Sunday, 17 March 2013

After Cyprus: what time the short squeeze?

There has been for the last 24 hours widespread hysteria among the commenting classes about the supposed Lehman II, The Sequel-type significance of the 6.5% to 9.9% haircut imposed this week-end on Cypriot account holders.

According to their myopic and apocalyptic reading, a moderate haircut on a few people who were getting large deposit rates (6% etc) for the best part of the last 3 years in order to compensate for the obvious and well-known risk of leaving their money in long-economically bankrupt Cypriot banks, will in fact trigger the mother of all bank runs in Southern Europe.

Obviously, the fact that the Eurozone crisis is foremost a political and institutional crisis, not a financial one, has been lost on them. I can understand the boringly traditional - I have seen it at work so many times - North American incomprehension at the complicated workings of a Continent with not one but - how mind-boggling! - several different national states. This failure to encompass European political issues basically makes Americans today routinely translate the Cyprus thing as the pan-European equivalent of the FDIC suddenly closing down for the whole of the US.

Well, as those guys probably will find out quickly enough next week, this ain't the US and this ain't the FDIC. Sell on Monday morning and get short-squeezed by XXXday afternoon is probably how it will run again, especially as the bank run in Southern Europe already happened a few years ago, remember those Target 2 balances? And getting short on old news is one of the surest recipes for disaster I know.    

In fact, the EU-wide decision of not getting European taxpayers to pay for the governance-free, intentional free-riding of another midget-state is probably the best medium-term news to come out of Brussels for a long, long time and shows some realism finally creeping into what has been so far a globally denialist management of the crisis. It at last shows national states that their responsibility actually starts somewhere and that not everything is permissible for ever, a healthy warning.

Greece was peripheral to European construction, and European taxpayers have paid dearly, but Cyprus is not even that. Frankly, who cares about it at all, except because we have to, thanks to some reckless accession treaty we once signed to please ... Greece. And as to the domestic political consequences of  the marginal difference of some "ordinary" Cypriots being taxed 6.5% of their cash holdings, instead of all law-abiding "ordinary" Cypriots - i.e. taxpayers - getting taxed, well, who could care?