I don’t often comment (often? never!) on international topics, but this is one I can’t resist. Cyprus is having a financial crisis. To alleviate the crisis, the European Central Bank asked Cyprus to charge a “tax” on the deposits in Cypriot banks, where each depositor would pay 6.75 percent of the amount in his account.
It is incomprehensible to me what message the European Central Bank intends to send. The only message I heard from this episode is this: if you are a European with deposits in any European bank, you can lose a chunk of your savings at any moment if your friendly Euro Council decides you need to help bail out the banks. Rational people will respond by withdrawing their money and putting it under the mattress. This will cause banks to crash and take the economy down with them. What the hell are the Europeans thinking?
Hopefully the government of Cyprus will reject this and lurch to a better solution — but the fact that the European Central Bank even proposed such a measure is cause for concern. Imagine if your bank told you that your account balances were cut by 6.75 percent and you had no recourse. Would you ever put your money in a bank again? Simply schaapachtig.
I thought the same thing. There is nuance, though. The Germans have been bailing out huge Russian criminals and others using those banks for a long time. They want the Russians themselves to pay. It’s as if we were guaranteeing offshore banks that were being abused and run into ruin by outsiders. Sort of like we did with Wall Street. This is the equivalent, in some eyes, of making the Wall Streeters pay for their own loss. This is from The Blaze…
http://www.theblaze.com/stories/2013/03/18/the-cyprus-haircut-heres-what-you-need-to-know/
“There is no question but upon whom the decision by the Cypriot government … is going to fall most heavily: Russian oligarchs; Russian government officials and Russian criminals,” writes the economist Dennis Gartman in his latest note.
“Cyprus has been their own private Switzerland for many years. Legal and non-legal Russian cash has swamped the banking system in Cyprus since the early 90’s,” he adds. “The beauty of the island; the ease of admission too and exit from the island via boat or plane; the secrecy of the banking laws; the warm Mediterranean climate and the ease of which Cypriot authorities could be bribed and bought all worked to make Cyprus the center of Russian capital flight.”
His note continues:
The Russians… legal and illegal… loved Cyprus for the reasons noted above, not the least of which was the tiny 4% corporate tax rate there. Who would not like that rate? It attracted money relentlessly, with the Russians leading the way. Criminal money especially was attracted to the secrecy laws, sending money to the island to have it “washed” and then either left there on deposit, or returned to other banking centers for “investment” abroad, but “washed” thoroughly and made nearly impossible to be followed and tracked. It was an enterprise that worked to the benefit of the Cypriot government and to the Russians, despite the comment by the new President, Mr. Anastasiades, that Cyprus was and is “not complacent about money laundering.
[…]
One could only laugh as such a comment; of course Cyprus was complacent about laundering. To think otherwise was and is naïve. Ah, but now you’ve stolen Russia money… or soon shall depending upon the vote in the Cypriot parliament… and that is dangerous… very. One does not steal Russian mafia money and get away with it. There are fewer statements of fact that are more certain, more factual, more unyielding than this statement. Russian Mafia figures do not take well to being stolen from, and they take even less well to be made fools of. We see no reason to mince words at this point: People will be hurt over this decision; some shall be killed.”