Cypriot bank patrons say they were stunned and outraged by the unprecedented announcement of a possible one-time confiscation of up to 9.9% of ordinary savings accounts as part of Cyprus’s €10bn ($13 billion) eurozone bailout deal.
“Nobody can understand how they can do this– isn’t it illegal?” said Arlene Skillett. “How can they just dock money from your account?”
Others, like Maria Zembyla, said the bailout tax is akin to theft.
“It is robbery,” said Zembyla. “People like us have been working for years, saving to pay for our children’s studies and pensions and suddenly they steal a big share of this money. Russians that currently keep the economy afloat will leave the country along with their money.”
The surprise policy announcement, which still must be approved by parliament, sparked a run on Cypriot bank accounts, as nervous savers sought to avert having their lifesavings stolen to pay for reckless government spending. Early drafts of the proposed eurozone bailout deal require savers with over €100,000 in their accounts to pay a one-time 9.9% tax. Those with less than €100,000 would be subject to a 6.75% levy. Anyone who refused to turn over their savings to the government would be subject to criminal charges punishable by up to three years in jail or a 50,000 euro fine.
”This is a clear-cut robbery,” said Andreas Moyseos.
Investors around the world are nervous that Cyprus’s fiscal dysfunction may cause contagion throughout the region. Chief Morgan Stanley economist Joachim Fels said the possible deal sets “a worrying precedent with potentially systemic consequences if depositors in other periphery countries fear a similar treatment in the future.”
But while the eurozone’s Cypriot bank deal terms may be unprecedented, they are not all that different from the U.S. Federal Reserve’s policy “effectively printing more money” out of thin air to pay for federal spending the nation cannot afford and suppressing interest rates at near zero. To be sure, Cyprus and the U.S. have vastly different asset profiles. But last December, the Fed announced it would begin buying up $85 billion a month in bonds as part of a third round of so-called “quantitative easing” (QE3). The move helped balloon the Fed’s already enormous balance sheet. Since 2008, the Fed has more than tripled the size of its portfolio of assets to $2.861 trillion. The Fed also said it would continue to keep interest rates near zero until unemployment dropped to 6.5%. Critics say that decision effectively handed banks free money to invest elsewhere while leaving average investors with flat-lined interest rates on things like bank CDs and savings accounts–a move that, while more “orderly” than the Cypriot bank levy, is similar in principle.
On Sunday, Cyprus’s parliament postponed a debate on the government’s possible saving account tax. But Cyprus lawmakers say the choices it faces are few.
“There are two choices, voting in favor which allows the country to avoid a disorderly bankruptcy, or rejection, which will have us face a disorderly bankruptcy with all that that entails,” said Averof Neophytou, deputy chief of the ruling Democratic Rally party.
IMAGE: Kurtis Garbutt