Negotiators reached a last-minute deal earlier today to stave off the Eurozone’s first eviction. While the arrangement does not include the direct confiscation of deposits, it is not without its flaws. Complete details are not yet available, but the agreement includes the closure of the country’s second largest bank, resulting in substantial losses for those with (uninsured) deposits over 100,000 Euros (~128,000 USD).
This story isn’t over yet, but there are some obvious lessons that can already be identified:
- Uncontrolled debt will take it’s toll, sooner or later. The later it comes, the fewer and more severe the options. Cyprus probably got a better deal that was originally proposed, but the pain is real and will be felt for years to come.
- When resolving a financial crisis, the government will always attempt to transfer as much of the pain to the more productive as possible because lower income earners are higher in number and more willing to protest/riot. However, the wealthiest often survive because they are well represented in the governing class. Notice that the original bank levy proposal only addressed bank deposits, not stocks, bonds and property more likely to be held by the wealthiest Cypriots. The demonized “top 1%” in Cyprus do not have most of their assets in banks anyway. In the end, the biggest hit is always felt by the middle class.
- Government access to private information should be limited, whether we’re talking about bank accounts, medical records, or gun registrations. The government can attempt to do just about anything in a “national emergency.”
- As George Washington advised, nations should avoid as many foreign entanglements as possible. Countries like Germany and France are learning this lesson in the economic realm. Financial collectivism among nations always transfers wealth to the weaker countries and risk to the stronger ones.
- Individuals should consider holding as much wealth as possible in assets less susceptible to easy government confiscation, such as precious metals or property. Bank and retirement accounts are easy prey.
- If you live in a troubled EU nation (particularly Cyprus, Portugal, Spain, Greece, or Ireland), limit the amount of money you keep in local banks. “Government insurance” is only as strong as the integrity of government officials. The next attempt at bank deposit confiscation might be successful.
- If something happens in the EU, it’s not far-fetched to think it can happen in the US. At the end of the day, the Constitution won’t protect us without a cadre of elected officials willing to defend it.