World View: Eurozone Eyes Uninsured Bank Accounts for Further Bailout Grab

This morning's key headlines from

  • Syria's al-Nusra Front pledges allegiance to al-Qaeda
  • EU warns Spain, Slovenia, France of economic risks
  • Is Germany the poorest country in Europe?
  • Europeans debate how much to tax bank deposits in bailouts

Syria's al-Nusra Front pledges allegiance to al-Qaeda

Ayman al-Zawahiri
Ayman al-Zawahiri

A new development has confirmed that Islamists jihadists are infiltrating the opposition to the Bashar al-Assad regime in Syria. The leaders of Jabhat al-Nusra (al-Nusra Front) in Syria have openly announced their allegiance to al-Qaeda chief Ayman al-Zawahiri. 

Al-Qaeda links have been denied in the past, so this counts as a major admission, confirming accusations by the U.S. and others. However, the al-Nusra leaders were apparently forced into this admission because of a tactical error by the leaders of al-Qaeda in Iraq, who claimed that al-Nusra was part of al-Qaeda in Iraq, and that the two organizations were going to merge. 

The al-Nusra leaders say that they were caught by surprise by this announcement, and that they had no intention of merging with al-Qaeda in Iraq but then felt it necessary to pledge allegiance to al-Zawahiri. 

The pledge is thought to be a tactical blunder, because it will reduce support for al-Nusra among Syrians. Al-Qaeda in Iraq is unpopular in Syria because of its targeting of innocent civilians during the Iraq war. Al-Nusra has been fairly popular with opposition Syrians, but the admitted association with al-Qaeda will lead Syrians to fear that al-Nusra will target civilians as well. Middle East Online and AFP

EU warns Spain, Slovenia, France of economic risks

Economic chaos continued in the eurozone on Wednesday on multiple fronts. 

The European Commission warned Wednesday that Spain and Slovenia pose the biggest economic risks and must quickly tackle excessive imbalances; at the same time, France's growing debt was turning into the eurozone's "major challenge." 

We already know that Slovenia is spiraling out of control, since the prime minister said that no bailout will be needed. As we reported yesterday, that's a sure sign that a bailout is needed, and soon. 

Spain's banking system has already been bailed out but still has "very high domestic and external debt levels."  Prime Minister Mariano Rajoy is promising to announce reforms on April 26 that will solve the problem. 

Among the remaining eurozone countries, France stands out: 

[France's public debt] represents a vulnerability, not only for the country itself but also for the euro area as a whole. 

France is a core country -- in terms of its size and its geo-economic position. Its health has a very direct impact on the overall health of the eurozone.

There may be some additional news this weekend, when eurozone and EU finance ministers will meet in Dublin. 

From the point of view of Generational Dynamics, there does not exist a solution to Europe's financial crisis since the credit and real estate bubbles of the mid-2000s decade are still collapsing, and will continue to collapse into the 2020s. Economic Times (India)

Is Germany the poorest country in Europe?

The European Central Bank (ECB) has published a new report entitled "The Eurosystem Household Finance and Consumption Survey." This report compares the different eurozone country on a wide variety of financial and economic measures. Buried in the middle of the report is the following data:

Median net household wealth in thousands of euros
Luxembourg 	397.8
Cyprus 		266.9
Malta 		215.9
Belgium 	206.2
Spain 		182.7
Italy 		173.5
France 		115.8
Netherlands 	103.6
Greece 		101.9
Slovenia 	100.7
Finland 	85.8
Austria 	76.4
Portugal 	75.2
Slovakia 	61.2
Germany 	51.4

This is causing a new controversy for the obvious reasons. Why is Germany, the poorest country in the eurozone, bailing out Cyprus, the second wealthiest? According to German news service MNI: 

Cypriot citizens were on average more than three times wealthier than their German counterparts before the crisis, according to a European Central Bank study on household finance and consumption released Tuesday. 

The data may help to explain the Eurozone's reluctance to offer more generous aid to Cyprus and political obstacles any further bailout loans may face in the parliaments of northern Europe. 

The study showed that citizens in AAA-rated countries that bear the largest share of the Eurozone's bailout burdens enjoy significantly less wealth than those in the periphery.

Analysts have been scrambling to explain the controversial result. It turns out that Germany has a low property ownership rate, while Cyprus has a high rate; property ownership is a big part of household wealth. Furthermore, the figures are from 2010, when Cyprus's property values were still at bubble levels. European Central Bank (ECB) and Market News International (Frankfurt)

Europeans debate how much to tax bank deposits in bailouts

The Cyprus bailout originally was going to tax small bank deposits (under 100,000 euros) by 7%, and larger bank deposits by just under 10%. That was quickly changed, with the result that small bank deposits were untaxed, but large bank deposits would be taxed by 60%. Now the European Parliament is debating who's going to get hit in the next bailout. 

According to the current debate, insured deposits (under 100,000 euros) would be protected, but all uninsured deposits, including interbank deposits, would be subject to tax (confiscation), once debts owed to unsecured bondholders had been canceled. 

There is a brand-new word floating around the European media: the "bail-in". It refers to anyone whose money can be taxed (confiscated) to pay for a bailout. Thus, uninsured bank deposits would be bailed-in by the new rules, but insured bank deposits would not. Reuters and Bloomberg

KEYS: Generational Dynamics, Eurozone, Spain, Slovenia, France, Mariano Rajoy, Germany, European Central Bank, ECB, Cyprus, bail-in, Jabhat al-Nusra, al-Nusra Front, al-Qaeda in Iraq, Ayman al-Zawahiri 

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