The EU demanded a one time tax on all bank savings between 6% and 10%. (Even funnier, the tax is such that someone holding 99,999 pays 6,749 and someone holding 100,000 pays 9,900!) Not a tax on all holdings, or net worth, or investments, or anything else but specifically bank savings. Can anyone predict what would happen next? Well gee, I guess every resident of Cyprus will run to the bank, get their money out, and put it under their mattress! Which they tried to do, until the government shut down the banks to avoid a run that would bankrupt every single bank in the country. So now the country is effectively operating without banks, the citizens are righteously outraged, and revolution is on their minds.
How in the hell does an idea this colossally stupid get rubber stamped by so many people including the leaders of Cyprus? Nobody in the entire chain of events noticed that this tax could be avoided by a full withdrawal? I know that a flat tax on all cash and assets (as in Monopoly) wouldn't be practical but at least it wouldn't immediately cause a run on every bank in the country.
Sthenno was talking to me about this and he pointed out that this is tantamount to the government of Canada simply nationalizing Bell and Rogers and taking all of their money. No foul, right, because the IMF officially sanctions the seizing of private property... hell, they require it!
The EU was an interesting experiment that sure seems to be unravelling at a ever increasing pace. Having no way for a country to get out of nasty debt and deficit problems is a disaster. There are really good reasons for countries that can't get it together to have their own currencies and be responsible for their own problems and this certainly provides a great illustration of that fact. Not that leaving the EU will necessarily help those countries, mind, but at least the tensions between Germany and the rest of Europe wouldn't be going so bad so fast if they weren't in a position of enforcing lunatic policies on deadbeat nations.
What's typically missing from the articles on the subject is why the EU demanded that. Cyprus is a money haven, there's a lot of dirty Russian mob money there that is the real target. The accounts of the locals are collateral damage.
ReplyDeleteThey should have closed the loophole on withdrawals by having those taxed immediately, up until the one time balance tax hit.
Sure, there is mob money there. Is taxing the mob for 10% of their Cyprus money actually doing anything relevant? Is demolishing the financial system of the country by causing runs on all the banks acceptable losses for irritating some mobsters? I say no.
ReplyDeleteNow, if they had demanded some kind of legislation to prevent mob money being stored there or perhaps some kind of leverage for enforcement against the mob, sure. This solution was a disaster though.
The problem with doing it instantly is that it would be even more terrifying for other EU nations. It would solve the run on the banks in Cyprus in the short term and probably create even more (totally justified!) fear elsewhere. The EU cannot afford to have confidence in the banks drop even further. The cost of that is just too high.
Justifying it by pointing out the mob money doesn't really work. If that is the justification then this solution is the equivalent of putting everyone in the nation in prison for a month because they can't figure out who deserves to go there for years.
ReplyDeleteI think the mere fact that this is being seriously considered is going to be very damaging.