The rights and wrongs of the Cyprus bailout by fellow Eurozone members and the IMF have resulted in many column inches of discussion in the press and elsewhere. Whatever the moral hazard with any given point of view on this subject there is no doubt that it has been a brutal experience for both the Cypriot people and others who hold deposits in its Banks. There will be little sympathy for some Russian depositors, whose source of funds may have had dubious provenance but there will have been plenty of innocent victims, Russians included.
The principle problem it would seem, is the blurring of lines between sovereign states and the banks that operate within them.
Who is being bailed out? The Banks, the State or both?
In the case of Cyprus a Rubicon has been crossed: bank depositors have been ‘bailed in’ for poor government as well as bankrupt banks. A ‘first’ in the Eurozone. Despite reassurances that Cyprus is a ‘special case’ the bailout ‘cat’ is very much ‘out of the bag’ as articulated by the Dutch finance minister who claimed that the Cyprus case was a template for future bailouts.
So where does this leave depositors in other Eurozone banks/countries should the worst happen?
Let’s be clear, there are plenty of weak banks in the Eurozone and many countries with spiralling public debt. The combination of the two is a pretty scary cocktail, just look at Spain, Portugal, Italy etc. Just how safe are large cash deposits in these countries? How easily could your money be ‘confiscated’?
Will we see a cascade of cash buy into other asset classes including real estate?
Quite possibly. At least it would have the benefit of being out of reach EU/IMF.
Our market in the south of France has not been immune to the ‘age of austerity’ with buyers sitting tight and transactional volumes slashed. Prices/values have been slowly changing to reflect the reality of the situation with vendors being much more realistic if they are genuine in their desire to sell. Nonetheless, buyers still hold the whip hand. It maybe too early to say but perhaps the market will receive a much needed shot in the arm given the Cyprus experience.
Is your money safer in bricks and mortar or in a weak Eurozone bank?
The EU/IMF might now be able to confiscate depositors money but surely it would be a step too far to confiscate private housing. Perhaps the phrase ‘as safe as houses’ could not be more apposite in the current Eurozone climate.