Home / Banking / Cyprus Banks Remain Closed. Banking Panic Looms.
Print Friendly and PDF

Cyprus Banks Remain Closed. Banking Panic Looms.

Written by Gary North on March 21, 2013

The Cyprus central bank decided to keep the banks closed until next Tuesday. The panic is building. This will build it even more.

The British media say the government is looking for Plan B. There is no Plan B.

There will be no tax on bank accounts, says the parliament.

Will there still be a bailout? The European Central Bank has said it will remove the life support tube on Monday. The head of the EuroGroup, which is a no-name committee of the eurozone’s finance ministers, said this: “I’m not sure that this package is completely gone and failed, because I don’t see many alternatives.” In short, “the Parliament had better reconsider.” Or else.

Or else what? Default? Cyprus’ departure from the eurozone? Do the Eurocrats want that? Do they want to risk a poster child for the PIIGS to imitate?

Meanwhile, panic builds. When the banks open their doors next week, they will face a true bank run. People now know: they cannot get their money. They never thought this could happen.

The central bank is playing kick the can. It is buying time. Maybe there will be a Plan B. Problem: if there is a Plan B, maybe the parliament will reject it. Then what?

A nation shuts down economically if its banks shut down. The banks can shut down in two ways: because of bank runs or by decree from the central bank. Today, the banking system has been shut down by decree.

The central bank cannot kick the can much longer. The economy will collapse without banks.

The British media are covering the story.

“We don’t have days or weeks, we have only hours to save our country,” Averof Neophytou, deputy leader of the ruling Democratic Rally party, told reporters as crisis talks in Nicosia dragged on into the evening.

Disaster looms.

The country’s two main banks – Laiki and the Bank of Cyprus – face potential failure if a bailout is not secured. One official told the Associated Press that Europe and the IMF were pressing for the two banks to be wound down. The Cypriot government was said to be considering the possibility of imposing capital controls amid fears that money would flood out of the country once its banks were reopened.

But if depositors cannot send their digital money out of the country, they can still demand currency. The effect is the same: bankrupt banks.

The central bank cannot print euros. It can bail out the system only if Cyprus pulls out of the eurozone. If it does, this will send a message to the PIIGS: “Get out. We did. Save yourselves. We did.”

Panic is building in Russia.

With an estimated $31bn (£21bn) held in Cypriot banks by Russian banks, businesses and individuals, as well as up to $40bn in loans to Cyprus-registered firms, Russia has been gripped by fear since the crisis began to unfold, with state-run television transmitting rare live reports from outside the Cypriot parliament.

Maybe Russia’s government will bail out the banks of Cyprus. Maybe not.

The depositors in the eurozone have been sent a wake-up call. This was not supposed to happen. The pro-euro propagandists said it would not happen. They were wrong.

If the system had worked as promised, this could not have happened. But it did happen. Conclusion: the system has failed.

PIIGS beware: your day will come.

The central bankers now face a growing loss of faith. This is the worst news a central banker can face.

Continue Reading on www.guardian.co.uk

Print Friendly and PDF

Posting Policy:
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse. Read more.

2 thoughts on “Cyprus Banks Remain Closed. Banking Panic Looms.

  1. The banking crisis in Cyprus reminds me of that hilarous scene in Blazing Saddles when the new black sheriff (Cleavon Little), facing a disgruntled crowd, pulls out his six shooter, points it at his head and takes himself hostage. Unlike the movie, this is not going to end well.

  2. Daniel from TN says:

    I doubt the banks will reopen at all. If that occurs then Cyprus will be in civil war within 30 days.