09:55 – If you believe Merkel and the eurocrats, the Cyprus Crisis is now “over”, and with only one fatality. Cyprus itself, which has been gutted. Off-shore banking, the core of the Cypriot economy, has been killed deader than King Tut, leaving only tourism as a significant source of revenue. (Until now, banking was about 70% of the Cypriot economy and tourism 30%. So, literally overnight, 70% of the Cypriot economy has disappeared.) In a nation of about one million population, the banking collapse alone will eliminate tens of thousands of high-paying jobs, leaving mostly only low-paying service jobs in the tourism industry. The follow-on effects, including plummeting property values, are likely to be as bad as the bank collapse itself.
Meanwhile, the €10 billion bailout boosts Cyprus’s indebtedness to about 150% of GDP. The former GDP, that is. As the GDP of Cyprus collapses with the loss of off-shore banking, its actual indebtedness is likely to end up at 300% to 400% of the new GDP. And the IMF says this is sustainable? What planet are they living on? In the next two to three years, Cyprus will inevitably suffer an economic collapse that will make the Great Depression look like a minor blip. And the worst of it is that this is only the first bailout. Just as with Greece, Cyprus will inevitably need more bailouts, with increasingly harsh terms. Cyprus is now on life-support, just waiting for Germany to pull the plug.
12:39 – This morning Jeroen Dijsselbloem, head of the Eurogroup of eurozone finance ministers, announced that the Cyprus bailout, with its seizing of depositors’ assets, is a template for future bailout actions within the eurozone. This afternoon Angela Merkel, big boss of the eurozone, ordered Dijsselbloem beheaded for being foolish enough to reveal her plans in public. Meanwhile, Putin and (particularly) Medvedev, who are livid at the eurozone’s confiscation of Russians’ assets, very probably including some of their own personal assets, already have plans well underway to punish German companies who do business in Russia by freezing and confiscating their assets. And a little mole tells me that capital flight from Southern Tier banks including French ones, already high, is fast increasing. I expect that by the end of this year the capital controls currently being implemented in Cyprus will spread to the Southern Tier countries. This isn’t going to be pretty.