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Cyprus Crisis Could Trigger
Bank Runs Across Europe

Yesterday we've covered the Cypriot bank deposit taxation and the following bank run issue.

Today the Cypriot government was debating whether to enact the respective deposit taxation law or not. Some external pressures have held them back - particularly Russia is believed to have put pressure on Cyprus, because a large number of Russian citizens and companies hold off-shore accounts there. Most voted with "no" today, so the parliament didn't put the law in place.

Russians are estimated to have over 31 billion euros-worth of holdings in Cypriot banks. If the island country taxes them, then that would mean a loss of over 3 billion euros to Russian interests.

Amid a bank holiday, citizens of Cyprus and some foreigners have rushed to the ATMs to withdraw their money. Many of the ATMs have been depleted.
Banks were ordered to close in order to prevent a "panic withdrawal", but some (more accessible) ATMs were assaulted by money-thirsty Cypriots.

As a response to the Cyprus bank deposit tax law proposal, many European markets got slammed, foreign currencies lost value and gold climbed above 1,600 $ again.

Currently, analysts and investors across the World are watching the Cyprus-related news. Many have rejoiced after the law didn't pass parliament today. However, the financial problems of the country didn't get solved and, the bank run "microbe" might spread to the citizens of other countries.

The bank holiday (if not extended) will last until March 21, Thursday.

Whatever happens, we mustn't underestimate the influence of Cyprus on the European economy. At first, it seems to be an "obscure small island", but it's part of the eurozone, Cyprus is a nest for off-shore deposit holdings. In fact, for a long time Cyprus was preferred by foreigners for money deposits. They used to have flexible laws and therefore attracted sizeable amounts of foreign deposits.

The wealth tax on Cyprus could propagate to the rest of Europe and not only!
Panic could induce bank runs across the continent and foreign investors might start withdrawing immense amounts of capital.

Cyprus is part of the eurozone. Some believe that these actions are an "experiment" - the EU might conduct similar actions across the continent. Cyprus might be the first step. If you live elsewhere in Europe, you should be concerned about your bank deposits.

The phenomenon of bank runs and panic withdrawals could spread. People could learn from the bad example set by the Cypriot government and could rush to withraw their cash, as a precautionary measure.

It's not Cypruses size that matters and not its economy's size either. Look at the following factors: it's an EU member, even more - part of the eurozone, it has tight economic ties with Greece, Turkey, Russia and many Central European economies.
Additionally: the source of the bank deposit tax are the EU and the IMF. It wasn't Cyprus' government that initiated the taxation, they merely agreed to it when receiving a 10 billion euros-worth of bailout backage. It's highly likely that the EU and IMF could force other countries to act similarly. France, Italy, Spain, Portugal, Greece and others might follow the Cypriot "model".

The EU and the Cypriot government have demonstrated that bank deposits aren't guaranteed - no matter what laws in the past have said. Regardless whether you live in or outside Cyprus or the European Union, you should think seriously about alternative investments.

It's a good idea to watch the news closely and see what unfolds out of this. If you live in Europe (even if outside the EU), it would be wise if you withdrew a sizeable amount of money from your bank deposit, because it's highly likely that bank holidays and panic withdrawals will occur.

Money deposits can get taxed almost from one day to the other and governments can force bank holidays - and you won't be able to withdraw your savings.

The best investments (historically as well) are precious metals. The "stand the test of time" more than any paper currency, which not only can devaluate, but governments can trim them with more or less ethical taxes.

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