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The current Cypriot government was voted in because it promised to protect bank deposits. Even if small depositors end up safe--even if Cyprus doesn't become the economic equivalent of the assassination of Austrian Archduke Ferdinand, which started World War I--the damage to trust has been done. As Julian Jessop, chief economist for Capital Economics in London, points out, "The economy of Cyprus is just 0.2% of the euro-zone total. If the E.U. is unwilling to cut a better deal for such a small economy at minimal cost, what chance is there for bigger ones?"
That may be the point. it's quite possible that Cyprus is a warning shot by Germany for Spain and Italy or even France, making it clear that they'd better stay on the road to austerity because Germans aren't about to keep bailing out weaker states. Their commitment to European unity has limits.
That matters, because the E.U. represents the best of globalization. And this brings up an even bigger question: Are we finally witnessing real pushback against globalization, the sort that has been widely (and thus far falsely) predicted since the financial crisis of 2008? If globalization is defined as the free movement of goods, people and capital around the world, we haven't done badly when it comes to the first two. But the movement of capital has slowed. As a new report from the McKinsey Global Institute shows, cross-border capital flows are down precipitously from 2007, in large part because European banks simply aren't lending across borders anymore. It's a trust deficit that could eventually have consequences for us all--just as the assassination of an Austrian Archduke once did.