One of the most disturbing angles to the Cyprus bailout — wherein the government is being forced to tax bank depositors — is this idea that Berlin is calling all of the shots in Europe.
According to multiple reports, Germany basically said to Cyprus: Tax your depositors, or you can leave the Eurozone. We're not just writing going to write a big check this time, because you're too small to really matter.
On the one hand you might say: Germany is writing the checks, so of course it can call the shots like this.
On the other hand, this look like German bullying causing a destruction of trust and wealth in the worst possible way.
Regardless of whether it's a good or bad thing, Germany is clearly sending a message.
Citi's currency expert Steven Englander lists six lessons that Germany just sent the rest of Europe, particularly peripheral Europe.
1. No free rides for anyone.
2. Small country blackmail on contagion can be resisted.
3. Narrow populism can face resistance from the countries writing checks.
4. There is a cost to easy banking and regulatory regimes.
5. German elections count as much as Italian.
6. Moral hazard will not be condoned (some of the Fed/Treasury phraseology prior to the Lehman bankruptcy can be recycled).
Point 2 & 5 are particularly interesting.
The idea of Cyprus (which has a GDP only seven percent as big as Greece's) not being big enough to be Too Big To Fail has definitely worked against its favor.
And then the significance of Merkel's re-election (coming in September) also did not help the Cypriots. There is a growing Euroskeptic breeze blowing in Germany, with the new Alternative For Germany party gathering steam.
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