Depositors in Cyprus banks will
lose some of their deposits.
They will be furious about this.
And they will, rightly, feel that it is grossly unfair — because depositors in the bailed-out banks in Ireland, Greece, etc. didn't lose their money.
And they will feel like fools for not having taken their money out.
And ... here's the important part ...
Other depositors at weak banks all over Europe, in places like Spain, Italy, and Greece, will rightly wonder whether this is the beginning of a new era of bank bailouts, an era in which bank depositors are going lose some of their money.
What do you think those other depositors in Spain, Italy, Greece, etc., are going to feel like doing when they realize that, if their banks ever need a bailout, they might have their deposits seized?
That's right.
They're going to feel like yanking their money out of their banks.
And if some of them yank their money out of their banks, well — then the financial condition of those banks will go from weak to insolvent.
And the banks will go rushing to their governments and the Eurozone for help.
And if, god forbid, the Eurozone decides to seize the deposits of more bank depositors ...
Well, then, a good portion of Europe is going to suddenly experience a good old-fashioned bank run.
That, to put it mildly, could be a disaster.
It could bring the European financial crisis, which has lurched from one flare-up to another for most of the past five years, to a rather sudden head.
How much would it cost for the powers-that-be to bail out all of Europe's weak banks at once?
A lot.
More than the Eurozone has in its emergency lending facilities, certainly. And more than the International Monetary Fund has on hand.
So the U.S. would probably have to get involved.
And, regardless of whether the U.S. needed to get involved, the European economy would likely suffer the equivalent of a heart attack.
That wouldn't be good for the U.S. economy.
Or the Chinese economy.
Or any other economy that sells things to Europe.
So, you can see, this little decision to seize a little money from bank depositors in the little island of Cyprus could be a much bigger deal than you think.
It could conceivably precipitate a run on weak European banks.
And a run on weak European banks could hammer the European economy and then the economy of Europe's trading partners. And it could cause global markets to crash.
So keep an eye on what's going on over there in Cyprus.
It's potentially much more important than it seems.
Read more:
http://www.businessinsider.com/cyprus-bailout-risks-europe-bank-runs-2013-3#ixzz2NqSpsD85
