Hi Iain: A good point, to which I would reply as follows:
1) I agree with Mike's response to the last post -- separating depositors using the bank for day-to-day operations, and savers putting the money in for the higher interest rates. A levy on fixed-terms savings products, or other such "interest-sensitive" products might have been achievable
2) It would not have been unreasonable for the Germans to have said "OK, we'll bail you out, but you'll have to forgo the extra interest you were shown to entice you to Cyprus". But they didn't say that. They said something else which, while the impact was not dissimilar in practice, was very different in psychological effect.
3) I take a somewhat amoral view of this. Banking piracy is only an outrage in my eyes because it's a bloody stupid thing to do (as we can see from the fall-out). As John Dodds pointed out elsewhere, you NEED a banking system that people trust. If you have lived in Cyprus all of your life and built up savings, it would take quite a level of financial sophistication to choose a German bank at 1.5% rather than a Cypriot bank at 4.5%, because you considered the risk to reward ratio too high in the latter. case. Sure, you possibly SHOULD have thought that way, but most people don't.
3) Hitting the unsecured depositors might have been reasonable, but, as the Greek president decided, that would annihilate Cyprus's banking system from a different direction. Hence the rock and the hard place (of Cypruss's own creation, but in existence nevertheless).
4) For €10bn, this really was a rather dumb place for the EU to make a stand on principle. There are times when pragmatism is the better route to take, I think.
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Date: 2013-03-21 01:08 am (UTC)1) I agree with Mike's response to the last post -- separating depositors using the bank for day-to-day operations, and savers putting the money in for the higher interest rates. A levy on fixed-terms savings products, or other such "interest-sensitive" products might have been achievable
2) It would not have been unreasonable for the Germans to have said "OK, we'll bail you out, but you'll have to forgo the extra interest you were shown to entice you to Cyprus". But they didn't say that. They said something else which, while the impact was not dissimilar in practice, was very different in psychological effect.
3) I take a somewhat amoral view of this. Banking piracy is only an outrage in my eyes because it's a bloody stupid thing to do (as we can see from the fall-out). As John Dodds pointed out elsewhere, you NEED a banking system that people trust. If you have lived in Cyprus all of your life and built up savings, it would take quite a level of financial sophistication to choose a German bank at 1.5% rather than a Cypriot bank at 4.5%, because you considered the risk to reward ratio too high in the latter. case. Sure, you possibly SHOULD have thought that way, but most people don't.
3) Hitting the unsecured depositors might have been reasonable, but, as the Greek president decided, that would annihilate Cyprus's banking system from a different direction. Hence the rock and the hard place (of Cypruss's own creation, but in existence nevertheless).
4) For €10bn, this really was a rather dumb place for the EU to make a stand on principle. There are times when pragmatism is the better route to take, I think.
Pete