Cyprus levies 10% tax on all bank accounts, Europe panics

[Circe]

Alarming quote from Reuters Breaking News today 3/18: "If depositors in Cyprus and across Europe fear for their deposits, there is a risk that these depositors will withdraw their money en masse, which constitutes the first step of a bank run. There is a serious risk of contagion to other peripheral euro zone countries, most likely via loss of confidence and increased volatility in financial markets. Although not our central forecast, the risk of a bank run spreading across the euro zone has increased, which would be hardly stoppable and have extremely detrimental consequences."

********************************************************************

The important thing is, this idea is the one being pushed by the European Union as terms for a Cyprus bailout!

The word "precedent" is coming up a lot in the outraged comments: Major concern that this is an attack on principles of banking law that everyone in the EU has been able to depend upon for decades --- that the government wouldn't just invade the banks and take the money!

I don't have a good feeling about this. The Cyprus Parliament discussion of this has already been postponed till Tuesday, presumably for major country consultation. The Reuters European stock market commentators are writing masterpieces of subtle suggestions not to "buy into" the market just yet, in case "prices improve," which I take to be a euphemism for "plunge."

Can banking survive a raid by government on savers' bank accounts?

What if it happened here?

 

[Underhill]

Alarming quote from Reuters Breaking News today 3/18: "If depositors in Cyprus and across Europe fear for their deposits, there is a risk that these depositors will withdraw their money en masse, which constitutes the first step of a bank run. There is a serious risk of contagion to other peripheral euro zone countries, most likely via loss of confidence and increased volatility in financial markets. Although not our central forecast, the risk of a bank run spreading across the euro zone has increased, which would be hardly stoppable and have extremely detrimental consequences."

********************************************************************

The important thing is, this idea is the one being pushed by the European Union as terms for a Cyprus bailout!

The word "precedent" is coming up a lot in the outraged comments: Major concern that this is an attack on principles of banking law that everyone in the EU has been able to depend upon for decades --- that the government wouldn't just invade the banks and take the money!

I don't have a good feeling about this. The Cyprus Parliament discussion of this has already been postponed till Tuesday, presumably for major country consultation. The Reuters European stock market commentators are writing masterpieces of subtle suggestions not to "buy into" the market just yet, in case "prices improve," which I take to be a euphemism for "plunge."

Can banking survive a raid by government on savers' bank accounts?

What if it happened here?

I can see the concern. But it's nonsense. The reason Cypress is targetting these bank accounts is that they have been a tax haven for decades. The government, not surprisingly, doesn't have the money to conduct business because of their lax tax policies which, at the same time, have made them a tax haven for rich people all over Europe.

And I am not the only one who thinks so...

"This leads one to speculate that perhaps the primary objective of the EU in this Cyprus bank account levy/bailout is to scare European depositors out of Cyprus who have been seeking to shelter their money from rising tax rates in many eurozone countries, such as France.

Viewed in this light, the bank account levy may not ignite a wider panic in the eurozone, as many are concerned with. Most other EU peripheral countries, such as Greece, have not had the reputation as a tax haven that Cyprus did.

EUR/USD fell below $1.29.00 Sunday night on the news. I would not expect a significant move further to the downside in the short-term, as markets will soon become aware that the Cyprus bank levy is indeed likely an isolated incident, meant for the purpose of shutting down the tax haven."

Cyprus Bailout And Bank Levy: It's About The Tax Haven Status - Seeking Alpha

 

[Sallow]

This is a very bad idea.

 

[Circe]

U.S. economist Paul Krugman wrote in The New York Times: "It's as if the Europeans are holding up a neon sign, written in Greek and Italian, saying 'Time to stage a run on your banks!'"

"Aghast" is a word being used often in the Reuters and Bloomberg and other commentaries.

 

[Circe]

I can see the concern. But it's nonsense. The reason Cypress is targetting these bank accounts is that they have been a tax haven for decades. The government, not surprisingly, doesn't have the money to conduct business because of their lax tax policies which, at the same time, have made them a tax haven for rich people all over Europe.

And I am not the only one who thinks so...

"This leads one to speculate that perhaps the primary objective of the EU in this Cyprus bank account levy/bailout is to scare European depositors out of Cyprus who have been seeking to shelter their money from rising tax rates in many eurozone countries, such as France.

Viewed in this light, the bank account levy may not ignite a wider panic in the eurozone, as many are concerned with. Most other EU peripheral countries, such as Greece, have not had the reputation as a tax haven that Cyprus did.

