In plain terms this is a pyramid scheme that is being used simply to buy time, under the false belief that somehow the situation can be turned around -- when in fact it can't be...
Once again this is the a fantasy of Euro social welfarism -- this concept of buying time by using peripheral state bank deposits -- since there aren't any real bond holders to buy the bonds of the previous or last to fail country, in this case, Greece.
Again to reiterate, it is a pyramid scheme designed to buy time, but what the ECB is doing now is they're getting a little smarter about it because they understand that they cannot expand their balance sheets endlessly.
Therefore what they're saying in effect is that if you have more than 100,000 euros on deposit in any of the peripheral Euro nation states, you're not going to be protected. This has already created capital flight and it will create a lot more capital flight.
The capital flight which has become necessary is all going back into the "core." Money is leaving the peripheral states and going back to Germany. Switzerland on the other hand isn't the haven it once was because the rest of the European countries have now gotten tough with Switzerland.
With people using Switzerland as a tax haven or a place to hide money, it is not necessarily any "safer" now, lest we forget that Swiss banks like UBS and Credit Suisse were also significantly weakened in the post-bubble era.
The capital then is going into German banks. It's the only place left for it to go. The tax havens like the Isle of Jersey, Luxembourg, etc. are all beginning to fade now. The Cyprus situation was an opportunity for the core states and the ECB to send a message that if you want to use so-called tax havens in the peripheral states, you're not going to be protected as a depositor.
Everyone who understood the situation or got the phone call from Uncle Vlad (Putin) or somebody was already out. However enough people lost money in this -- mostly Russians -- that sent a signal which had to be sent and that is that the classic tax havens are no longer safe. It's not that they're safe from legal challenge; it's that your deposits aren't safe there.
The inference is that tax havens like Luxembourg and Cayman Islands are not part of the Euro-zone. Nobody's going to bail them out. So actually it's a good message to send. What it will do is force taxable capital back into the highest tax core states so it's obviously profitable for the Euro core-states.
For the rest of this column by Independent Political/ Economic Analyst Al Martin, click here -- Al Martin Raw.
* AL MARTIN, author of "The Conspirators: Secrets of an Iran Contra Insider," is an Independent Political-Economic Analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. He is also currently trading the commodity futures market day and night and has a teleconferencing service to facilitate transactions in the markets. This is a service for independent experienced traders.
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