Panicos Demetriades said that the banks could lose 10% of their deposits within days after they re-open if the tax is imposed. Parliament got the message. It did not do what it was told by the President to do. It told the Eurocrats to buzz off. No tax.
Now the government must open the banks’ doors with no bailout from the EuroGroup, the officially unnamed group of eurozone finance ministers.
Cypriots will be able to pull euro currency out of the banks. They will be able to transfer their money to German banks.
That will force the Cypriot banks to sell assets. Their value will fall. They will not be able to cover these losses for long — a few weeks. Maybe less.
Would you keep your money in a banking system that needs a bailout?
Wait a minute. You already do. So do I.
Cyprus was the first system to get to the edge of the abyss. Its parliament jumped.
The government cannot keep the banks’ doors closed. The economy will grind to a halt.
But if the banks collapse in a wave of withdrawals, the economy will grind to a halt. The government will default on its debt.
The dumb northern European bankers who lent money to Cyprus will suffer losses.
“Dominoes, dominoes, wherefore art thou, dominoes?”