"Let us, Igor Ivanovich, talk about what's happening with Cyprus. The stealing of the stolen is continuing there, I think." Dmitry Medvedev to Russian Deputy Prime Minister
These comments harkened back to famous comments made by Vladimir Lenin who explained Bolsheviks' confiscation of the wealth of capitalists' property by simply stating "we steal what has already been stolen."
The phrase itself was inspired by Karl Marx's "expropriation of expropriators."
If this really was just about stealing money that's already stolen, it might have gotten a few minutes into yesterday's session. Wall Street initially cheered the news as it seemed like an especially great way to snatch billions from unsavory people and organizations. But few forgot the original plan was to whack every depositor in Cypriot banks. Still, the market opened higher until the Dutch finance minister mused how the Cypriot Plan could be the template for future bailouts.
What??? Equity markets tumbled hard on the suggestion that in the future European bailouts would include the rescuers dipping into the private bank accounts of regular folks. This would be the way countries and citizens would put more skin in the game as their government and banks get absurd bailouts funded by Germany and backed by the European Central Bank. This is a crazy new world and one that should scare the pants off anyone, especially if your country might be next up for a bailout.
After its disastrous election results the possibility of Italy needing a bailout increased dramatically. It didn't take long for the market to seize on the fact the real threat of a bank run wasn't Cyprus, where banks were closed for a holiday and two remain closed today as money is siphoned out to secure the bailout. If the idea is to take money from ordinary citizens in the next bailout, then it made sense for Italians to begin taking their money out. An hour into our trading session top Italian banks halted trading to stop their freefalls.
In Giuseppe Verdi's three act opera "Rigoletto" the namesake is tricked into arranging the murder of his own daughter after an earlier incident at an inn resulted in a curse being placed upon him. As the jester sidekick of a philandering Duke, Rigoletto made fun of the husband of an amorous conquest. In the end, he lost the most important person in the world to him, someone he shielded from the outside world.
It's the story of vengeance gone all wrong- a common story throughout the history of mankind.
The Italian government carries debt that's 112% of GDP while household debt is only 45% of GDP, lower than any of the nations that have needed bailouts thus far (lower than America, too). But the economy is in tatters and GDP is expected to decline this year by 1.4% after decreasing 2.4% in 2012. In the meantime election results in Italy showed the people were more serious about electing a clown than someone who would usher them through difficult choices.
It was thought that Mario Monti, the unelected architect of Italy's self imposed austerity, would actually get the official nod to finish the job. As it turns out he came in last, beaten by a clown Beppe Grillo and his Five Star party and Berlusconi who many thought was running for office only to escape having to go to jail. Grillo ran on a platform that promised not to pay back the country's debt. That must be a comforting thought for current debt holders and surely would persuade any new saviors to consider a worst-case scenario of not getting paid back.
Sadly this would make a bailout even more expensive for the ordinary man and woman in Italy.
What Would Italian Bailout Cost?
I get why Cypriots were upset about the handling of the bailout of their banks, but the nation took a big chunk of cash as a percentage of GDP although not as much as Greece in its second bailout.
A Greece (2012) like bailout would cost the €EU 1.5 Trillion and one like Spain €209.0 billion; in either case an astronomical sum that would demand serious sacrifice. With the clown winning so many seats on a platform of not paying any debts and obligations, it would be unlikely Germany and other rich nations in the EU would take anything but the most draconian of terms.
I would say after what's transpired it would be nuts to leave more than €100,000 in any European bank but especially in an Italian bank.