German Economist: ‘Europe’s Citizens Now Have to Fear for Their Money’…(Amerika, Too!!)
For the first time, bank customers in a crisis-plagued euro-zone country are being forced to contribute to its bailout. In an interview, German economist Peter Bofinger warns the strategy is “extremely dangerous” and could lead to a run on banks.
March 18, 2013
PIEGEL ONLINE: Mr. Bofinger, Cyprus will be saved — and every Cypriot bank customer will have to pay up. Whether that person is Greek or Russian, whether they have €1,000 or €10 million in their account, part of that person’s savings will be taken. Is this a good strategy?
Bofinger: It is the worst possible. Making small-scale savers pay is extremely dangerous. It will shake the trust of depositors across the Continent. Europe’s citizens now have to fear for their money.
SPIEGEL ONLINE: Do you expect that despositors in Spain, Italy, Portugal and other crisis-plagued countries will make a run on their accounts because they, too, might have to pay someday?
Bofinger: Yes. These fears will now be stoked. The Spaniards, Italians and Portuguese may not run to the banks today or tomorrow, but as soon as the crisis intensifies in a euro-zone country, the bank customers will remember Cyprus. They will withdraw their money and, by doing so, intensify the crisis.
SPIEGEL ONLINE: The Cypriot government wants to minimize this panic effect. The Wall Street Journal reported today that the latest proposal in Nicosia would include only a 3-percent one-time levy for small-scale depositors rather than the 6.75 percent tax included in the deal reached in Brussels over the weekend.