Ailing Cyprus is set to slam the bank accounts of its wealthiest investors, to pay off its own debt.
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.
Russians would lose billions of euros under draconian terms that are aimed at preventing the Mediterranean tax haven becoming the first country forced out of the single currency.
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.
Negotiations got under way amid a hardening of the stance by the IMF and Germany, which insisted that depositors must take the hit for bailing out the eurozone’s latest crisis economy.
Some depositors could lose 40%. Russian depositors stand to lose tens of billions. Not to be alarmist, but this is the kind of thing that can start a war. Russia’s response may depend on who the depositors are. If they’re mostly Putin’s enemies, he may not react at all.
There’s a grim logic to all this. Germans have mostly handled their fiscal affairs responsibly and don’t want to pay for Cypriot debt. The majority of Cypriots, who voted for government policies that racked up the debt, don’t want to pay for it and the politicians can look at Greece and figure out what will happen if they try getting the money from that majority. Riots and gnashing of teeth, and some politicians may have to look for real jobs in the economy they’ve helped screw up. But here are these rich people over here who, in the “you didn’t build that” world, have the money and have gotten rich off of government’s generosity, and there are Russians who don’t get a vote at all. This is where we are when tax cuts are just government’s money that the government hasn’t decided how to spend on your behalf, yet. So we shouldn’t look at the Cyprus deal as a legalized bank heist, we should just look at it as the myths of private property and personal achievement being exposed. If you didn’t build that, you shouldn’t mind if government spreads your wealth around, since it wasn’t really your wealth to begin with.