EUR/USD fell below $1.29.00 Sunday night on the news. I would not expect a significant move further to the downside in the short-term, as markets will soon become aware that the Cyprus bank levy is indeed likely an isolated incident, meant for the purpose of shutting down the tax haven."

It will be interesting to see whether you are right! However, I read that 67% of depositors are simply private Cyriot citizens. It's a retirement island in the sun, and a lot of Russian and English expatriots are there, too: all private citizens will be hit by a raid on their bank accounts.

You bring up the possible reason the EU policy setters thought they could get away with this, though -- that Cyprus' bad banks and dubious tax haven status would cause the rest of the EU to simply discount this as the "one off" the Cypriot prime minister says it is. (And Liechtenstein has already protested this move, naturally.)

Looks like they may have been dead wrong, however: precedent is the concern. Once the precedent is set that the way out of major sovereign defaults is simply bank defaults, then why not "save" Italy this way? Or Spain? Or certainly Greece, already moaning under more austerity than the people can support?

Like Argentina: simply take the money.

Maybe you are right, underhill, that the EU will calm down and view this as a one-off, but IMO keeping money in banks, anywhere in Europe, just became very, very dangerous. The precedent has now been set: the next time there is a sovereign default crisis in any EU country, just take this path out -- raid everyone's bank accounts. A forced tax. Quick, easy, and pledge to never, never, never do it again..............until next time.

 

[Sallow]

Alarming quote from Reuters Breaking News today 3/18: "If depositors in Cyprus and across Europe fear for their deposits, there is a risk that these depositors will withdraw their money en masse, which constitutes the first step of a bank run. There is a serious risk of contagion to other peripheral euro zone countries, most likely via loss of confidence and increased volatility in financial markets. Although not our central forecast, the risk of a bank run spreading across the euro zone has increased, which would be hardly stoppable and have extremely detrimental consequences."

********************************************************************

The important thing is, this idea is the one being pushed by the European Union as terms for a Cyprus bailout!

The word "precedent" is coming up a lot in the outraged comments: Major concern that this is an attack on principles of banking law that everyone in the EU has been able to depend upon for decades --- that the government wouldn't just invade the banks and take the money!

I don't have a good feeling about this. The Cyprus Parliament discussion of this has already been postponed till Tuesday, presumably for major country consultation. The Reuters European stock market commentators are writing masterpieces of subtle suggestions not to "buy into" the market just yet, in case "prices improve," which I take to be a euphemism for "plunge."

Can banking survive a raid by government on savers' bank accounts?

What if it happened here?

I can see the concern. But it's nonsense. The reason Cypress is targetting these bank accounts is that they have been a tax haven for decades. The government, not surprisingly, doesn't have the money to conduct business because of their lax tax policies which, at the same time, have made them a tax haven for rich people all over Europe.

And I am not the only one who thinks so...

"This leads one to speculate that perhaps the primary objective of the EU in this Cyprus bank account levy/bailout is to scare European depositors out of Cyprus who have been seeking to shelter their money from rising tax rates in many eurozone countries, such as France.

Viewed in this light, the bank account levy may not ignite a wider panic in the eurozone, as many are concerned with. Most other EU peripheral countries, such as Greece, have not had the reputation as a tax haven that Cyprus did.

EUR/USD fell below $1.29.00 Sunday night on the news. I would not expect a significant move further to the downside in the short-term, as markets will soon become aware that the Cyprus bank levy is indeed likely an isolated incident, meant for the purpose of shutting down the tax haven."

Cyprus Bailout And Bank Levy: It's About The Tax Haven Status - Seeking Alpha

This is definitely not the way to address this issue and bodes badly for the solvency of Cypriot banks.

 

[Circe]

This is definitely not the way to address this issue and bodes badly for the solvency of Cypriot banks.

One of the two major banks will go down, they say in an "orderly" way, one to be folded into the other.

But the run on Cyprus banks is the big issue: they are closed this week indefinitely, and already all the cash machines are empty.

 

[Mad Scientist]

Why is this a "bad idea"? This is a direct order from the EU Bankers.

 

[kwc57]

This is a very bad idea.

Which will be coming to America eventually. You can't keep spending at the rate we are without having to pay the bill someday. Contrary to popular opinion, the wealthy don't have enough money to pay it. It will eventually be everyone's "responsibility" to bail the government out.......even the 47% who pay no income tax.

 

[Franticfrank]

This is catastrophic. It really amounts to the government stealing its people's hard earned cash to fix a problem they and the bankers created. Madness. I'm sure Germans feel like they've paid enough to help struggling countries according to statistics but you can also see that Cyprus has contributed to help others as well.

