The European Union has launched a legal procedure to create a foundation for actions aimed at «cutting extra weight» from large deposits in the banks of the Union’s members. The EU Committee on Economic and Monetary Affairs vote on April 24 was the first step in this direction. Now the issue is to be submitted to the European parliament and the governments of the member states. It may give rise to splits, political demarches and haggling behind the scenes.

The European members of parliament, high-standing EU and European Central Bank officials try to do their best to calm the investors down. Gunnar HÖkmark, Member of European parliament from Sweden and the author and advocate of new system, says it has nothing to do with the Cyprus situation, when large investors had up to 80% written off from their deposits. According to him, there is no ground to say there will no protection for bank accounts anymore, because the coming up decisions have no relation to the deposits under €100 thousand. The advocates of the bill point out that the goal is to provide guarantees of «financial stability» for banks in the times of crisis. The brunt of the burden will be put on the shoulders of share owners and creditors not account holders.

But it doesn’t change anything in essence. For the first time in the Eurozone history the investors are divided into the «reliable» and «risky» groups, and the last ones will have to face confiscations. The cutting away from deposits will be applied only to the troubled banks. As the experience of Greece, Cyprus, and even Spain and Italy shows, no banks are protected from trouble… A number of experts have already come up with a warning that the practice of making bond holders and depositors pay will sure scare away big investors, or the very same people the success of EU anti-crisis measures depends on.

In the wake of deposits bail debates, Olli Ilmari Rehn, a Finnish politician, currently serving as European Commissioner for Economic and Monetary Affairs and the Euro and Vice President of the European Commission, addressed the Commission members calling for slowing down the measures aimed at budget consolidation. This drew centre-right criticism pointing out that the Commission was straying from the right course and sending the wrong signal and that it was ready to bend to pressures and row back on its economic reform agenda. To the contrary, the center-left called it half measures. They appealed for displaying political courage and admitting «that austerity was simply not working and no longer had any political or social support, others that EU countries need new incentives, not just slower reform». (1)

It’s not only about depositors of this or that bank only; the viability of the whole Eurozone system is questioned. If the European Central Bank, the European parliament and other EU international structures have the right for backdated «bail in» applied to any bank of their choice, then the whole Eurozone may be subject to panic and chaos. As experts say, bank raiding is the most horrible threat to any financial system no matter how reliable it may be.

Where will the deposits flow if the bail in happens to be unacceptable for big investors? International offshores, including those of Great Britain, are an option. This will give the conflict a new geopolitical dimension. Gilles Bridier, a Slate, fr. economic analyst, says, «The unification of European tax policy by creating common EU financial agencies comes to the fore. We’re still far away from reaching the goal, given the very number of off-shores in Europe only: Lichtenstein, Monaco, Gibraltar and other islands. Just imagine how hard it is going to be implemented on global scale, not talking about national sovereignty of tax safe havens». (2) The European Union appears to be facing a tall order in case it wants financial discipline prevail in its own house.

There is one more aspect hard to tackle against the background of aggravating internal divisions related to financial and economic issues. It’s the crisis of neo-liberal models the world financial system is based on. US Nobel Prize winner Paul Krugman hit the nail right on the head calling the present situation «Hot Money Blues». According to him, «The truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment. It’s hard to imagine now, but for more than three decades after World War II financial crises of the kind we’ve lately become so familiar with hardly ever happened. Since 1980, however, the roster has been impressive: Mexico, Brazil, Argentina and Chile in 1982. Sweden and Finland in 1991. Mexico again in 1995. Thailand, Malaysia, Indonesia and Korea in 1998. Argentina again in 2002. And, of course, the more recent run of disasters: Iceland, Ireland, Greece, Portugal, Spain, Italy, and Cyprus. What’s the common theme in these episodes? Conventional wisdom blames fiscal profligacy — but in this whole list, that story fits only one country, Greece. Runaway bankers are a better story; they played a role in a number of these crises, from Chile to Sweden to Cyprus. But the best predictor of crisis is large inflows of foreign money: in all but a couple of the cases I just mentioned, the foundation for crisis was laid by a rush of foreign investors into a country, followed by a sudden rush out». (3)

The inflow of foreign capital as a harbinger and a trigger of financial crisis and the following economic and political yoke – that’s what many countries should think about as they see the Western credits as a panacea to solve all their troubles.

This is the general assessment of the «transition period» the world economy is going through. No wonder, some global actors apply efforts to turn the tide into their favor by spurring the process. The Christian Science Monitor offers its own interpretation of the Cyprus problem. In its article How German Fears of Underwriting Russian Oligarchs Pushed Cyprus to Crisis it says the Cyprus crisis was provoked by the German government, which pursued two key political goals: to sever the link between Cyprus and Russia and simultaneously facilitate the victory for the ruling coalition at the bundestag election in September 2013. «The German taxpayer is willing to help Cyprus», says Michael Fuchs, a Member of Parliament for Chancellor Angela Merkel’s Christian Democrats. «But the Cypriots have to help themselves and pay a tax on their deposits». (4)

It should be added, the opinion is widely spread throughout the Eurozone troubled nations that they have become victims of the schemes implemented by leading European nations headed by Germany pursuing their own interests.

For instance, Christos Anaxagoras, ICS Travel Group, is sure that writing off deposits and curbing capital movement will be used by Greece, Spain and Turkey, the Cyprus tourist competitors, to their advantage. They have interest in creating a negative image of Cyprus to scare the customers away. It’s hard to imagine that Brussels acts in the interests of Ankara. But in general terms the environment of chaos dominating European markets is advantageous for too many. It complicates the process of making precise the real reasons behind the present situation.

[1] europarl.europa.eu
[2] http://www.slate.fr/story/70989/paradis-fiscaux-mondialisation
[3] The New York Times, 24.03.2013
[4] The Christian Science Monitor, 18.03.2013