We awoke to the news yesterday that Cyprus was the latest Euro-Nation to receive a bailout, but this time, there were significant contractual caveats that wouldn’t nominally affect the nation, but would place a levy directly on the population.
I of course use the word ‘population’ cautiously, as it’s alleged the number of money transmission accounts held in Cyprus vastly exceeds the registered population at the last census! All this being said, whether you’re a hard working cement worker in Nicosia or a billionaire property magnate from Russia, your savings will shortly be targeted in a euro-bomber like stealth attack. (Apologies for the mixed metaphor, but I’m trying to paint a picture here!)
This euro-raid is unprecedented. A levy on savings has not been mooted or attempted previously in any European or Western country and has sent a shockwave through the 300 million or so EU residents. For those nations in the Eurozone whose families naturally save not spend (Germany, Portugal, Spain, France etc.) this has caused a tremor of panic that one local media outlet on the Algarve today headlined as “the dash for cash at Faro’s ATM’s”, citing and picturing queues at exhausted bank machines across the City.
Whilst the run-on-the-bank scenario is one which all european financial services institutions have had to plan for since the up-weighting of capital funding requirements, it’s apparent that stock markets in some countries have today been battered by market reverberations. At the time of writing, markets across the world have tipped lower, whilst those in the infamous PIGS nations have dipped considerably, particularly in the banking sector. Whilst most institutions would insist they could resist moderate capital outflows, it’s likely there will be many weaker players around Europe watching their customer footfall carefully over the next few days and their customers will be watching equally as carefully for any sign of weakness such as ATM outages, queues at bank branches and restricted teller withdrawals for instance.
The key issue for me is (yet again) the omni-directional erosion of trust. When you look broadly at the situation, it’s clear EU central bankers have lost trust in Cyprus, so have deployed a raid on the populations’ savings. International bankers have now lost trust in the Euro, so have traded down, which in turn affects all of us through our long term pensions and investments or short term through higher fuel prices. More locally, it makes all of us more insecure about the fiscal environment in which we all rely; where to put our savings, who to trust with our mortgages and when and if to borrow – even if our bank is prepared to lend to us!
The Financial Services and Banking industries quickly need to rebuild their reputation to prevent short term bank runs and longer term customer apathy. The notion of huge wads of cash being placed under mattresses across the EU may not be too far away and this crazy situation will be have been caused by a complete breakdown in trust. A breakdown in trust which actually spans far wider than the economists dealing in invisible trades and algorithms, but covers our Governments, our media and worse still threatens our trust in society – our trust in each other.
If we’re all in it together – what is it? Answers on a postcard please!
So we watch whilst the market machinations continue and until we get greater clarity from Cyprus tomorrow. Rest assured in the meantime, those of us even with a modicum of cash in the bank will keep an eye on the markets and prepare our bedding for a bit of additional bolstering!