Cyprus banking disaster - can the same happen here in Spain?

  • Perhaps like the rest of you, I have been monitoring the situation in Cyprus very closely. Being in finance I read a LOT of economic data and try to keep on top of what is happening around the world.

    Whilst we sit back and watch Cyprus come apart at the seams we may think to ourselves "nah, it won't happen here" - think again. Today's banking system is as such that banks are so intertwined with each other that when something happens in one part of the world it could very well have a knock on effect on the rest of the world - one has to just look back at the Lehman Brothers collapse and see how that was the 'straw that broke the camels back' which in turn set the whole financial world into a tail spin. Have a look at this article issued by Forbes to see just how interconnected we are and what the potential implications the recent situation in Cyprus could have on not just us here in Spain but the rest of the world.

    By allowing the banks in Cyprus to dip into people's bank accounts and collect a one off 'tax' it has set a precedence. It is in effect saying to the rest of the world that it is okay for banks to start helping themselves to people's deposits. Not only that the Cypriot banks are RESTRICTING people accessing their money by putting a limit on how much can be withdrawn at ATM machines (100 euros per day). They are also limiting how much money people can electronically transfer out of their accounts. This is to stop what is called a 'bank run.' At this stage one also needs to ask what are the knock on effects on a wider basis, another word, what will happen to the Cypriot economy on the whole?

    So ask yourself again, could it happen here in Spain? If so what are my options?

    My advice first and foremost is DIVERSIFY - do what ever you can to spread/minimize the risk and split your money into different assets. Do NOT put all your eggs in one basket and if it can be avoided, do NOT keep all your money in the bank. There are options available - some of which can offer very attractive returns. What ever you do, do not become complacent, if it can happen in one country, it can happen in another. In my humble opinion it is not a matter of 'if' but a matter of 'when'

    Over the coming weeks I will try to keep you posted on what is happening in our wonderful world of economics (the word "wonderful" said with a hint of sarcasm.) My intention is to write a weekly post and keep you up to date on the current economic situation without all the jargon, just in clear, plain English - forget about all the fancy terms like Keynesian vs Contrarian economics, I will just keep it simple. 

    Stay tuned and until next week............................


    Louise - "The Financial Blogger"


1 comment
  • Louise Smith
    Louise Smith Just to back up what I posted earlier, I just received this in my 'inbox' and thought I'd share it with you. Apologies for the little bit of jargon in the beginning as I said I would 'keep it simple' however I have literally copied and pasted what I...  more
    March 25, 2013