Wednesday, March 20, 2013

Could Spain "do a Cyprus" and raid Spanish bank accounts?

Last year I posted "Are Spanish bank accounts safe?" but its assessment of the risks is now out of date because of the crisis in Cyprus.

Could Spain also start confiscating money from bank deposits in the country?

Will Spanish bank customers be effectively be blocked from accessing their accounts or moving money in  a crisis?

Is the €100,000 deposit guarantee offered on Spanish banks safe?  It didn't count for much in Spain where even tiny accounts were raided by the government and are now locked.

The Spanish government have point-blank denied there is the remotest chance of this happening in Spain and there is certainly no need to panic.

On an optimistic reading of current events you would say that Spain has already sorted out its bank recapitalisation and, even if a further bailout were needed, would learn from the Cyprus episode and not take a slice of its citizens' cash to do it.

However the crisis is a stark reminder of three worrying points for anyone with Spanish assets:

- the Eurozone crisis is still very much unresolved and will keep coming back in nasty and unpredictable ways
- the real powers that be, such as the IMF and Germany, carry all the clout and will happily trample all over Spanish national interests when there is a risk to their money
- governments are getting desperate and no liberty is too sacred to be trampled on.

I never thought I would see a European country locking its people away from their own money, but its part of pattern of governments getting increasingly aggressive and intrusive in attempts to raise cash.  In Spain we have already seen the forced declaration of foreign assets which surely is the forerunner of more punitive taxes on them.

However some of the recent reports of Spain already planning a raid on deposits is alarmist (example - Cyprus copycats: NZ and Spain).  They refer to the "moderado" levy which is being introduced at 0% (!) initially but will rise to something like 0.1-0.2%.  The key point though is that this is a pre-announced tax on the banks themselves and not a preemptive raid on deposits of their customers.

Call me naive but I don't think the "moderado" and the Cyprus levy are comparable and there is little likelihood of it mutating into a serious government bank account attack.  Not to say that the government will not get their hands on their people's cash in other ways of course - ever higher taxes on spending and income or a big increase in the wealth tax that was brought back recently.

All in all though I would say it is unlikely that the Spanish government will "do a Cyprus".  Most likely nothing will happen so long as the government debt crisis doesn't start flashing red again.  If that happens, and I think it probably will because the Spanish economy can't survive the measures announced last year to cut the deficit, then all bets are off and the fears I spoke about in my original article may be realised.

From our website:  Autonomo Guide

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