Just when we all thought it was safe to stop worrying about the eurozone, another country’s banking system blew up and stopped the Continent in its economic tracks.

by John Grgurich

Just when we all thought it was safe to stop worrying about the eurozone, another country’s banking system blew up and stopped the Continent in its economic tracks.

This time, the victim was Cyprus: a tiny Mediterranean island not far from Greece, whose two biggest banks were facing insolvency if Europe didn’t come to the rescue. And yes, a last-minute rescue plan was arranged. But rather than simply bailing out the banks with EU taxpayer money, as had been done previously, the European Union initially decided to “bail in” the creditors — that is, make people with money deposited in the banks take some of the hit for the rescue.

Initially, part of this hit was going to be against insured depositors — ordinary savers whose accounts were insured by the European Union up to €100,000. Had the plan gone through as proposed, they would have faced a one-time 6.75 percent tax on their accounts.

However, there was such local and international uproar against the notion that ordinary citizens could have their bank accounts raided by the government that a new bailout plan was devised. This one protected insured depositors but still left those with various levels of “unsecured debt” — i.e., very large deposits — in the country’s two biggest banks on the hook.

The mere fact that Cyprus attempted to raid insured accounts has left a bad taste in people’s mouths around the world. And it has led some people to ask: Could that ever happen here in America?

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