Asked why he robbed banks, Willie Sutton is said to have replied, “because that’s where the money is.”
Obviously, Willie Sutton did not live in contemporary Cyprus, whose banking system, as Walter Russell Mead observes, is “easily the shadiest” in the eurozone. “Russian oligarchs use the island’s banks as a combination piggy bank and money laundry,” he notes — it’s a good rule of thumb that Russians + money = corruption — and then there is the problem of stupendous mismanagement: “Largely because the Cypriot bankers invested lots of their clients’ cash in Greek bonds, the financial system is underwater.” (Memo to self: why are Russian gangsters always called “oligarchs”?)
Now what? Well, in exchange for a €10 billion bailout, the International Monetary Fund and European lenders (Deutschland, Deutschland über, etc.) are exacting a one-off (or so they say) 10 percent “levy” on all bank deposits over €100,000, payable Monday. Goat herders, taxi drivers, et al. (what the New York Times calls “pensioners, workers and regulator depositors”) with less than €100,000 get whacked 6.75 percent.
As Business Insider reports, this so-called “stability levy” is expected to raise €5.8 billion. It is also expected to raise a “flood of concerns” — that’s bureaucratese for “panic” — about a run on banks elsewhere in the eurozone, where (as the report delicately puts it) “fragile public finances are also under scrutiny.”
Right. So that €100,000 it took you years to save is, come Monday, worth €90,000. And how about the following Tuesday, when it will turn out Cypriot banks need more dough? What then? Jörg Asmussen, a member of the Executive Board of the European Central Bank, explained it thus: “In order to have burden-sharing, you extend the tax base. To residents and also to non-residents.” Spoken like a true socialist (or Social Democrat, which is the same thing). Politicians and bankers mess up, you pay. Private property? Ha, ha, ha. [Update: my friend Janet Daley writes: "It's worth noting that this EU confiscation of private savings is using the same excuse (catching money-launderers and foreign currency smugglers) that the US uses to justify FATCA [Foreign Account Tax Compliance Act]. The civil liberties and property rights of law-abiding people can be trampled over in the name of pursuing ‘criminals.’”]
So what do you suppose happened in Cyprus? Yes, Virginia, people rushed to the closest ATM and tried to get their money out. Alas, many machines are already refusing to honor withdrawal requests. (Deposits, though, are happily accepted.)
Walter Russell Mead finds himself only moderately sympathetic. “Any sentient depositor in a Cypriot bank,” he points put, “had to know that things weren’t right. The dubious nature of the Cypriot banking system has been a notorious fact for almost a generation; during all this time Cypriots seemed perfectly happy that their country was running an offshore money laundry for some of the nastiest people around.”
I take his point. But what do you suppose will happen in Greece, Portugal, and all the other economic basket cases that populate the European Onion — I mean “Union”? It partly depends on whom you believe. European financial authorities, Mead reports, “are swearing up and down that they will never, ever do anything like this again” —feeling better yet? — “and that the rest of Europe’s banks are as sound as the euro itself [thank goodness!], but that of course is exactly what they would say if they were planning to take much of your money away.”
I have been predicting the dissolution of the EU for some time. I was expecting a Hollow Men sort of ending, not with a bang but a whimper. It now looks likely that there will be a few bangs after all.
UPDATE: Reuters is now reporting that the Cypriot Parliament is postponing a vote on the levy until Monday. “Making bank depositors bear some of the cost” of the bailout — in plain English, confiscating the private property of person A by person B to pay person C — has been “taboo.” But “officials,” i.e., the unelected, unaccountable Eurocrats in Brussels, have decided there is no other way to save Cyrpus for the eurozone. But take heart: “European officials said it would not set a precedent.”
Query: just how stupid do they think we are?
Also read: Want to See a Bank Panic? Head for Cyprus