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When Austerity Fails, Rob Bank Deposits

By Michael Lombardi, MBA for Profit Confidential

Politicians in Cyprus are pushing for a government vote on a tax on all bank deposits in the country-6.75% on deposits up to 100,000 euros, and 9.9% on deposits above that amount. (Source: Wall Street Journal, March 18, 2013.) This step by one of the smallest nations in the eurozone could propel economic problems in the region to another level.

What was the cause of the proposed action to seize a percentage of citizen bank deposits?

Cyprus has been experiencing a credit crisis with its banks becoming illiquid, so it needed money. Despite the European Central Bank (ECB) taking the "it will do whatever it takes" stance to get the eurozone going again, Germany and the International Monetary Fund (NYSE:IMF) argued that the bailout to the nation should be limited to only 10 billion euros, though Cyprus needed 17.5 billion euros. So, Cyprus was sent looking for 7.5 billion euros on its own.

Even though Cyprus is one of the smallest nations in the eurozone, this country's move to seize a percentage of citizen bank deposits goes to show what can be the next move for other countries in that region that are in financial trouble. It is Cyprus now; it could very well be Greece, Spain, Italy, or Portugal next.

Why could other countries be next? Because the debt-infested nations of the eurozone are still struggling.

Greece is in a depression. Spain, the fourth-largest nation in the eurozone, is experiencing staggering unemployment. The number of unemployed in Spain is increasing to a point where the social security system is running out of contributors. (Source: Financial Post, March 13, 2013.) Just think of the riots when the country's social security system runs out of money!

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