Cyprus: A bank bailout through confiscation

Bailing out Cyprus was bound to be “messy and hard to achieve,” said Tracy Phillips in the Cyprus Mail, but no one expected it to be this bad. Facing bankruptcy, Cyprus begged the European Union for $20 billion to prop up our failing banks. But thanks to low corporate tax rates and lax regulations, this island nation has become a haven for Russian money of sometimes dubious provenance. With German elections coming up, “there was little chance of the German government sanctioning a bailout that would be seen by their taxpayers as bailing out the funds of Russian money-launderers.” So the Cypriot government, the EU, and the International Monetary Fund worked out a deal: Cyprus gets a $13 billion loan, but the other $7 billion must come from a one-time tax of up to 10 percent on bank deposits. After the deal was announced last weekend, panicked depositors stampeded ATMs to withdraw their money, Cyprus shuttered the banks, and the markets plunged. Facing fury from Cypriot depositors, the Cypriot parliament rejected the deal, so we’re back in limbo. The only slim hope is a new deal that spares small depositors and taxes only rich ones.

If any deal punishing depositors goes through, the run on the banks won’t be limited to Cyprus, said Tim Knox in The Times (U.K.). In Greece, Spain, Portugal, and Italy, worried savers will move their money out of their local banks, causing a domino effect across the entire euro zone and leaving the principle of deposit insurance “fatally undermined.” It’s the same old story, said Ariana Ferentinou in Hurriyet (Turkey): The rich north is sticking it to the poor south. At Germany’s behest, the EU has already demanded that its poor countries pay up by slashing salaries and pensions, “privatizing public assets, squeezing the public sector, and limiting labor rights.” Now it is actually confiscating their citizens’ hard-earned savings.

Stop being so hysterical, said Phillip Inman in The Guardian (U.K.). This is nothing but “a wealth tax—and about time too.” Cyprus is a special case because it “is entirely and completely bankrupt.” It has no way to pay back loans, since most “funds in the country are only there if this tax haven remains just that.” After a bailout, the rich Russians would quickly flee, leaving average Cypriots to repay the loan. This bank tax is fairer than an income tax, which would disproportionately hit the poor.

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But this amounts to a theft of Russian property, said Dmitry Afanasyev in Vedomosti (Russia). Russians have as much as $30 billion deposited in Cyprus, and the reason the country is in trouble is that the EU forced its banks to write off Greek debt. “Russia had nothing to do with that. Why should Russian investors be made to pay?” Still, Cyprus is “our only friend in Europe,” and we need a friend there. The EU says it will lend $13 billion if Cyprus comes up with $7 billion through the bank levy. Russia could lend it this $7 billion instead. “To protect Cyprus is to protect ourselves.”