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NPR's "Marketplace" reported Monday that the European Union planned to impose a tax on bank deposits in Cyprus of up to 10% to bail out the country's banks. This unprecedented action threatens to undermine confidence in banks throughout the eurozone periphery, Greece, Italy, Spain, Portugal, and Ireland. As Louise Cooper told Marketplace, “(This move) says that your savings are not necessarily safe in a bank. What this risks is bank runs." Indeed, we could be literally hours from seeing bank runs in one or more of them.

What's the motivation for introducing such a risky policy? Cyprus is a tax haven; in fact, it's a favorite destination for the Russian mafia. Therefore, it's not enough to simply impose austerity on Cyprus; ordinary Cypriots have to give up some of their bank savings, too. So says the EU.

Methinks they doth protest too strongly. It's not like there aren't already tax havens in the EU, starting with the City of London and Luxembourg. Plus, for varying purposes, Austria, Belgium, the Netherlands, and Ireland. This is not to discount Germany's efforts to pierce Swiss banking secrecy, which the United States should emulate (i.e., it should pay more informants to cough up information on U.S. tax evaders). Nor do I underestimate the difficulty the EU has had in getting its Savings Tax Directive passed in order to help stamp out intra-EU tax evasion, and the long way it still has to go.

Here's the thing: Cyprus was already a tax haven when it joined the EU in 2004. Germany, and the other 14 members of the EU at the time, knew this when they voted to approve Cyprus' membership (new members require a unanimous vote). If they didn't want to mess with another tax haven in their ranks, any one of them could have stopped it. But they didn't, so they are in no position to claim innocence now. Instead, they are going  to try to extract money from ordinary Cypriots (potentially exempting the first 100,000 euros for each depositor) rather than going after the bankers like Iceland did.

Let the bank runs begin!

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Comment Preferences

  •  Update: (6+ / 0-)

    "Cypriot lawmakers today rejected a critical draft bill that would have seized part of people's bank deposits in order to qualify for a vital international bailout."

    "Two things are infinite: the universe and human stupidity, and I am not sure about the universe." -- Albert Einstein

    by Neuroptimalian on Tue Mar 19, 2013 at 12:10:52 PM PDT

  •  Beginning of the end of the Euro. (1+ / 0-)
    Recommended by:
    Words In Action
    •  Looks like it will be a short lived experiment - (2+ / 0-)
      Recommended by:
      ek hornbeck, Words In Action

      albeit an expensive and devastating one for many.  Makes you wonder how well thought out the entire idea was.  But I'm sure it's made lots of billionaires in the process.

      My question is - why is the euro still worth so much more than the dollar under these circumstances?  You'd think it would be suffering devaluation with all these disasters going on.  Who would be buying euros right now?

      "If you trust you are not critical; if you are critical you do not trust" by our own Dauphin

      by gustynpip on Tue Mar 19, 2013 at 12:19:52 PM PDT

      [ Parent ]

    •  On to the next Friedman Unit... (1+ / 0-)
      Recommended by:

      The End Of The Euro has been constantly predicted since early 2009.  

      The story long term seems to me one of incremental decorruption.  

  •  the ideal thing would be to let the rich pay it (4+ / 0-)

    all, they created the conditions whereby a default will make things even worse, for the ordinary taxpayer who happens to have some money saved, in this shitty world economy

    while those who have personal wealth in millions in this world have been made richer than ever by the loss of wealth among the rest of us

    the world is suffering because of their depredations, thus

    they have to make it whole

  •  I want to know the names on those Swiss accounts (1+ / 0-)
    Recommended by:
    Words In Action

    I suspect a good many politicians are on those bank lists and, most probably, a lot of the pundits that do the schilling for the Koch brothers.

    And, Monica Lewinsky once told her friends, before she ever came to Washington, that she was going to get her "Presidential Knee pads". I have always thought that suspicious and have wondered if someone didn't pay her to bring down Bubba, which in this case is an appropriate nickname. Because, someone I think, dangled that flashy lure right in front of Bubba Bass knowing full well what his weakness was and that he couldn't resist.

    I want to know if Monica has a Swiss Bank account. I suspect she does. Linda Tripp may have one too. It may have all been a set-up, including the funny phone convo.

  •  The runs BEGAN (1+ / 0-)
    Recommended by:
    Kenneth Thomas

    on Saturday.  People have been jamming the ATMs (bank holidays or no, in the modern age depositors have some recourse even when the doors are closed).  And one photo I can't find now showed a frustrated worker who had commandeered a bulldozer from his workplace and was aiming it at the bank doors.

    So no, the bank runs aren't going to start any hour now.  They've been in full force for four days.  Originally (as when I got home from Jersey late Sunday afternoon), the banks were supposed to reopen today.  That plan was delayed yesterday as it became obvious that Anastasiades didn't have the votes to pass the plan.  The Thursday target is by no means certain either.  

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