Remember four years ago when many analysts were predicting the demise of the US
dollar to be replaced by the euro as the new global reserve currency? Well, one
huge Greek debt crisis later, European banks are virtually insolvent, a
deepening recession sweeps across the continent and many are questioning the
long-term viability of the euro. I continue to believe that, just as I wrote in
this column three years ago, by the year 2020 we will not recognize the euro in
its current form.
The concept of the euro may seem
utopian. Having a single currency that binds numerous nations in economic
harmony sure sounds good for a continent that was ravaged by two major wars in the
last century. The problem is that, as it is for most utopian ideas, in practice
it doesn’t work. Due to an implicit guarantee by strong member nations to
support weaker ones in times of trouble, smaller nations like Cyprus, Portugal,
Ireland, Greece and Spain (PIGS) spent money recklessly as they were able to
raise money at low interest rates. Now that their collective irresponsibility
has left them all on the verge of economic collapse and bankruptcy, they are
calling for the union to bail them out.
What easier way to bail out the
system than by stealing from innocent depositors? Basically what has happened in
Cyprus is that in the dead of the night, when banks were closed, the European
Union decided to enact a “tax” on deposits of more than 100,000 euros. While it
seemed that the “tax” would be around 10 percent, we know have learned that it
will be 40%. Yikes.
I am sure this will go a long way in providing
confidence for citizens in the banking sector. Who in their right mind will
deposit more than 100,000 euros in any bank? Don’t think this will stop just
with Cyprus. It appears that bankrupt banks in Spain are going to join the theft
In Jewish law, there is a discussion about the definition of theft
and robbery. The law is that a thief has to pay double what he took, whereas a
robber only has to pay back what was taken.
Eretz Hemda has an
explanation, saying, “According to the Talmud (Baba Kama 79b), the question is
of when a thief is considered a ganav [thief] and when he is considered a gazlan
[robber]. This question is very important, for only a thief who is, by law,
deemed a ganav, is fined to pay double what he stole. A gazlan, on the other
hand, is obligated only to return what he stole and does not incur any fines
“In general, it appears from the Gemara that the main
difference between a ganav and a gazlan is that a ganav tries to conceal his
actions, whereas a gazlan commits his act in the open.”
While I think you
could argue that the EU’s deposit tax is either theft or robbery, I am sure that
in either case depositors will never even see their 40% back, let alone be
Can it happen here?
Many investors are asking the
question whether this money grab can happen in other places? Well there are
those who have their heads in the sand and believe that in places like Israel or
even in the US, it could never happen.
Don’t be so sure. In the US,
George Miller, a Democratic congressman from California, is leading a charge
that is gaining some traction for the government to buy your retirement plan (be
it a 401k or IRA) and then guarantee a 1-3% interest rate per year (meaning you
won’t have the chance to grow your retirement savings) on the money but
eliminate the tax deduction you get for contributing to your plan.
in mind that governments around the world are in desperate need of cash,
including Israel, and will do whatever it takes to raise that money.
should you do?
What I think we will see is a big move by investors to open
multiple bank accounts all over the world in an attempt to be less exposed to
one over-zealous government deposit grab, and protect themselves that way. Not a
great solution but in an era of government unpredictability, what choice do you
have? Future So what does this all mean for the future of the euro as a single
currency? Well, as I said at the beginning of this column, I don’t think in 10
years it will look like it does now. The strong nations may force out the
weaker, more problematic nations. Or the stronger nations, i.e. Germany, may
decide to opt out of the union and go it alone. Or the real possibility exists
that the whole endeavor will fall apart.
Aaron Katsman is a licensed
financial professional both in the United States and Israel, and helps people
who open investment accounts in the United States. Securities are offered
through Portfolio Resources Group, Inc. a registered broker dealer, Member
FINRA, SIPC, MSRB, SIFMA. For more information visit www.aaronkatsman.com , call (02) 624-0995 or email