Happy Monday everyone. Today’s news is brought to you by the year 2010: a fresh bout of euro turmoil and a new poll showing Labor on the nose like a steaming horse dung.
The September election is dominating all news. And by September election, I of course mean the upcoming vote faced by German chancellor Angela Merkel on September 22.
The dynamic of the impending German elections has already lent a harsher note to its negotiations with debt riddled European nations.
And the price of keeping German voters happy is, it appears, to commandeer the savings from private bank accounts in debt-riddled nations.
First up: Cyprus.
Early Saturday morning, the president of Cyprus, Nicos Anastasiades, agreed to a humiliating bailout deal in which Cyprus will get €10 billion of funding in return for essentially pillaging (cooler heads would call it taxing) money from all deposit holders in Cyprian banks.
Deposit holders with more than €100,000 deposits, mostly Russian oligarchs and mafiosi, will pay an immediate tax of 9.9 per cent when banks reopen this week.
Germans don’t want to bail out rich Russian depositors in Cyprus. And the Cyprian government doesn’t want to be seen to be targeting the Russians alone, hence it spread the deposit tax to those earning under €100,000.
So Cyprian widows, and others who have sweated blood and tears all their lives to save for their retirement, will pay 6.75 per cent on all deposits less than €100,000.
And that sets a very dangerous precedent.
Because if your money is not safe in the bank, where is it? Answer: under your mattress. Reports have already arisen on twitter of Cypriots lining up outside broken ATM machines to withdraw their cash. The Cyprian government, which will meet on Monday to vote on the bailout deal with the same gun to their heads as Anastasiades had on Saturday, has declared Tuesday a bank holiday to stop a bank run.
And if you’re a depositor in Portugal, Greece or Spain, you’re probably thinking the next EU bailout negotiations might be a good time to pull your money out of the bank and stuff it under your mattress too.
And European banks that are shaky at best, suddenly start to look even shakier.
The Cyprian bailout agreement is another nail in the coffin of public trust in the banking system. And without a banking system, economies cease to function.
The whole point of the torturous and sleep deprived negotiations over European funding issues of the past five years now has been to keep trust in the banking system alive, while also finding a way to forgive massive debts.
With efforts faltering, the European Central Bank stepped in to essentially guarantee the system. This worked, for a while.
But the Cyprian bailout, with its 'bail in' of depositors to bailout bank creditors, could shake confidence in the region again.
Cue the next bout of euro turmoil – the financial crisis that just keeps on giving.
Meanwhile, back at home, the Fairfax/Neilson poll shows Labor’s two party preferred vote has slipped back to 44 per cent, meaning an electoral annihilation if an election were held now. Rudd remains as preferred Labor leader. The drums of another leadership spill are beating.
I think I’m getting too old for this merry-go-round. And I don’t know where that leaves the rest of you.