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Europe Announces Bailout For Cyprus — Bank Depositors Get Instant 10% Tax

• tudorizer 14y ago
  And the Bitcoin community did this http://www.reddit.com/r/Bitcoin/comments/1aes4q/bitcoincentralnet_cyprus_specials/ http://www.reddit.com/r/Bitcoin/comments/1aes4q/bitcoincentr....
• braxton 14y ago
  The people who elected a government that made their country a tax haven leading to the crisis in the first place.
  • marshray 14y ago
    When did being a "tax haven" become a bad strategy for country or smaller jurisdiction?
    • quink 14y ago
      Not in order, and to be continued by others: 1. Iceland
      • davidmr 14y ago
        When did Iceland become a "tax haven" intentionally or otherwise? If you're thinking of the recent banking crisis, a "high-interest rate account haven" would be a more accurate term.
      • marshray 14y ago
        The first, recent, article I found on Iceland seems to be critical, though not in a particularly damning way: http://www.reuters.com/article/2013/02/21/us-iceland-economy-idUSBRE91K0JN20130221 http://www.reuters.com/article/2013/02/21/us-iceland-economy... Iceland is growing at 2 percent, faster than much of Europe. But Petursson's comments underscore worries about the recovery's sustainability in a straightjacket of capital controls - coupled with questions over having a currency that one politician compared to the Disneyland dollar. Growth has been downgraded this year from 3 percent to 2 percent. Inflation is stubbornly high and the central bank has been forced to step up intervention in the currency market to prop up a weakening crown. Many expected Iceland's recovery to be stronger given the way smaller economies can bounce from deep recessions. The International Monetary Fund had originally forecast annual growth of around 4.5 percent from 2011-2013. It now is under half that.
• belorn 14y ago
  Money in the bank is not your money anymore. By the time of credit cards, banks moved from being a custodian of money, to a service provider that can cut anyone off from their service. Sure, this time it was not the banks itself but rather the government that did this, but they could only do this because banks and government has stopped seeing money in the bank as belonging to the person who put it there. They would have never gone to a farmer and taken 10% of their grain. They would have never gone and taken physical property in peoples home. That would had been an complete impossibility. I even strongly doubt that any safety deposit boxes will be effect by this. I understand the idea that this is a blow against companies that are using Cyprus as an tax haven. Its fully understandable. But I really dislike this current system of treating money in the bank as belonging to the bank. This story is just a clear example of this behavior expanding further.
  • InclinedPlane 14y ago
    There's no such thing as an intrinsic value for "money", even in gold. If you keep your money in the form of dollars (or Euros) shoved into a mattress the value can go away through inflation. If you keep your money in the form of gold bars the value can also go away through inflation, but perhaps less so.
    • rtwtlkj 14y ago
      I thought gold went up with inflation.
      • dmiladinov 14y ago
        The only way for gold to inflate is for someone to dig up more gold, thereby increasing its supply.
        • mcantelon 14y ago
          Gold's value in fiat currency goes up with the fiat currency's inflation.
        • 14y ago
• rottencupcakes 14y ago
  Is this really any different than US Monetary policy that leads to continual inflation making your savings worth less over time?
  • dchest 14y ago
    Yes.
    • tnuc 14y ago
      You wanna buy a bridge? I got a nice one I can sell you.
    • marshray 14y ago
      Please elaborate.
  • ameister14 14y ago
    It's significantly different. If I told you that every year your money would be worth 3% less, that's different than me saying that 10% of your savings are gone now. It's more complex as well because inflation influences salaries and prices, plus the whole long-term vs immediate aspect.
  • ahomescu1 14y ago
    Yes, one problem I see that this is repeatable and not predictable. Continual inflation can be predicted and planned for, but confiscation of people's money can happen whenever the government needs money. What if next week they take another 10%?
  • snowwrestler 14y ago
    The difference is that U.S. monetary policy seeks to create a low, predictable, consistent level of inflation. This allows everyone to incorporate it into their long-term financial plans. It's harder to plan for surprise 10% haircuts.
    • thatswrong0 14y ago
• KateScisel 14y ago
  Cyprus is clearly not the most typical european country (with vast quantities of Russian money flowing through it). However this clearly demonstrates that people do not fully control what happens to their savings. I'm wondering how much it'll take for, for example, Spaniards to start removing their money from their banks. The French have already been doing so.
• memi 14y ago
  I do have offshore company with Cyprus company current account. Does this tax also affects my company?
  • xachen 14y ago
    The risk of doing business in an offshore jurisdiction.
  • Pro_bity 14y ago
    I think so.
  • KateScisel 14y ago
    Yes, if your money is in Cyprus. You will be granted shares in your bank of equivalent value to your losses. Does it help? LOL
  • martinced 14y ago
    This tax only affects residents living in Cyprus. This is already a crazy tax but if they're confiscating money on private companies' bank accounts they'll be killing the economy.
    • IbJacked 14y ago
      I didn't see any references to "only affects residents living in Cyprus". From the articles I've read, it appears to be a tax on all deposits, regardless of foreign or domestic, personal or business.
• miles 14y ago
  Is Satoshi Nakamoto's secret identity José Manuel Barroso? It's hard to imagine a way for the government to drive people to Bitcoin any harder (short of officially adopting it).
  • wintersFright 14y ago
    an old lesson that has been forgotten needs to be relearned. Money is not meant to be saved. Money is for earning and spending. Saving should be done in real tangible assets.
    • ameister14 14y ago
      Actually, money is specifically designed for saving.
      • wintersFright 14y ago
        To paraphrase Silvio Gesell, an economist in favor of symbolic currency almost a century ago, "All the physical assets of the world are at the disposal of those who wish to save, so why should they make their savings in the form of money? Money was not made to be saved!"
