Why the Eurozone Crisis is about to get a whole lot worse than now

The Case of Cyprus

The recent announcement in Cyprus that depositors would have to lose part of their deposits to bailout the banks is the first shot across the bow that has been fired in the ongoing Eurozone crisis. In effect, governments in the Eurozone are not afraid to raid the savings accounts of depositors to bailout the banks. This is a case where for the first time in the global economic history of the world, savers are being penalized and asked to help in rescuing the banks. In other words, this incident marks the beginning of the long held sacrosanct principle that savers and their deposits are untouchable and that they are immune from governmental interference because they are insured. To put it plainly, the governments of the EU (European Union) are now actively engaged in asking savers to part with their capital to fund the governments.

Template for other countries

While this case of Cyprus can be seen as an isolated example, there are many pointers to the fact that this might not be a one-off case as is being mentioned. For instance, the head of the Eurogroup has stated that the Cyprus template would be replicated across the troubled periphery of the Eurozone wherein the average person would be asked to contribute to the bailouts of the banks. In other words, the case of Cyprus is not isolated and can lead to large-scale panic in the entire Eurozone, as depositors would no longer have the comfort of believing that the government would come to their rescue. On the contrary, they would fear for their money, as increasingly they would be the subject of the type of confistication that has happened in Cyprus. No wonder many depositors across the EU are already withdrawing their money from the banks and either keeping it with themselves or depositing it in banks in Germany and the UK.

Depositors should be careful

The other question that crops up in this case is whether this can happen across the world. Some commentators believe that most emerging markets are at risk to this kind of situation and hence, the depositors must be wary of the moves of the Central Bankers. Indeed, many commentators are pointing to the fact that what happened in Cyprus can happen in the other crisis hit countries including the US. This is the reason why there are jitters around the world as soon as the news from Cyprus broke into the open. The implications for the depositors across the world are many, as all of us believe that our money is safe in banks and hence, cannot be touched by anyone except ourselves. The case of Cyprus has proved that this is necessarily not the matter and that we cannot be complacent that our money would be forcibly taken from us.

Final Thoughts

Finally, many experts believe that Cyprus is the Canary in the Coalmine and portends to similar situations across the world. Hence, it is better to own precious metals like Gold and Silver instead of having assets that are monetary alone.


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Globalization