Cyprus: the EU isn’t even a banking union!

European countries bail each other out for political and financial reasons, to prevent contagion to their own banking systems. We don’t have a social union, not a political union, not a union that calls for transfers of money for social reasons. If that were the case we’d be saving pensioners in Rumania from freezing to death, as they are wont to do living on less than 25 euros a month, rather than bailing out banks and account holders in Cyprus.

Whose responsibility is it to insure bank accounts in Euro countries? What many don’t seem or want to understand is that countries underwrite their own bank account holders. Each country has its own deposit insurance agency, Cyprus insures its deposits up to 100,000 euros for 100%. But their financial sectory has grown so huge that they cannot guarantee these deposits. And instead of hitting the breaks in 2008 when there was time they let this fester, rewarding account holders with, literally, outlandish interest rates until the size of the banking sector was more than 5 times GDP. And now these banks are so hollowed out by this Icelandic-type ponzi scheme that Cyprus comes begging for help to be saved. Not quite begging of course; they’re threatening to call us nazis and imperialists if we don’t. And the world of financial analysts and bankers joins them in the media threatening with Euro wide bank runs.

The sole political reason for bailing out Cyprus is to prevent contagion. But the reason not to bail them out is because many people who lived through this before with Greece are livid that these huge liabilities once again must be assumed by the north.

It is political poison. In 2012 Finland almost blocked the latest rescue package, in the Netherlands the 2nd, 3rd and 4th largest party in the polls large rail against these massive bailouts, opposing them.

Personally, I think we should guarantee the deposits up to 100,000. But that’s what we call a banking union. We don’t have that. Uninsured amounts over that sum and bondholders in the banks who assume a far greater risk than depositors ought to lose their investments, that is the agreement under which they put their money in these risky banks. Bailing them out too is rewarding irresponsible behavior.