Cyprus was the beginning. Next: every other country with a banking system in which non-performing loans are soaring (cough Slovenia cough) as a result of imploding consumer cash flows, and which needs a financial sector “resolution”, which includes, among others, impairment of liabilities courtesy of the new non-template template (and which is now spreading to European interbank deposits). And they all have Cyprus to look to because it will be the benchmark.
Luckily, earlier today as part of its just released “Assessment of the public debt sustainability of Cyprus“, the European Commission was kind enough to spell out in very clear terms just what the fate of virtually every European country will be going forward.
For the gruesome details we go straight to paragraph 10 where we read…
In accordance with the [insert insolvent European country’s name] authorities policy plans, major financial institution will be downsized combined with extensive bail-in of uninsured depositors, and a set of wide-ranging temporary capital controls and administrative measures. The programme is envisaged to build the foundation for sustainable growth over the long run. Nevertheless, in the short run, the economic outlook remains challenging. Real GDP is projected to contract by [insert massive amount] cumulatively in 2013-14. Short-run economic activity will be negatively affected by the immediate restructuring of the banking sector, which will impact on net credit growth and by additional fiscal consolidation measures. Temporary restrictions required to safeguard financial stability will hamper international capital flows and reduce business volumes in both domestic and internationally oriented companies. The bail-in of uninsured depositors will cause a loss of wealth, which will reduce private consumption and business investment. This, compounded by the impact of fiscal consolidation already undertaken and new measures agreed, will result in a sharp fall in domestic demand. Little reprieve can be expected from exports amid uncertain external conditions and a shrinking financial service sector.
And just for once, Europe is actually talling the truth.
Yet such is life, sad as it may be, for a continent that may have “vastly underestimated the amount of political capital that has been invested in the Euro”, and “what the Euro means for the Europeans, for the Euro area.”
For those still confused, it means countless years of pain, suffering and poverty. And it’s all downhill from there.