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savers on the hook for the rescue package the European Union and
the International Monetary Fund have proposed for Cyprus, as
Matthew Feeney noted
The $13 billion package will require Cyprus to raise $7.6
billion by taking it out of savings accounts in Cypriot banks. Many
account holders in Cyprus are Russian and Russia’s president,
Vladimir Putin called the proposed levies
“unfair, unprofessional and dangerous.” A public outcry over the
across-the-board levy (9.9 percent for accounts holding at least
100,000 euros and 6.75 percent for accounts holding less than that)
led the Cypriot government to suggest an
exemption for accounts holding less than 20,000 euro. That
exemption, of course, doesn’t change the nature of the large-scale
theft of savings being proposed.
Cyprus is not the first country to receive an EU bailout, but it
is the first that will have to partially fund its own bailout in
this manner, which is leaving observers in other EU countries wary
about their futures. An op-ed in the Irish Examiner
warns that what may happen in Cyprus may happen in Ireland (an
earlier bailout recipient). From the
The raid on Cypriot bank deposits, held in the name of
ordinary people, businesses, institutions, communities, and prudent
savers, breaks one of the fundamental trust-based relationships
that has sustained western societies for centuries.
It means, too, that the link between property and material security
is weakened for all Europeans living in societies with a weak
It sets a precedent that will reverberate across Europe and find
particular resonance in other supplicant countries dependent on
external finance to sustain state services.
The comparison is obvious — if bank deposits can be raided by a
government in one bankrupt eurozone country, then why not in
another? As Spain has requested a €40bn bailout for its banks, can
Spanish depositors be certain or even confident, that they will not
face similar demands?
… Our Government welcomed the deal describing it as a “positive
development for Cyprus, the eurozone as a whole, and Ireland”. It
might not have been so positive if our financiers had forced it to
raid Irish bank accounts to sustain a toppling system.
It is more likely that, in those circumstances, our Government
would echo the sentiments of Cypriot president Nikos Anastasiades,
who sought to assuage popular anger by urging Cypriots to support
the deal, insisting that the alternative was instant bankruptcy of
the island’s two main banks and the banking sector, with the loss
of 8,000 jobs and economic collapse.
Live by the debt die by the debt?
The U.S. Treasury Department is
“monitoring the situation in Cyprus closely” and wants a
“responsible and fair” resolution (no details on what “fair” means
to the administration this time). Banks in Cyprus, naturally, have
closed by the government to prevent a bank run, while
Alistair Darling, Britain’s former chancellor of the exchequer (a
Treasury Secretary, more or less)
warns of bank runs elsewhere in Southern Europe as a potential
If the bank levy in Cyprus moves forward and their government
survives, expect other governments to become interested in how they
can “levy” savings accounts to “raise revenue,” and deincentivize
savings and private investment in the process.
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