…what to do about Cyprus. And yet today something—that is, the seizing of a certain percentage of the assets of depositors who have put more than 100 thousand Euros in Cypriot banks—has been decided on:
European leaders reached an agreement with Cyprus early on Monday morning that closes down the island’s second-largest bank and inflicts huge losses on wealthy savers.
Those with deposits of less than €100,000 (£85,000) will be spared, but those with more than €100,000 – many of them Russian – will lose billions of euros under draconian terms aimed at preventing the Mediterranean tax haven becoming the first country forced out of the single currency.
The deal is expected to wreak lasting damage on the Cypriot economy, which has grown reliant on offshore banking and Russian money. Analysts said Cyprus could see its economy contract by 10% or more in the years ahead.
“On the Cypriot economy”? I don’t see how this isolates the damage to that arena. As I wrote at the very beginning of my very first post on the Cyprus crisis:
To save the Cyprus banking system, they have to destroy people’s faith in it.
Of course, they think they are saving their own political skins, and the glorious experiment that is the EU (sarcasm intended).
Merkel said that although smaller accounts should have been excluded from that proposed “one time tax”:
On Friday morning, Merkel defended the levy once again, saying that interest rates on savings accounts are much higher in Cyprus than they are in Germany and that such a one-time tax was thus acceptable.
Oh, so now it’s okay to rob from a bank depositor because he/she is rich and is also earning good interest? I wonder; is it okay because the person has deep pockets and can afford it? Or is it okay because the interest it is earning in this case is “unfairly” high, because other people elsewhere are earning less? Or is it okay because people think the rich should be handing over their money to the rest of us on moral grounds? Or okay because most of these particular rich people are Russians, and some of them have even made their money doing something shady?
I’d love to hear a reason—other than the pragmatic “because the money’s there and we want it and we need it and because we can”—why this should be okay.
Merkel said something else interesting:
Europe, she said, must not abandon its principles, otherwise “the whole thing” will be in doubt. She was referring to the principle that she has followed as the euro crisis has progressed: Europe will offer countries solidarity and aid, but only in exchange for efforts to improve fiscal responsibility.
How about the principle of preserving the trust that underlies the entire banking system? Bankers seem aware of that:
A Paris-based trader said: “The loss of confidence in the European banking system stemming from the Cypriot crisis will not only weigh on the banks but also on the economy of the region.”
So, what about the Cyprus legislature, which nixed an earlier scheme to take everyone’s money no matter how modest? The legislature was finessed this time:
The bailout deal does not need approval from the Cypriot parliament because it has been achieved by restructuring the country’s two largest banks, rather than levying a new tax on citizens.
One of the many motivations for these moves is to preserve the EU and keep Cyprus from leaving it:
The ECB had threatened to cut off funds propping up Cypriot banks on Monday, which would have precipitated the island’s exit from the euro if the emergency meeting had not reached an agreement.
Cyprus politicians had thought Russia would bail them out, but talks last week with Moscow failed to yield a solution, and Cypriots were left holding the (mostly Russian?) bag:
Alexandra Salmani, 32, moved to Cyprus eight months ago to escape the financial crisis in Greece. She said: “We came here to find a better life, and it’s exactly the same thing as in Greece. Everywhere I go there’s crisis – I’m telling all my friends that I’ll go to Germany next. Someone has to learn to say no to Merkel. They saw a rich country, decided to take their money, and destroy them. They are not human.”
I beg to differ: they are all too human.