The president promised he'd leave bank deposits untouched before he was was elected. Now he's turned his back on his people and plundered their money. I wouldn't be surprised if Cyprus slid into anarchy after this move.

 

[Circe]

Why is this a "bad idea"? This is a direct order from the EU Bankers.

That's right: it's not just something Cyprus cooked up. The EU policymakers demanded this "tax" (confiscation) of around 10% of bank accounts as part of a bailout: they are willing to throw in 10 billion Euros.


Soooooooooooo....................why won't they do it to Greece when Greece asks for more money? Or Spain? Or Italy? Or France?


Probably they will. So people think, if I don't want them taking money out of my account, I'd better take all my money out now!!!

Then the financial system collapses. The financial system often does collapse in Europe: France in the early 1700s and the late 1700s (the latter resulted in the French Revolution), Germany in the early 1920s (that resulted in revolution, too).

 

[Circe]

The president promised he'd leave bank deposits untouched before he was was elected. Now he's turned his back on his people and plundered their money. I wouldn't be surprised if Cyprus slid into anarchy after this move.

71% of Cyriots have polled against this confiscation. The government is only three weeks old and is barely functioning because they are so evenly divided: the vote on this may well not go thru.

As for anarchy, that's what I think is the real reason for this move. Remember the Greek soccer player this weekend who gave a Nazi salute and was promptly banned from playing soccer for his lifetime? Europe is struggling to contain a fast-rising facist movement all over Europe, and especially in the more troubled economies: Greek facism is one of the strongest movements. They canNOT keep plunging everyone into abject poverty with "austerity" --- it's slow-working and leads to riots and terrible politics and besides, how can they pay off their deficits if no one has any money at all?

So they are trying bank account confiscation, and I think that is going to lead to big, hairy trouble too as people all over Europe give up on banks.

 

[Underhill]

This is a very bad idea.

Which will be coming to America eventually. You can't keep spending at the rate we are without having to pay the bill someday. Contrary to popular opinion, the wealthy don't have enough money to pay it. It will eventually be everyone's "responsibility" to bail the government out.......even the 47% who pay no income tax.

Right, except the 47% who pay no taxes have nothing to take. This is what happens when the middle class is destroyed.

This is also why the top 1% are worth roughly the same as 95% of the country... Think about that. That means 3 million people are worth more than 300,000,000.

Some will say this has always been the way. But they would be wrong. There have always been rich people, and should be. But no where near this level of disparity. It isn't healthy and it isn't sustainable.

 

[Underhill]

Why is this a "bad idea"? This is a direct order from the EU Bankers.

That's right: it's not just something Cyprus cooked up. The EU policymakers demanded this "tax" (confiscation) of around 10% of bank accounts as part of a bailout: they are willing to throw in 10 billion Euros.


Soooooooooooo....................why won't they do it to Greece when Greece asks for more money? Or Spain? Or Italy? Or France?


Probably they will. So people think, if I don't want them taking money out of my account, I'd better take all my money out now!!!

Then the financial system collapses. The financial system often does collapse in Europe: France in the early 1700s and the late 1700s (the latter resulted in the French Revolution), Germany in the early 1920s (that resulted in revolution, too).

The difference, as I pointed out, is Cypresses position as a tax haven. In the EU, where they have major revenue problems, things like tax havens become a big deal. How many billions in tax revenue is being lost thanks to Cypresses policies?

 

[martybegan]

This is a very bad idea.

Which will be coming to America eventually. You can't keep spending at the rate we are without having to pay the bill someday. Contrary to popular opinion, the wealthy don't have enough money to pay it. It will eventually be everyone's "responsibility" to bail the government out.......even the 47% who pay no income tax.

Right, except the 47% who pay no taxes have nothing to take. This is what happens when the middle class is destroyed.

This is also why the top 1% are worth roughly the same as 95% of the country... Think about that. That means 3 million people are worth more than 300,000,000.

Some will say this has always been the way. But they would be wrong. There have always been rich people, and should be. But no where near this level of disparity. It isn't healthy and it isn't sustainable.

The problem as I see it is that you are looking at the difference between rich and poor on a monetary basis only, and not looking at overall standard of living.

Because money was so uncommon up until before the industrial revolution, a persons wealth was based on position and possessions. The chasm between the lord of the manor and the peasants dwarfed what we have as a difference between rich and poor today, because at least in the country, most of our poor have their basic needs met, which wasnt the case 1000 years ago.

When our poor populations greatest health threat is obesity, you cannot compare the concept of a wealth gap between then and now.

 

[Sallow]

This is a very bad idea.

