Monday, March 25, 2013

Cyprus Bailout Plan: Sacrificing Bank Depositors?

As if banks haven’t yet nickeled and dimed to death their working class depositors enough, will the controversial one-off taxation in Cyprus of its bank customers drive them away too? 

By: Ringo Bones 

The controversial scheme of Cyprus’ government to fund their economic bailout scheme via a one-off 10% tax on every bank depositor regardless of balance that had been announced back in March 18, 2013 seems like an unprecedented act of eminent domain that verge on the despotic on working class bank depositors on Cyprus by using "government mandates" to seize every depositors money via a controversial taxation, and yet it almost seem to come to pass. As the controversial proposal was announced, multitudes of bank depositors in Cyprus rushed to save their life savings from the grubby hands of their government that had suddenly seemed turned despotic, creating a panic that almost resulted in a bank run. But will such scheme collapse rather than save the national economy of Cyprus? 

Fortunately, the government of Cyprus had reached a consensus to choose instead a “State Investment Fund” scheme to secure a bailout deal from Brussels. The Cyprus state investment fund is said to be backed by state assets but unfortunately Cyprus has only a few days to raise the requisite funds to qualify for a 10-billion euro European Central Bank funded bailout. But how did a mere “bailout scheme” turned into the “Cyprus Banking Crisis” in the first place? 

First of all, the European Union had been clamping down on tax havens since they had been affected by the global credit crunch that started in the United States back in September 2008. The EU had always seen the Cypriot banking system as a tax haven oft used by “sneaky” Russian petroleum oligarchs for over a decade now. Unfortunately, their scheme to tax these “Russian petro-oligarchs” for their fair share created a collateral damage of millions of the working class Cypriot bank depositors and their hard-earned money. At the moment, ATMs on Cyprus are only allowed to give out 260 euros per person per day to avoid a run on the banks. And a bank run is probably the least of the banks in Cyprus’ problems given that the latest incarnation of the Basel Accord demand higher emergency reserve bank capital, panicking working class Cypriot bank depositors closing their bank accounts could make banks in Cyprus that much harder to meet their current Basel Accord obligations.