Endgame

Eight months ago the new head of the ECB, Mario Draghi promised in what the FT calls his July declaration that:

“The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

I must confess I was one of the sceptics. I reasoned that European leaders have taxed the current productive generation to the limit of its patience and crippled future generations with debt to the limit of their credibility with the markets. So there was nobody else to stick it to for the bill to save the euro. Reality itself had placed a limit on the life expectancy of the common currency.

But limits are for losers and “Super Mario” meant what he said.

“Whatever it takes” turns out to be a variation on the thinking of Willie Sutton veteran of 100 bank heists who when asked why he robbed banks said:

“Because that’s where the money is!”

There is no more to tax and the markets are already in the process of downgrading Europe’s creditworthiness, so EU leaders quite naturally turned to the as yet untouched vast reservoir of people’s personal savings. Quite naturally that is for ruthless amoral socialists who have absolutely no respect for other people’s property.

Ah, but I hear you say: “Cyprus is a special case. It’s a one off. Its banks are laundering the ill-gotten gains of Russian billionaires. And Merkel, apparently, was livid at the thought of hard earned German tax euros bailing out Slavic Mafioso, or at least she thought that German voters might be. So just this once she put away her moral compass and helped herself. It was really almost a moral act or at least an example of natural justice.”

This story repeatedly put out in the run up to the expropriation would have been more credible but for a couple of niggles. First the 40% levy on deposits was by no means limited to Russian crime bosses. Anybody with more than €100,000 in the wrong bank was eligible. But perhaps even more fatal to the credibility of the moral tone adopted was the jubilant crowing by eurozone chief, Jeroen Dijsselbloem, that the losses inflicted on depositors in Cyprus would be “the template for future banking crises in Europe”.

It’s really slightly thrilling to have the normally distinctly limp-wristed Euro elite acting so butch. After all, it is the Yanks who are supposed to be from Mars. So ten out of ten for novelty value. But minus several billion for timing and effect.

The thing is that right now several eurozone economies are teetering on the edge of catastrophe. The last thing their zombie banks needed perched as they are on a stool with a noose around their collective neck was somebody to kick away the only thing between them and eternity. That is, of course, the confidence that depositors have that their money is safe. Take that away and you remove the very reason for the existence of any bank.

The likely effect of this exciting new policy of “smash and grab” or rather “freeze and filch” is that it will kick off a vast migration of people’s savings in a vain search for security. But where is that to be found in the eurozone now?

And as those funds depart from the shakiest of Europe’s banks who will believe the extortions of Europe’s bungling leaders not to panic and to believe in their demonstrably empty guarantees of people’s savings?

So to solve the very minor crisis affecting tiny Cyprus the unprincipled leaders of the so called “troika” of the EU, the ECB and the IMF have set a breathtakingly stupid precedent, and even boasted about it.

Europe’s leaders have callously wrecked the Cyprus economy whose wealth was largely based on providing offshore banking services. As soon as the bank accounts are unfrozen and exchange controls are lifted, the money will depart never to return. Their debt currently standing at 120% of GNP will balloon uncontrollably as the economy slumps leading to inevitable bankruptcy. Cyprus will have to leave the eurozone soon anyway. And, in fact, the only distant prospect of recovery they have, will come with that departure.

But this diktat imposed on them was never about saving Cyprus. It was merely the latest and most unscrupulous attempt to save the euro.

But the result will be only to hasten its end.

This is the endgame of the euro.