As Cyprus sinks slowly under its debts, the eurocrats in the rescue helicopter are insisting that all of the people there take a haircut, weave the strands together and contribute to the rescue winch… Only it\’s worse than that. Cue scenes of banking shutdown, outraged protesting savers and financial experts everywhere holding their heads and moaning.
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Now I realise that the people who did the deal live in the same comfy brain-sapping rich-bubble inhabited by our politicians and bankers. So this blog is for them.
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Here\’s a little story for you. Years ago my husband and I were trying to encourage our autistic son, then aged about 10, to become a saver. And so I took him to the bank with his birthday cash and cheque from granny and opened an account for him. He handed over the cheque quite happily, but balked at the madness of giving his two crisp precious tenners to a woman he\’d never met before.
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\”She\’ll spend it!\” he roared, hanging onto them desperately.
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So I told him the bank legend. Inside the bank, I said, were lots of boxes and one of them now had his name on it. The nice lady would put his money in the box and the only person who could take it out was him. The nice bank lady would absolutely not steal his money. In fact she would GIVE him a few pounds every year to say thank you for letting her look after it for him.
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Some weeks later he urgently needed a new Thomas the Tank Engine video and got some of his money out. He was appalled by what he found and came to me in tears. \”They stole it!\” he roared, \”They did, they stole my money!\”
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I was bewildered. \”But you\’ve got it in your hand…\”
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He gave me the universal mum-you\’re-a-moron child\’s look and said \”The numbers are different.\”
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Naturally he\’d memorised the serial numbers and got the bank bang-to-rights on that. I gave him the next lesson on the interchangeability of cash and he calmed down, though he still prefers money boxes.
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Meanwhile, the fact is that most of us grownups still privately think in terms of boxes in banks with our money in them and our names on the top. We know intellectually that banks actually use our savings to lend to other people (or put on red in the gigantic Derivatives Casino). We know that government can stick its sticky fist in and take some of our money and does so regularly when it taxes the interest, but we prefer not to think about that. Emotionally, we prefer to trust them.
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So what\’s happening in Cyprus? Well the new government has said that EU bureaucrats can bust into the banks, crowbar everybody\’s boxes and steal some money – just like that. No warning, no ifs or buts (though they\’re frantically renegotiating as I write this). And there\’s now apparently a plane-load of cash going out to Cyprus to make sure UK servicemen\’s families don\’t run out of money.
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Obviously, once the word got out that ordinary allegedly insured savers would suddenly be losing 6.75 euros for every 100 euros they had saved, all the cashpoints were immediately emptied as everyone desperately tried to remove their money. The Cypriot authorities have had to keep the banks closed until Thursday to stop a total run which would make Northern Rock look like the politely restrained affair it was.
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I don\’t really care why they did it – scared of Russian oligarchs with Kalashnikov- wielding financial advisors? Nor do I care about the desperate fudge they\’re trying to come up with to stop the rot.
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The damage has been done. All over the Eurozone people now know that, no matter what they tell you, the banks will hand over the keys to our moneyboxes to any Eurocrat who asks. Canny peasants are buying large socks. Millionaires are looking for the financial paper equivalent.
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It\’s about the principle. The fundamental necessary lie of banking is that it\’s safe to give your birthday tenners to the strange lady behind the desk. That lie is busted.
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It\’s always been true that there really is no such thing as a safe place to store wealth (see that under-rated economist Jesus ben Joseph of Nazareth for further details). However our entire civilization rests on the fiction that there is. We believe the fiction because it\’s convenient and it means we can have good food supplies, safe houses and lots of stuff. It\’s only our irrational collective belief that keeps the whole credit merry-go-round spinning.
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I\’m a very strange kind of historian. I think it\’s fun to look for turning points as they happen, rather than with hindsight.
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So for what it\’s worth, I think that this is the break-point for the Euro – which I used to support, by the way. Not because of what will happen in Cyprus at the end of the week (major deposit flight, bank run, hyperinflation…nothing?).
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It\’s because the countries struggling to stay in the Euro will wonder if the mad prescriptions of the eurocracy are really less bad than sovereign bankruptcy.
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Sooner or later one brave big nation (Italy? Spain? France?) will try it. That will be interesting.