Update: The Cyprus parliament has rejected the savings tax unanimously. For now. The rejection came in spite of modifications to the proposal that would have exempted the first €20,000 ($25,894) deposited from the tax.
By Bill Wilson — The Politeuro strikes again.
A recent €10 billion ($13 billion) European Union (EU) and the International Monetary Fund (IMF) bailout package to prop up Cyprus’ banking system that lost billions on Greek debt comes with a very curious string attached: Cyprus must levy a €5.8 billion ($7.5 billion) tax on domestic depositors.
That’s right. Ordinary savings accounts held by average citizens up to €100,000 ($129,470) would be taxed at 6.75 percent, and those with more would have to pay 9.9 percent.
This is a new one. So much for the concept of a “safe” deposit. If you’re a citizen of a debt-strapped nation that gets into trouble, your life savings could be subject to confiscation in order to pay off the banks that stand to lose money for their poor investments in sovereign debt and other so-called assets.
Already Cypriot president Nicos Anastasiades has accused the EU and IMF of engaging in “blackmail” by threatening a complete collapse of Cyprus’ economy, who’s Gross Domestic Product (GDP) totaled €17.88 billion ($23.15 billion) in 2012 according to Eurostat. Cyprus’ economy comprises just 0.19 percent of the entire Eurozone.
Yet the €10 billion bailout of the country’s banking system would amount to a whopping 55.9 percent of the country’s GDP. The deposit tax would amount to 32.4 percent of GDP.
So far, the IMF — in which the U.S. has a $165 billion stake — is not saying how much of the bailout it will be financing. “The IMF is considering proposing a contribution to the financing of this package,” the IMF’s Managing Director Christine Lagarde said in a news conference, adding, “The exact amount is not yet specified. It will take some time.”
But whatever Lagarde decides, U.S. taxpayers will be compelled to aid and assist this outright theft of the life savings of the people of Cyprus. Why would the U.S. demand that a sovereign government steal money that is not theirs to take?
This is the act of a criminal enterprise, the type of blackmail one might expect from thumb-breaking loan sharks on the docks of Philadelphia. Not from an international organization supposedly tasked with “provid[ing] loans to countries that have trouble meeting their international payments and cannot otherwise find sufficient financing on affordable terms.”
Cyprus’ banking system — the Cayman Islands of the Eurozone — has total assets that comprise nearly 900 percent of GDP, according to a 2010 World Bank study. If that figure holds true today, those are loans and other assets that might total about €160 billion ($208 billion).
Is a tax on one-third an entire economy to bail out too-big-to-save banks “affordable”? Will €10 billion even be enough to save the system there?
Cyprus is a loan-making machine for the international bank cartel. And now, to cover their losses on European sovereign debt, the people of Cyprus are being held hostage and made to pay the price for the bailouts.
In Cyprus, banks have been closed until Thursday to prevent a run by depositors to take their money out before the tax is levied. The Parliament there temporarily postponed a vote on the measure, which with public opposition understandably overwhelming, would amount to political suicide to members. And whether it passes or not, it may not stem a bank run once accounts reopen. The lion has shown its teeth.
Read again: The banks in Cyprus, not the people there, made these loans to Greece and other troubled sovereigns. And it is those banks that should bear the losses, not innocent depositors.
The IMF-led Eurozone bailouts are destroying freedom and democracy in Europe, and the U.S. should have nothing more to do with it. Not only should we recall our $100 billion of so-called “New Arrangements to Borrow” credit line to the IMF that was agreed to in 2009. We should also redeem the entirety of our $65 billion quota in the institution. We are not mobsters.
The IMF no longer serves U.S. interests, if it ever did. It serves the interests of the international bank cartel, which apparently views our life savings as poker chips to gamble with and then when they lose, as a taxable event to cover their catastrophic losses. And then if one refuses to go along with the shakedown, it threatens to destroy the entire economy.
This must not stand.
The government of Cyprus ought to follow the lead of Iceland, which in 2008 faced the same exact crisis of a failing financial system, that time from a domestic housing bubble. The Icelandic solution was to guarantee domestic deposits of citizens, engage in modest currency devaluation, and to allow the banks to collapse. This was a cheaper solution than trying to the guarantee those banks against losses, which had assets up to 10 times greater than GDP.
In the context of Cyprus, this would undoubtedly mean leaving the Eurozone. But such a move would not lead to economic collapse in Cyprus per se. Far from it. It would liberate the people and guarantee the independence of Cyprus from the boot of Brussels, the IMF, and the banksters.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.