I hope the situation in Cyprus is a tempest in a teapot, but as Duncan Black says, “we are ruled by the stupidest fucking people in the world.” Austerity has created a ton of trouble in Europe, and they are still having what Keynes called “magneto” trouble. Why?
With the richer countries of the eurozone suffering from bail-out fatigue, there was resistance – particularly in Germany – to the idea that ordinary European taxpayers should be writing blank cheques to Russian oligarchs who might have been using Cyprus as a money laundering destination.
As a result, there will be a “stability levy” of 6.75% on all bank deposits of less than €100,000 (£87,000) and 9.9% for those above €100,000. In addition, there will be the now familiar strings attached to the financial help: austerity and structural reform.
If this is what the Germans thought was going on, they were remarkably myopic. Assuming that the crisis is behind them is hard to imagine considering Italy can’t form a government, France hates the one they just elected, Spain has 50% youth unemployment, Neo-Fascist parties are on the rise in Greece, and antidemocratic “reforms” are taking root in Hungary and Romania.
So now, everyone is going to think that their bank savings is at risk in Spain and Italy, they will, naturally, pull their goddamn money out and stick it somewhere else. This will only accelerate their banking crises, which will only accelerate their economic problems, and will only exacerbate the Euro crisis.
This isn’t over yet.