When the first headlines started crossing over the weekend, it seemed almost surreal. Cyprus agreed to impose a 10% tax on bank deposits to shore up that tiny island nation's ailing banks.
As incredulous, and ill-conceived as this super aggressive action is and will surely prove to be over time, by Monday markets around the world were already casting their votes and unanimously running for cover. For as much as this ''least painful solution" to the latest crisis engulfing the Eurozone was being levied against the savings accounts of citizens in a laid back Mediterranean hideout, its architects 2,000 miles away in Brussels and Berlin appear to have miscalculated once again.
As my co-host Jeff Macke and I discuss in the attached video, there are three key reasons why this move, and the subsequent global flight to safety, is going to matter more than the little-known place that appears to have triggered it.
First and foremost, are the ripple effects. Nothing happens in a vacuum, especially when it happens within a bloc of 17 nations that share one currency, but otherwise to pretty much hate each other. Despite treaties and agreements and high-minded "single-market rules," the Eurozone is still in the experimental stage, and I suspect a good percentage of its 320-million citizens, who now do their daily business in Euros, will be visiting an ATM today. And who can blame them? If the EU Finance Ministers can inflict this upon Cyprus over a holiday weekend, what's to stop them from doing the same thing somewhere else the next time a nation's banks need a little boost?
Which leads to the second point: banks. Once again, the ongoing process of global deleveraging is finding its way to its ultimate resting place; people's wallets. The fact that Cyprus has a disproportionately large banking sector was well-known and presumably accounted for when leaders were drawing up rules and tearing down barriers to simplify transnational lending in this region, all while extending the peace of mind that is supposed to come with deposit insurance guarantees to every member bank in every member state. After this random act of kindness, it is hard to see how the Eurozone's shattered credibility will ever be fully restored with rank-and-file savers. Banks may be the ones on the hook, but it was just made crystal clear whose neck is actual on the line.
And finally, as much as we all are growing weary with crisis fatigue, this will be our fifth consecutive European spring of madness. With even higher unemployment, lower growth, wider riffs between nations and narrowing support for the austerity strategies being exported from Brussels, there truly is no end in sight for this quagmire.
If you thought the break-up of the Eurozone stories had ended, think again. This is not about Cyprus or even Greece. It's about Spain and Italy and even France and Germany -places that are filled with people today who are wondering about their money and what they really have in common with each other.
Is it any wonder that despite numerous difficulties of our own, the dollar and U.S. Treasuries are rallying? The question for stock investors is how deep our sell-off be. We've been looking for a reason and expecting a reversal for more than a month, but now that the 10-Day Rally headlines have turned into 2-day Slump stories, it feels to me as if it might be more painful than just 1 or 2 percent.