How many people does it take to start a bank run? The conventional answer is two: one to draw the money out, and another to form the queue. Actually, you don’t need anyone present at all, since the money can disappear through the wall while the bank is physically closed. The truth of this will be tested, possibly to destruction, when (if) the banks in Cyprus finally re-open some time next week. It will not be a pretty sight.

As any fule kno, banking is about confidence, and the Cypriot authorities have managed to destroy it at a stroke with their reverse bank raid. Even now the reverse raid has itself been reversed, to be levied only on those accounts containing more than E100,000, the damage is done. Few will weep for the Russian oligarchs getting a haircut on their funds, but those in the middle of a house move, or with a down payment on a substantial contract, may face ruin. Not every six-figure deposit is the result of some shady deal in a sunny place.

Cyprus seems small and far away, but nothing that the European Central Bank, the IMF or the EU now promise can push the toothpaste back into the tube. Whatever  they say, bank deposits are now considered a fair target for “burden sharing”. As Willie Sutton famously replied when asked why he robbed banks: “Because that’s where the money is.”

Could it happen here? You bet. The ghastly arithmetic underlying last week’s Budget shows that, at best, Britain is travelling less fast in the wrong direction. We may already have passed the point where the state’s debt can be brought under control by conventional means, as the deadweight cost of servicing it stifles the growth needed to pay it down. In that event, there are only three ways out: inflation, taxation or confiscation. The first is proving rather harder to establish than many of us thought. The second is reaching the limits of practicality. The third is now a reality, albeit – so far – only on the biggest deposits.

If bank deposits do become a legitimate target, there’s not much the ordinary citizen can do. Moth and rust doth corrupt the treasures you lay up for yourself, but the state can simply take them away. While that million euros flown out to our boys in Cyprus could fit into a briefcase, thanks to the E500 note, there’s no sterling equivalent, and even the £50 note is barely negotiable. You need space to store £20 notes, but at least savers could make a start with the must-have accessory of the week, a mattress with a built-in safe.

Not even half-baked

Budgets come along so frequently nowadays that the previous one is still grinding through parliament. Or not. Mercifully, the Lords have flattened George Osborne’s “shares for workers’ rights” plan. This proposal, for workers to swap their employment rights for £2,000-worth of shares, popped out of  the Osborne headline generator last autumn. As Lord (Gus) O’Donnell put it: “If an employer is offering this, they are probably the kind of employer that you do not want to go near. If an employee accepts it, it is probably because he doesn’t really understand what he’s doing.” There’s a strong case for allowing freedom of contract for the smallest firms, since today’s employment law allows a single rogue employee to threaten such businesses, but to call this proposal half-baked is an insult to bakers.

‘ello ‘ello

If George Osborne needs cheering up, he could reflect that things could be worse. His opposite number in France, Jerome Cahuzac, has quit because police analysts believe a 13-year-old recording discovered on a voicemail is Mr Cahuzac discussing his secret bank account in Switzerland. He was a plastic surgeon at the time (as suitable a training as any for a budget minister, you might say)  specialising in hair transplants. He’s now (or was) in charge of the Hollande crackdown on tax evasion, and the recording comes from an anonymous political opponent, who leaked it. Mr Cahuzac denies that it’s him. Suddenly, dealing with Ed Balls doesn’t seem quite so bad.

This is an updated version of my Saturday FT article

http://www.ft.com/cms/s/0/534b2eaa-92e9-11e2-b3be-00144feabdc0.html#axzz2OY7hLc7z

 

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