Cyprus spring or eurozone winter?

So far so good in Cyprus with none of the rioting that was feared. However, events seems to suggest that there could be far more serious issues on the horizon.

Orderly, for now...
Simon Miller
On 29 March 2013 14:36

Sometimes, columnists like me get things wrong. Cypriot banks opened on Thursday without protest, although there was an undercurrent of resentment feeding out into jibes about Germany.

But here’s the thing. True, there were no riots. Cypriots patiently stood in line to get their €300 allowance from banks, but there are still so many issues that have to be dealt with.

Firstly, the restrictive capital controls may have dampened the rebellious spirits but what will happen when the squeeze gets going? It is early days for the beleaguered country and, with it being Easter, there is still a degree of breathing space to be had.

Over the following weeks, what will be the reaction? How will Cypriots react with the daily drudge of being told how much of their money they are allowed to have?

Secondly, there are serious questions to be had about the real health of the Cypriot banks. Although capital controls have been put in place, isn’t it curious that the London branches operated as normal?

In other words, how much of UK and Russian expat money - where most of the 40 percent - 80 percent theft is going to come from - is actually still in the country? We know that around two percent had already left the country before the crisis blew up, but how much has been transferred to London since the crisis and then exited the banks? What will sentiment be when ordinary Cypriots realise that they have been left with the mess?

Thirdly, the very concept of this “haircut” has yet to seep in properly around Club Med. Yes, under fractional reserve banking, once you put your money in, that’s it. It is lent out to borrowers and you become an uninsured investor.

But so what? For a member of the public, they don’t see an investor’s haircut, they don’t care about fractional reserve banking. What they do see though is theft. There is a reason why the phrase “safe as the Bank of England” had power. It is the idea that your money is safe when you put it into a bank.

For the bloke on the street, this really is theft. Pure and simple theft. They don’t care about how banking really works. In a world where a slowdown in the up-rate of spending is presented as austerity, it is the idea that counts not the reality.

So it is the idea that will seep though. It is the concept that it is their money which is leading to hoards of expats contacting financial advisers about whether to keep their money in the eurozone. It is the idea that your money can be stolen which will make next month’s figures for Spanish, Italian, Portuguese and Greek banks fascinating. We already know about the Greek boom in property in London, as they look to bricks and mortar, but how will this, if at all, be extended? Will we see a capital flight out of Club Med?

Fourthly, and I make no apology about returning to this, there is the basic concept of property rights being ripped up.

We know there is a healthy disregard for private property rights as it stands. The constant increases in tax demand and the idea that the State should decide how money should be spent is indicative of this. But now the eurozone has shredded the concept completely.

Your money is no longer yours to own. It is not your property and despite the best efforts of the Cypriot government, they cannot even rely on the European Convention of Human Rights to protect themselves.

In February, the Central Bank of Cyprus told the president of the Cyprus Bar Association Doros Ioannides that, “any action aimed at reducing, depriving or restricting the property rights of depositors, contradicts the provisions of the Constitution of the Republic of Cyprus and of Article 1 of the First Protocol of the European Convention of Human Rights, provisions which protect the right to own property and which are crucial to the functioning of a free market economy”.

So what happened in those six weeks? Well, as any student of politics full well knows, a good regulation, law or convention will give those who write it a certain amount of wiggle room.

Unfortunately, Article 1 says, "Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.” (my emphasis)

So, there’s the wiggle room, that dubious and oft abused “public interest” defence. Interesting isn't it how public interest only seems to work in one direction?

Fifthly, while attention is focused on events down south, there could be greater clouds to the euro-project on the horizon.

For a start, I wonder how many people are aware that as of March 10, the EU now has the ability to force member states to take a financial bailout, in whatever terms Brussels dictates?

The European Commission is also now able to monitor the national budgets of eurozone countries, request changes to budgets before member Parliaments can get a vote on it, and even request changes if it doesn’t agree with budget plans.

Once again, the idea of sovereignty is thrown out of the window for the idea of le grand projet.

In addition, how secure are the eurozone banks? We know that German banks are owed horrendous amounts of money -- hence the theft in Cyprus -- but a document came out last week that asks serious questions about the health of some banks.

According to the document, ABN Amro will no longer issue gold to investors: “U kunt uw edelmetalen op uw beleggingsrekening niet langer door ons fysiek laten uitleveren.” Which roughly translates as: “You can no longer request physical delivery of your precious metals from us.”

Now, with an April 1 start date, the alarm bells do ring. But if true, why? What’s happened? Why can’t ABN Amro deal in physical bullion? Is there a deeper malaise going on that has yet to manifest itself?

You see, here’s the thing, the euro has doggedly survived everything that has been thrown at it but in the desperation to keep it going -- throwing out democratic controls, sovereignty, property rights and the free market -- the question has to be asked: Is le grand projet fundamentally holed below the water line?

If it is, is it purely the case that no-one has noticed the listing or is it the case that they daren’t tell the passengers?

Simon Miller is a contributing editor to The Commentator. Follow him on Twitter @simontm71

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