(NaturalNews) As you may have suspected, there's far more to the Cyprus bank crisis story than meets the eye. It turns out the shutdown of Cypriot banks has caused a large-scale financial shutdown of the Russian government which uses Cyprus banks for most transactions.
On top of that, the EU central bank (ECB) has now issued an ultimatum that threatens to revoke all financial support and crash the Cypriot banks if they can't come up with 5.8 billion Euros by Monday. Reuters reports:
The European Central Bank, which has kept Cyprus's banks operating with a liquidity lifeline, said the government had until Monday to get a deal in place, or funds would be cut off - putting not just the Cypriot economy in jeopardy but billions of euros held on the island by foreigners, notably from Russia.
USA Today reports, "If it does not find a way by Monday, the European Central Bank said it will cut off emergency support to the banks, letting them collapse. That would throw the country into financial chaos and, ultimately, cause it to leave the eurozone, with unpredictable consequences for the region."
Until then, the banks remain closed, and everybody knows the minute they open, every account holder will immediately transfer their money out of the banks, causing a near-instant bank run and a collapse.
The worry across the eurozone now is that this imminent bank collapse will trigger account holders in Greece to start taking their money out of the bank, too. The Greek banking system is already in such sad shape that it only takes a very small percentage of account holders withdrawing their funds -- perhaps 5% or so -- to topple Greek banks. That's because the banks are roughly 95% leveraged with fractional reserve accounts and complex debt instruments.
Once bank runs begin in Greece, they will spread across the EU. Fear will kick in everywhere and depositors will run on the banks in Spain, Italy and even the UK. Germany is arguably in the safest position to defend against bank runs, but even its banks are unwisely leveraged beyond reasonable ratios.
We are about to witness massive wealth destruction
It's important to understand that fractional reserve banking wealth is a fictional construct that does not exist in reality. Thus, the wealth created by fractional reserve banking is nothing more than a mirage that can be destroyed literally overnight.
Importantly -- and here's the real point nobody is talking about -- Russia may be willing to let Cypriot banks collapse and lose a lot of money itself, knowing that the aftermath of a collapse may set off a chain reaction of bank collapses across the EU.
EU authorities seem to anticipate this possibility and they are already talking about dropping Cyprus from the EU as quickly as possible. As Yahoo News reports:
The official also referred to the need to resolve the issue of Cyprus's two biggest banks, both of which are close to collapse, and mentioned the possibility of Cyprus leaving the euro zone. In the event of an exit, the official said steps needed to be taken to "ring-fence" the rest of the euro zone from the impact and to ensure there was no contagion to Greece.
"Contagion" is the right word, because if this situation doesn't get resolved very, very quickly, we may be witnessing the start of the collapse of the EU -- an outcome that would very well serve the political interests of Russia. So don't expect Russia to try to resolve any of this. It may be waiting in the wings and actually hoping to help set off a kind of "bankageddon" that, once begun, will be impossible to stop.
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