In Cyprus, a decision was made to screw savers with a 6.75% to 9.9% "Tax" on deposits.
Supposedly this move was made to "avoid unsettling investors in larger countries and sparking a new round of market contagion."
In reality, the action was mandated theft, imposed by EU officials to protect senior bondholders.
How can such an action do anything but cause contagion?
The move is expected to raise a mere 5.8 billion euros according to Dutch Finance Minister Jeroen Dijsselbloem, leader of the euro-area ministers. Fallout from this action will cost far more than that.
What is someone in Greece, Spain, or Italy supposed to think?
Consider Spain. By a 526 to 86 vote, the nannycrats in Brussels just passed a regulation that will require a country to accept a bailout if offered. (Please see An Offer You Cannot Refuse; EU Passes Law Forcing Countries to Take Bailout; Is Spain the First Target?)
Also note that EU Court Strikes Down Spain’s Eviction Law.
Think the parlay of EU contagion-begging actions for a second.
Expect Bank Runs
Why would any rational thinking Spanish person keep any money in Spanish banks? They shouldn't and I suspect they won't.
Moreover, this is bound to further inflame the situation in Italy, where Beppe Grillo's Five Star Movement is already the largest party.
In short, this action was one of the single stupidest things the EU could have done and they crammed it down the throats of all Cyprus citizens, hoping to stop the spread of contagion.
My friend Bernd who lives in Germany had these comments. "Judging by the German forums on Focus, Der Spiegel, SZ, FAZ and Die Zeit, there is hardly any support for this action. The name calling and swearing is rather blunt. These guys did not study their Machiavelli. He said roughly if you hurt people, you must never hurt all of them at once."
The closest Machiavelli quote I can find is "If you need to injure someone, do it in such a way that you do not have to fear their vengeance."
Rest assured there is going to be vengeance over this action. The Cyprus government will fall, and deposit fear will spread everywhere.
Mike "Mish" Shedlock