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well Cypress is the fourth uh economy in
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the Euro Zone that has uh received a
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formal bailout after Ireland and uh
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Portugal and Greece and it is Tiny uh
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even smaller than the other three
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economies and the problem with uh Cyprus
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is that it has an oversized Financial
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system uh the Assets in the banking
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system are six or seven or eight times
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the size of the economy and there's a
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lot of uh foreign money there
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and uh including Russian money but also
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British money and the Europeans
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especially the Germans have been pushing
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for a solution that is very different
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from the one implemented in the other
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three countries in the sense that they
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wanted uh Savers uh so people with money
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in cpress to pay for you know part of
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the bailout about half of it and this is
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why they've imposed a tax on depositors
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a tax on wealth essentially but of
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course the controversy has been around
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the fact that U they didn't exclude
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small depositors they could have gone
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after just the big depositors those with
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uh you know several million dollars in
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in Cyprus but what they've done is
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essentially uh you know go after the uh
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the small depositors so so this is a
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very different kind of bailout uh it is
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as uh the media have reported a uh you
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know there's a before and an after with
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this kind of a bailout because not even
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small depositors now are safe yeah the
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bailout of Cyprus uh is qualitatively
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different and if uh you remember the uh
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bailout of uh certain banks in the
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United States was unimplemented under
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the premise that depositors would be
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guaranteed and in fact uh the FDIC here
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in the United States extended uh made
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its guarantees of depositors even bigger
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and so did the Europeans because they
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made Mutual guarantees uh at the
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beginning of the financial crisis 5
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years ago that depositors money wouldn't
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be touched uh so this is a uh a creates
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a very different dynamic
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uh it reminds one of Argentina in 2002
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where depositors actually U you know
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lost quite a bit of the money so in
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Cyprus right now what they've done is
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they they're saying that they're going
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to you know take away you know six 7%
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from small deposits and up to 10% or 11%
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from larger deposits but not only that
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uh they've also um decreed a bank
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holiday so right now what we have is
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that people cannot access their money of
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course why are they doing that well the
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reason is very simple which is that
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otherwise there would be a run on the
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banks so they're trying to create some
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stability now this week uh and try to
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sell the idea that uh it makes sense to
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uh you know uh Implement a haircut on
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depositors uh but remember again this
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was uh imposed by Europe because they
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didn't want to give Cyprus the entire
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amount of money that they needed for the
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bailout of the uh of the country well
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the the danger intrinsic to this kind of
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a bailout in Cyprus um raises the uh you
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know the question of whether there could
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be contagion into other economies in the
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Euro Zone uh also with banks that are in
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trouble and uh you know the uh the
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problem May spread first to places like
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uh Italy and Spain which so far have
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avoided a formal bailout the issue here
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is of course whether people with money
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and Italian or Spanish Banks start
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thinking that something like what
00:03:27
happened or what is going on in Cypress
00:03:29
right now could happen in Spain and
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Italy and of course you know there's
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nothing rational about Bank runs but if
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a bank run starts then it is rational
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for you to go to the bank and try to uh
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you know get out your money um so this
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is the the real danger is that people
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will extrapolate from what's going on in
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Cypress now and see the writing in the
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wall and just uh think well my money is
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also at risk let me take it out and of
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course you know banks on average keep
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you know four 5% of the deposits in cash
00:03:59
right because they have the rest of the
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money they have it invested uh so it's
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very easy actually to bring down an
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entire banking system if depositors uh
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start to believe that uh their money is
00:04:11
not safe so this is a what is going on
00:04:13
in Cypress is actually pretty serious
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well what we've seen is that when the
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deal was announced over the weekend yes
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on Monday the markets the equity markets
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uh responded badly not just in Europe
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but around the world now that's Equity
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markets that's not you know driven by
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depositors depositors include pretty
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much everybody in these economies
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everybody has a bank account everybody
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has at least a small balance in the bank
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uh I think as a result of this bailout
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which again is very different from the
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one implemented in Greece or Portugal or
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Ireland uh I think the the risk of um
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other banking systems in Europe
00:04:50
suffering from some kind of pressure
00:04:52
from depositors has increased
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considerably now that doesn't mean that
00:04:55
people are going to run to the bank in
00:04:57
Spain or in Italy or or even in Portugal
00:05:00
or in Greece right that doesn't mean
00:05:02
that but it but it does mean that the
00:05:04
risk has gone up significantly and it
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means that you know I think it's a
00:05:08
warning signal for policy makers that
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something like this you know the uh the
00:05:14
bailout of Cyprus perhaps is not the way
00:05:16
to go uh because look at all the Uproar
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that he has created uh you know I think
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it is unnecessary to uh punish uh small
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Savers small depositors
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