March 18 2013
Outrage in Cyprus: What Does It Mean for Us?
Is a mattress beginning to look better than a bank to Cypriots who have been foolish enough to work hard and save their money?
The most alarming story by far today comes from Cyprus, where money from bank accounts of private citizens could end up being appropriated as part of a bailout by the EU.
The New York Times puts it this way:
For the first time since the onset of the euro zone sovereign debt crisis and the bailouts of Greece, Portugal and Ireland, ordinary depositors — including those with insured accounts — are being called on to bear part of the cost, 5.8 billion euros, through one-time levies on their savings.
Are being called upon? That’s putting it mildly. The Cypriot banks were closed over the weekend to prevent a run on the banks.
The “called upon” phraseology is likely to have an eerie resonance for Americans, who have heard again and again that the very rich are being “asked” to fork over more of their money.
Added to the use of a euphemism to mask what is really being done to the citizens of Cyprus, I am willing to bet that there was some politician behind the Cyprus crisis who believed that Cyprus didn't have a spending problem.
The New York Times goes on:
Other bailouts have been financed by taxpayers, and the new direction has raised fears that depositors in Spain or Italy, two countries that have struggled economically of late, might also take fright.
A crowd of protesters gathered in front of the presidential palace Monday, shouting angrily at Mr. Anastasiades and inveighing against Germany and European leaders as he entered the building to meet with his cabinet. “Merkel, U stole our life savings,” read one banner tied to a bus stop. “EU, who is next, Spain or Italy?” readanother.
Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.
No, I don’t believe that this could happen in the United States--yet. But there are developments—the expansion of government and the calls for onerous taxes to support this expansion—that make me wonder. This is an EU deal and we are fortunate not to belong to anything like that. But it is a shocking deal, and we should all be talking about why it is wrong.
The Wall Street Journal notes:
Europe is also setting a dangerous precedent, even if the Cypriot deal is supposedly unique. The principle toward which Europe has agreed to move with its new banking union is that taxpayers won't pay a dime to save banks until all bank creditors have been wiped out. So it's progress that depositors are being put on the block.
But by apparently sparing senior bank bondholders, the euro zone has again shown that no principle is above political meddling. The cleaner solution would have been a 20% haircut on deposits over €100,000, with writedowns on all bank debt. This would have respected creditor hierarchy and, by not trampling on deposit insurance, honored the rule of law.
Uncertainties still cloud the deal, and the Cypriot Parliament could veto it Monday. But one thing is clear: In the way it was cooked up and the way it apportions the pain, the Cyprus bailout is a step backward for legal predictability in the never-ending euro-zone crisis.
The vote has been delayed, but we will soon know if the bailout plan is going to be approved.
There seems to be negotiations going on to determine which depositors are hit hardest, something no government should be debating.