German Chancellor Angela Merkel is not pleased with Cyprus governance:
Merkel told a closed-door meeting of legislators in Berlin today that she’s annoyed the Cypriot government hasn’t been in touch with the so-called troika of international creditors for days, according to a party official who spoke on condition of anonymity because the briefing was private. Cyprus’s decision to test Europe is unacceptable, she told them.
Could such a seizure of private banking deposits occur elsewhere in Europe? The idea has already been floated. Joerg Kraemer, chief economist of Commerzbank, was quoted recently in Handelsblatt Online about Italy:
Net financial assets of the Italians … amounts to 173 percent of gross domestic product (GDP). This was significantly more than the net financial assets of the Germans, which corresponds to 124 percent of GDP, said Kramer. "So it would make sense, in Italy a one-time property tax levy," suggested the Bank economist. "A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product."
In the meantime, a pro-Europe but anti-euro party has emerged in Germany and polled at 26-40% early this month. UPDATE 3/27/13: Spiegel is reporting significant capital flight from two Cypriot banks on the eve of the deal, despite the "capital controls":
There are indications that large sums flowed out of the two banks just before the first bailout package was signed in the early morning hours of March 16. At the end of January, some 40 percent of all savings held in Cypriot accounts were on the books of those two banks. Since then, however, much of it has been transferred elsewhere, despite orders from the central bank that accounts at the two institutions be frozen.
This appears to be an excellent way of demolishing every last trace of trust in both governing and financial systems. UPDATE 3/28/13: The new President of the Eurogroup's finance ministers told Reuters that Cyprus is not a special case but represents a new template for dealing with eurozone bank problems:
"What we've done last night is what I call pushing back the risks," Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times hours after the Cyprus deal was struck." If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'. If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders," he said.
Well, interesting times are ahead.