Precedent may trigger bank runs

If bank deposits can be seized in Cyprus to fund its bailout, then they can be seized in other EU countries as well, argues Felix Salmon

I STUCK my neck out in January, saying that Cyprus was “certain” to default. After all, the Europeans weren’t willing to come up with the €17bn needed to bail the country out, and EU economics commissioner Olli Rehn told the Wall Street Journal’s Stephen Fidler that Cyprus would have to restructure its debt.

But now the bailout has arrived, and there’s no default. Instead, €5.8bn of the bailout is going to come from depositors in Cyprus’s banks, in the form of what the EU is calling an “upfront one-off stability levy”.