CYPRIOT depositors are understandably upset. A portion of their money has just been seized – stolen, if you will – by the state to help fund the country’s bailout. Legalised bank robbery? Sure. But at least the authorities are straight up about it this time.
After all, what amounts to legalised bank robbery in other, more subversive forms has already been at play across the developed world as it struggles to pare down its debt load. Sales tax hikes, super-low interest rates, general price inflation; all these can be just as pernicious as the 6.7 per cent levy initially proposed on small-time Cypriot depositors.
And yet they rarely draw headlines or dramatic responses from the international community. “The authorities in Europe should be ashamed of themselves for what they have chosen to do here,” said US investor Dennis Gartman regarding the Cypriot depositor levy. “They have ended any and all possible faith in the euro; they’ve proved nothing is safe from their clutches.”
The move “also highlights how post-2007 efforts to resuscitate and rescue Western economies have continued to favour the vested interests of the financial sector,” said Monument Securities strategist Marc Ostwald, “while treating the ‘population at large’ with disdain and contempt.”
And yes, the financial sector was spared the effect of haircuts on its holdings of senior bank debt, which European officials have thus far gone to great lengths to preserve so as not to spur a capital run across the Eurozone. Still, the roughly €2bn (£1.7bn) in Cypriot bank bonds outstanding, even if entirely wiped away, would not have raised the €6bn authorities were after, RBS notes.
Moreover, “tackling Europe’s private and public debt overhang involves making distributional choices,” Goldman Sachs pointedly put it in a recent note. Sparing account holders with less than €100,000 or €25,000 in the bank is a nice gesture. But it’s also misleading if lower-income households actually think they aren’t sharing the pain by seeing their spending power eroded by other means.
At least this direct appropriation of funds signals that European policy makers are willing, at long last, to be up front about the nature of what they’re doing, and at least trying to structure their wealth appropriation in a more progressive way. Imagine such a laddered levy introduced in the UK, where politicians are anyway pushing for a “mansion tax” on the wealthy. Might low-income Brits not prove better off by forking over, say, 5 per cent of their money now in exchange for no more austerity (and perhaps less inflation-inducing monetary stimulus too as a result)?
The Cypriot move is admittedly draconian and may yet prove to violate its own constitution or the European Convention of Human Rights. But we shouldn’t pretend that money isn’t being confiscated and wealth redistributed anyway across Europe, as the continent becomes increasingly desperate for a way out of its crisis.
Kelly Evans co-presents CNBC’s WorldWide Exchange. Follow Kelly on Twitter @KellyEvans