One of the consequences of the big banks being allowed to socialise their losses (have taxpayers pay for their bailouts) is the sovereign debt crisis that is messily unfolding in Europe. The latest hotspot is Cyprus.
One of the EU proposals for dealing the debt in Cyprus was to “levy” (simply take) a percentage of all bank deposits in the country. That led to mass protests, panic, a run on banks, and a government backdown. (It also sent a shock wave through other countries, and at home in NZ speculation that National was preparing for a similar process, followed by a lot of learned reassurance that such a thing could never happen here.)
Now we have the next stage of the unfolding situation in Cyprus:
Cyprus strikes last-minute EU bailout deal
Agreement set to involve heavy losses for wealthy investors, while those with savings under €100,000 will be spared
European leaders reached an agreement with Cyprus early on Monday morning that closes down the island’s second-biggest bank and inflicts huge losses on wealthy savers. …
A meeting of eurozone finance ministers that started six hours late reached an agreement in the early hours of Monday morning to finalise the fine print of the deal. Savers with deposits of less than €100,000 (£85,000) would be spared but it was thought there would be heavy losses inflicted on the deposits of the wealthy.
Laiki, or Cyprus Popular Bank, is to be closed, with its good assets transferred to Bank of Cyprus, the country’s biggest bank, where savers would suffer big losses in return for equity shares. Those with more than €100,000 in Laiki would also be hit hard.
There is some justification for this move as a form of (albeit fairly extreme!) progressive taxation (and also in the suggestion that many of those big accounts are held by foreigners as a tax dodge). None the less a solution that hits the wealthy instead of the poor, for a change, is certainly notable. I can’t help but think that it is going to send a shiver up the spines of the ultra-wealthy international money set. How will they respond? What next for Cyprus and the EU? Interesting times.