As foretold in yesterday’s news bulletins, the munchkins of Cyprus and the European Union have been working to make their planned seizure of money from private savings accounts a bit more “progressive.” A final vote, and implementation, are being delayed while they hammer out the details, and worry that enraged citizens might hammer them out of office.
The UK Telegraph has been keeping up a live blog of events on the island nation, and reports that the most recent proposal would reduce the levy to zero on bank balances under 20,000 euros (a little under $26,000 in U.S. dollars), in addition to grabbing 6.75 percent of every bank account between 20k and 100k euros, and 9.9 percent of all higher balances.
Other officials in both Cyprus and the EU want to extend the exemption all the way up to 100k euros, but that would obviously require an even higher percentage of confiscation from the Evil Rich. (Some of whom, in this case, are actually Russians whose wealth-creating enterprises are of dubious character.) Seizures as high as 15.6 percent of these higher account balances have been proposed. Even the 20,000 Euro exemption would torpedo the deal by failing to raise enough money to satisfy the European Union, which demands 5.8 billion euros in tax revenue to win its 10 billion euros in rescue loans.
While all this is playing out, the banks and stock exchanges of Cyprus remain closed, although ATM machines are reportedly dispensing cash again. A reporter on the island observed a citizen scurrying away from an ATM with a fistful of cash, cackling “Now I have my money, Merkel cannot have it.” That’s a reference to German chancellor Angela Merkel, who is taking a lot of the heat for the bank seizure from Cypriots. Alex Spillius of the Telegraph thinks she might have just painted herself into an ugly corner:
Russian investors have €20 billion to €30 billion on deposit in Cyprus and could lose a tenth of that in one fell swoop. The Russian papers are this morning warning of an exodus of Russian money from the island, though it is far from clear if and when mass transfers will be allowed.
But the confusion could provide Moscow with a great opportunity to gain a major commercial foothold in the eurozone by exploiting the 5tn-8tn cubic feet of gas estimated to be lying off the coast of Cyprus.
Russia could alternatively gain leverage by extending or enlarging the €2.5 billion loan. When asked for more money by the island’s government last year, Moscow balked, but might think differently now.
In an election year, Angela Merkel, the German Chancellor, was determined to impose the bank levy to avoid her taxpayers bailing out Russians who used Cyprus as a safe haven for their allegedly ill-gotten gains.
Spillius notes that Europe gets 36 percent of its gas from Russia, “a dependency we may hear more about in the coming days.” That sounds like a pretty safe bet.
This could still end with Cyprus getting booted out of the Eurozone, or the European Union collapsing entirely. The analysts promising that bank-seizure “contagion” will never spread from the “unique” island of Cyprus have a lot of flop sweat glistening on their foreheads. Looting citizens’ money right out of the bank with a symphony of mouse clicks is going to sound awfully appealing to the more desperate socialist death-spiral governments. And you can’t blame the less sickly nations for growing tired of bailing everyone else out.
The former governor of the central bank of Cyprus, Anthanasios Orphanides, summed the situation up in an angry rebuke:
We are witnessing historic times. What we’re witnessing is the slow death of the European project. We are in a situation where some European governments are essentially taking actions that are telling citizens of other member states they are not equal under the law.
What we have seen for the last few days is a very serious blunder by European governments that essentially are blackmailing the government of Cyprus to confiscate the money that belongs rightfully to depositors in the banking sector in Cyprus.
The way the strongest governments of Europe have blackmailed the Cypriot government to confiscate deposits is essentially sending a message that no-one with deposits in a small country like Luxembourg should feel safe about their deposits. No-one with deposits in a weak country, like Spain, should feel safe about deposits.
I’ve read estimates that the Cypriot banking system would lose 10 or 20 percent of its depositors if the bank account levy goes through, but frankly I have a hard time imagining how anyone – especially anyone with a lot of money – would ever trust their banks again. And that would be bad news for an island republic already in deep economic trouble, because the Telegraph relates a PriceWaterhouseCoopers analysis that said “4,900 of Cyprus’ 18,000 financial services workers deal with international clients.” What happens if all those people – plus a good chunk of their suddenly superfluous fellows in the shriveled domestic banking sector – lose their jobs?