A banking crisis in Cyprus? No, I didn’t see that coming either. Apparently not many did. From the NY Times yesterday:
NICOSIA, Cyprus — Europe’s surprising decision early Saturday to force bank depositors in Cyprus to share in the cost of the latest euro zone bailout set off increasing outrage and turmoil in Cyprus on Sunday and fueled fears that the trouble will spread to countries like Spain and Italy…
In an address to the nation, [Cyprus President Nicos] Anastasiades painted an apocalyptic picture of what would happen if Cyprus did not approve the strict terms: a “complete collapse of the banking sector”; major losses for depositors and businesses; and a possible exit of Cyprus from the euro zone, the 17 countries that use the euro as their currency.
He said he was working to persuade European Union leaders to modify their demands for a 6.75 percent tax on deposits of up to 100,000 euros, a move that would hit ordinary savers.
Suffice it to say the one-time tax is not being well received. (There’s some speculation that a significant fraction of the large deposits are from Russian ‘businessmen’ who are using Cypriot banks launder money.) The suggested deal has led to speculation that there could be a bank run and that could trigger much wider problems in the Euro zone.
Here’s Paul Krugman on the situation:
And Brad DeLong links to Pawel Morski.