Thursday, March 28, 2013

Cyprus Lesson: Put Your Money In Your Mattress for the Good of the Country

The Troika (the European Commission, the ECB and the IMF) have made a sweeping power grab in Cyprus.  In exchange for a paltry bailout, Cyprus gave up its rights not only to negotiate its own affairs but to have free flow of capital.

Some of the capital controls imposed:

  • Electronic transfer of funds from Cyprus to other countries is prohibited
  • An individual cannot take more than 3000 euros in cash outside the country
  • Credit and debit withdrawals are limited to 5000 euros a month
  • Banks will not cash checks; they will only accept deposits
  • Bank clients will not be able to withdraw from fixed-term deposits before their maturity

The ECB did its part.  It sent an airplane filled with 1.5 billion euros in a cargo container made of gold (only kidding about the gold—can’t let the Cypriots get ahead of themselves).

It’s estimated despite these “controls” some 10% of Cyprus’s 64 billion euros on deposit will be withdrawn today when the banks reopen.

The question I have is: how does this power/money grab improve the Cyprus situation?  Oh, that’s right.  It doesn’t.  Isn’t the point simply to put Troika managers in charge of all the Eurozone nation-states?

Thousands of employees will lose their jobs at Laiki Bank, the country’s 2nd largest bank.  Businesses have not been able to pay their employees.  In a country dependent on imports, importers haven’t been able to pay their bills, raising the spectre of shortages and higher prices.

Under European Union treaties, restricting the free movement of capital is forbidden.  Critics say that what is happening in Cyprus shows that union rules will be flouted when the IMF (International Monetary Fund, the ECB (European Central Bank) and the EU (European Union)-THE TROIKA—leaders find it convenient to do so.

There is no need to fight bloody wars for treasure.  These are bloodless coups.  Where will it end?

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