Krishnadev Calamur explains the proposed details of the unorthodox EU bank-bailout bargain:
The deal reached Saturday imposes a one-time levy of 6.75 percent on all deposits under 100,000 euros and a 9.9 percent levy above that amount. The levy is expected to raise 5.8 billion euros. Cyprus’ bailout follows those for Greece, Portugal, Ireland and Spain’s banking sector, but it is the first time eurozone states and the IMF have dipped into people’s savings to pay for a bailout. The deal has met with widespread anger in Cyprus, a run on bank deposits over the weekend and fears that the public unease might spread to other at-risk EU countries such as Spain and Italy.
Thomas Pascoe finds the deal “disgraceful”:
The principle that there is no division between your private property and communal property which may be appropriated by the government whenever it sees fit is an outrageous one in any system other than Communism. The idea that a government which has chronically misspent may order the banks to close and deduct a sum of its choosing from a person’s balance before allowing it to re-open is beyond parody.
Barry Ritholtz takes a chill pill:
Would Cypriot depositors have lost more money by leaving the eurozone and suffering a currency devaluation? We think so, Ask the Venezuelan depositors who had their currency devalued more than 40 percent a couple weeks ago. Then compare to the 6-10 percent deposit tax.
Felix Salmon argues that the burden is falling on the people least able to afford it:
What we’re seeing here is the Cypriot government being forced to break one of its most important promises — the promise that if you put your money in the bank, and your deposits total less than €100,000, then they will be safe. What’s more, there’s no good reason for insured deposits to be hit in this manner: the same amount of money could be raised just by taxing the uninsured deposits at a slightly higher rate. The insured depositors are being hit, it seems, just so that the uninsured depositors can be taxed at single-digit rather than at a double-digit rate. … Someone with €8,000 of life savings in the bank can ill afford to lose an arbitrary €540, but that’s exactly what is going to happen.
Schumpeter worries about the reaction in other EU nations:
Euro-zone leaders will spin the deal as reflecting the unique circumstances surrounding Cyprus, just as they did the Greek debt restructuring last year. But if you were a depositor in a peripheral country that looked like it needed more money from the euro zone, what would your calculation be? That you would never be treated like the people in Cyprus, or that a precedent had been set which reflected the consistent demands of creditor countries for burden-sharing? The chances of big, destabilising movements of money (into cash, if not into other banks) have just shot up.
Kevin Drum has the same fear:
Is Cyprus unique? Or, more precisely, can ordinary depositors and big investors be persuaded that Cyprus is unique? Because if they can’t, then they’re going to start pulling their money out of Spanish and Greek and Italian and Portuguese banks. And that would be very, very bad. It would turn the slow-motion bank runs of the past few years into the honest-to-God, high-speed, economy-ruining kind of bank runs.
Joshua Tucker, meanwhile, focuses on the political implications:
By announcing an immediate tax on all bank deposits, every Cypriot citizen with money in the bank knows exactly how much money they have just lost. … [T]here may be an economic rationale for this form of bailout (but even that I assume will be swamped by negative side effects if the bank runs spread to other European countries), politically it seems hard to come up with something more likely to generate immediate and relevant ill will.
(Photo: A Cypriot man holds a banner against the EU bailout deal and German Chancellor Angela Merkel’s call for Cyprus to follow economic reforms outside the parliament building in Nicosia on March 18, 2013. Cyprus President Nicos Anastasiades was seeking the backing of MPs for the bailout deal that slaps a levy on bank savings under harsh terms that have jolted global markets and raised fears of a new eurozone debt crisis. By Yiannis Kourtoglou/AFP/Getty Images)