Which will be coming to America eventually. You can't keep spending at the rate we are without having to pay the bill someday. Contrary to popular opinion, the wealthy don't have enough money to pay it. It will eventually be everyone's "responsibility" to bail the government out.......even the 47% who pay no income tax.

No it won't.

Man you guys are paranoid.

 

[Sallow]

This is a very bad idea.

Which will be coming to America eventually. You can't keep spending at the rate we are without having to pay the bill someday. Contrary to popular opinion, the wealthy don't have enough money to pay it. It will eventually be everyone's "responsibility" to bail the government out.......even the 47% who pay no income tax.

Right, except the 47% who pay no taxes have nothing to take. This is what happens when the middle class is destroyed.

This is also why the top 1% are worth roughly the same as 95% of the country... Think about that. That means 3 million people are worth more than 300,000,000.

Some will say this has always been the way. But they would be wrong. There have always been rich people, and should be. But no where near this level of disparity. It isn't healthy and it isn't sustainable.

The middle class in not destroyed. It's on it's heels, but some pretty minor adjustments would rectify the situation.

 

[kwc57]

This is a very bad idea.

Which will be coming to America eventually. You can't keep spending at the rate we are without having to pay the bill someday. Contrary to popular opinion, the wealthy don't have enough money to pay it. It will eventually be everyone's "responsibility" to bail the government out.......even the 47% who pay no income tax.

Right, except the 47% who pay no taxes have nothing to take. This is what happens when the middle class is destroyed.

This is also why the top 1% are worth roughly the same as 95% of the country... Think about that. That means 3 million people are worth more than 300,000,000.

Some will say this has always been the way. But they would be wrong. There have always been rich people, and should be. But no where near this level of disparity. It isn't healthy and it isn't sustainable.

That is incorrect. Those 47% are not taking home $0.00 per year with their sole survival dependent on the government. They have income, politicians have just deemed a certain income amount where people below that do not have to pay. That can change with the flick of a pen. If you'll recall, the liberal argument is that hose people DO pay taxes because they have the payroll taxes taken out of their pay. So they do have income......and it can be taxed more if the government decides they need it to get out of the hole they've dug. They will go after the rich first and when that runs out, all of those who have been enjoying the entitlements paid at the expense of the rich will find their chickens come home to roost. They will have to put some skin in the game. Ask the people of Cyprus.

 

[kwc57]

Which will be coming to America eventually. You can't keep spending at the rate we are without having to pay the bill someday. Contrary to popular opinion, the wealthy don't have enough money to pay it. It will eventually be everyone's "responsibility" to bail the government out.......even the 47% who pay no income tax.

Right, except the 47% who pay no taxes have nothing to take. This is what happens when the middle class is destroyed.

This is also why the top 1% are worth roughly the same as 95% of the country... Think about that. That means 3 million people are worth more than 300,000,000.

Some will say this has always been the way. But they would be wrong. There have always been rich people, and should be. But no where near this level of disparity. It isn't healthy and it isn't sustainable.

The middle class in not destroyed. It's on it's heels, but some pretty minor adjustments would rectify the situation.

Which won't happen for the next 4 years while the clueless in chief is at the helm.

 

[oldfart]

As for anarchy, that's what I think is the real reason for this move. Remember the Greek soccer player this weekend who gave a Nazi salute and was promptly banned from playing soccer for his lifetime? Europe is struggling to contain a fast-rising facist movement all over Europe, and especially in the more troubled economies: Greek facism is one of the strongest movements. They canNOT keep plunging everyone into abject poverty with "austerity" --- it's slow-working and leads to riots and terrible politics and besides, how can they pay off their deficits if no one has any money at all?

First, this is a wretchedly poor way to go about what the EU thinks it should do. Having gotten Cyprus and a lot of other small economies into the Eurozone, they removed devaluation as a tool to settle trade imbalances, which is what the European crisis is all about. You cannot have a common currency without a common fiscal and monetary system. Cypriot banking depends on tax evasion. Russian bank accounts (often from shady sources) exceed the entire GDP of Cyprus, much more than a few retirees could account for. Rather than address the basic problems, they are trying to scare countries into what they should have been asked to agree to in advance, reasonable capital controls.

As for the political unrest, we have done this experiment before. Create enough unemployment and fascist parties in Europe begin to look good. Anyone surprised by this knows no history. Anyone willing to play with this outcome to achieve the kind of objectives the austerity party claims to be working toward is a monumental idiot. Hungary is already a one-party state without any constitutional safeguards, and much of central Europe seems ready to follow.