I always thought that when you got into trouble, as a country, the deal was something like this: tighten your belt, screw your economy for the next few years, and the international community will see you good, rearrange your terms, stop you from defaulting, and maybe start lending to you on something like acceptable terms one day in the indefinable future. You won’t have to devalue your currency and you won’t lose any actual assets.
If you stick two fingers up and default, you’ll devalue, savers will lose assets, and no one will trust you again.
Which is why the news that the bail-out of Cyprus comes with such horrible strings attached – a levy of up to 10% on savers – is pretty shocking. Choose austerity, they said. Everything’ll be OK. Now it turns out you get your savings cut anyway. Who’s going to choose austerity now?
They’re spinning this, the Eurocrats, spinning it nicely through Peston, but come on, is anyone really going to believe that Cyprus is a special case, that it’s all about Russian gangsters and money laundering? This is real life, real people, losing their money overnight, not some implausible spy thriller. In due course the Italians and the Spanish and the Portuguese will go to the polls and see this, see what might just happen to them, even if they’ve been assured it won’t.
Maybe the result will be those two fingers that the financial community so fears. And maybe that wouldn’t be such a bad thing.
update check out the first extract from my novel here, a gripping tale of banking, fraud and death.