming assets into a “bad bank,” which wouldn’t do any new business.
A spokeswoman for the IMF had no immediate comment. European officials have repeated that the goal is to shrink the island’s banking sector over time.
After the Saturday morning meeting where finance ministers presented the bank-deposit tax plan, Jörg Asmussen, the German member of the ECB’s executive board, said the Cypriot central bank and treasury have “prepared a contingency action plan, they are monitoring deposit flows, even on an intra-daily basis and will take the necessary actions if appropriate.”
The officials said neighboring countries had been instructed to be on the ready to fly euro bank notes into Cyprus should the need arise, but one official said this hadn’t yet happened.
In a sign that even worse is to come, is the use of the most dreaded comparison in modernity: Cyprus is now Greece:
He said the ministry was “proactively approaching personnel to ask if they want their March and future months’ salaries paid into U.K. bank accounts, rather than Cypriot accounts.”
The officials said such planning shouldn’t be a surprise.
“This is exactly what is to be expected and exactly what was in place for Greece last summer,” one official said, referring to the critical Greek elections in June 2012, during which depositors were removing large sums of cash out of Greek banks, spooked by the prospect of a euro exit.
Spokesmen for the European Commission and the ECB declined to comment on the contingency plans. ECB officials have said it is a matter for the Cyprus government. A spokeswoman for the Central Bank of Cyprus didn’t respond to calls for comment.
All that said, please don’t worry: Cyprus is small and thus meaningless, the benign despots of the Europas say it is a “very special case”, Europe is solvent, its banks are overflowing with cash and Spiderman towels, all people in Europe are equal but those who share bank vaults with Russian billionaires in places like Cyprus, or Switzerland, are less equal than others, and general there is nothing to be afraid of: because if bank runs haven’t started by now, they certainly never will. Ever. Promise.
Remember – Europe is fixed: every European politician has already said so. Twice.