Cyprus provides a timely and risky reminder

Tho logo of the Bank of Cyprus. Photo: REUTERS/Yorgos Karahalis

Remember just a couple of weeks ago optimism seemed to be in the air?

The US had not fallen over the fiscal cliff. The eurozone seemed to have been sorting out its problems.

Well, if you're a saver in Cyprus who faces, potentially having 10 per cent of your savings whipped away from you to bailout the country, those positive feelings will be long gone.

A bank account levy in Cyprus could see people lose up to 9.9 per cent of their savings. Credit: REUTERS/Yiannis Nisiotis

And the fundamental principle that normal savers' money would be protected as politicians and policy makers around Europe untangled the mess, has been totally undermined.

Officials are keen to suggest that Cyprus is somehow a special case, the amount of cash in its banks held by Russian money launderers somehow makes the fact that the government is proposing reaching into ordinary people's bank accounts and removing large amounts of their cash more acceptable.

But with bank shares across Europe falling this morning, the fear is inevitably, that this may not be a special case, and similar attempts could be made in other Euro countries in trouble.

News of the planned bank accounts levy in Cyprus has hit the FTSE 100.

Savers in other countries might be safer putting their money under their mattress, leading to bank runs.

Just days before the Budget, this is a timely and risky reminder that the very profound problems in the eurozone, our most important economic partner, are very much unsolved.

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