Pure theft. That’s the description many are giving to the weekend’s news from Cyprus, where bank depositors have had their accounts frozen, with a special 9.9% levy on deposits of over €100,000 and 6.7% on amounts below that. Interest is also being taxed at 20-25%, and the country is being forced by the IMF and EU to raise its 10% corporation tax rate. These measures are designed to raise €5.8 billion as a contribution to a €10bn bailout for the Cypriot government.
Yet again, banks and the government are being bailed out at the expense of the little guy. If you lent money to Cyprus’s failed banks (rather than depositing with them), you will be paid back at 100 cents on the euro. Similarly, if you lent money to the insolvent Cyprus government, you will be paid back at 100 cents on the euro.
Banks on the island are closed, while a vote in parliament to ratify this measure has been postponed until tomorrow. It may be cold comfort to Cypriots, but this levy is relatively modest compared with Germany and the IMF’s initial demand of an incredible 40% haircut.
As with the MF Global incident – only more so, given the blatant nature of this act – this makes very clear that ordinary savers and investors have a lot to fear from desperate bankers and desperate politicians. Does anyone feel comfortable depositing large amounts in Greek, Spanish or Italian banks? Especially as according to The New York Times, Jeroen Dijsselbloem – president of the relevant group of eurozone ministers – declined on Saturday to rule out taxes on depositors in countries beyond Cyprus. Although (of course!) he said such a measure was “not currently being considered.”
It cannot be said often enough: the financial crisis is far from over. Savers have large bullseyes on their backs and are being assaulted from all sides – whether by governments’ determination to confiscate their wealth via inflation (as in the US, UK and Japan) or through direct confiscation, as in Cyprus. The latter method at least has the virtue of greater honesty, though is far more likely to provoke a violent reaction.
All of which emphasises the necessity of storing some of your wealth outside of the banking system. Don’t sit there like a sheep waiting to be sheared by rapacious banks and big government.
Act now – before it’s too late.