        • ameister14 14y ago
          Except for the fact that the majority of the physical assets of the world are perishable.
          • wintersFright 14y ago
            I think the term "assets" in "all the worlds physical assets" doesn't mean all physical items in the world - including baskets of half ripe banana's, but things like durable, enduring, tradable wealth assets. ie: precious metals, collectables, land, art. Things that super producing wealthy people trade their massive inflow of currency for and therefore retain value. There is only one asset you need though, and that is the same physical asset that Central banks hold that is not an IOU from another country. It is that asset only that will be able to be revalued and reflate the balance sheet when the currency 'assets' have burned to the ground. http://www.ecb.int/press/pr/wfs/2011/html/fs110706.en.html http://www.ecb.int/press/pr/wfs/2011/html/fs110706.en.html
• hmottestad 14y ago
  I recommend a referendum to default on the European loans, convert to a new currency, and become an even larger tax haven for the russian mafia.
• mdasen 14y ago
  In some ways, this isn't a great plan. It punishes those who saved their money while rewarding those who consumed their income. It also means that people will have to start assuming that wealth taxes on bank account balances may happen in more jurisdictions and that they should move their money into what they deem to be safe jurisdictions. This could do harm to other countries whose banking systems have been having trouble. This is not some sort of illegal seizure - and wouldn't even be in the United States. While we normally tax income or consumption, governments can and do tax wealth. In the United States, property taxes are quite normal. What is the difference between charging someone x% of their house value in taxes and charging someone x% of their bank account balance in taxes? It's mostly normative: we're used to taxes on physical property like houses, but not used to taxes on cash that we carry in banks. If the government decided tomorrow to switch from property taxes to bank account taxes, would you care? Mostly, it would depend on where the bulk of your wealth is. If it were in your home, you would welcome the change. I think the reason that they chose to go after the bank balances is that a lot of it is foreign-owned. In many ways, this is much better for the Cypriot people. They may not like seeing their bank accounts go down by 6-10%, but this method spreads the burden to a lot of foreigners. If they went the route of imposing a high property tax, they would have to shoulder a much higher burden. It's also easier to implement, in a certain light. If you impose a new tax of, say, 2% on the value of real property holdings, people are going to lose their houses when they can't come up with the money for the tax. You don't want that: it would just be chaos. Taxing the bank accounts is taxing a liquid asset. You know they have the cash to cover 10% of their bank account balance because, well, it's their bank account balance. Since they're going to impose the levy before the banks open on tuesday (monday being a banking holiday) and banks putting a withdrawal limit of 400 Euros on customers, it looks like it can be implemented. In many ways, it's the easiest, quickest successful tax that they could impose. And, while it will cause a lot of uproar from Cypriots, it's probably better than any other measure for them. If the government were to try and raise the money from other means (whether a real property tax, higher consumption taxes, higher income taxes, etc.), the burden would fall on residents more than this tax will. Similarly, this tax will hit the rich harder than the poor. If they raised VAT, income tax, or real property tax, the rich could move elsewhere and be spared a lot of it. EDIT: I'm going to respond to some replies here. First, I never said this was a good plan. I said that it would be easy and quick from an administrative standpoint. The ECB doesn't seem to want something long and drawn out or get into a situation where legislative processes and elections throw everything into chaos. Since Cyprus wants the bailout, the ECB holds a lot of the cards. We've seen how governmental changes can throw a wrench into the bailout agreements. Because this levy can be implemented "overnight", it's easy and doesn't rely on a legislature agreeing on austerity measures for many years. This solution will be a betrayal of people's trust, it will hurt people. It will make people think twice about putting their money in banks. In fact, this is something that parts of Latin America face. However, are there alternatives for coming up with 5.8 billion Euro that would be better? Frankly, in order to criticize well, you have to bring up other solutions against the chosen solution. This move is bad. No one thinks this is a happy move. It has cons. People will lose savings (including money they were counting on having). People will distrust banks for the foreseeable future. It will create resentment and anger. It will be bad. So, what would be better? Now, one can argue that defaulting on the debt would be better - that's certainly a position to take. However, assuming that Cyprus doesn't want to default, how else should they have secured the ECB bailout (assuming that one needs to raise 5.8 billion Euro to do so)?
• arbuge 14y ago
  It's a perfectly horrible idea: - penalizes savers who lived within their means and didn't overextend themselves, saving up for a rainy day. Debtors who took out excessive mortgages etc. aren't affected. - penalizes foreign investors like the Russians, who will be paying about 40% of the money to be raised from this measure if you do the math. Never a good idea to scare foreign investment away. - might create a bank run in other weak economies in the EU, like Italy, Spain, and Portugal. That could create a problem on a huge scale.
• ww520 14y ago
  This is highway robbery. It reneges on the contractual agreement between the depositors and the banks to get the full deposit back. If they impose a 10% levy on the new deposits, then fine. They are levying on existing deposits retroactively. That's simply robbery. Just because the money is from foreigners doesn't make it right. EU banking will have not credibility after this. This will discourage people to put money in the banks and encourage them to keep them at home.
  • vellum 14y ago
    >Just because the money is from foreigners doesn't make it right. Well, the locals got screwed, too. Here's some good analysis: http://bit.ly/110JLpm http://bit.ly/110JLpm He speculates that they could have taxed the foreigners (Russians) @ 30%, but that would have finished off Cyprus as a destination for foreign money. Instead, they taxed everyone at 10%. The Russians might see 10% as the cost of doing business.
• martinced 14y ago
  I've submitted this first but it didn't take off... Anyway: this is just the beginning and it's not going to stop anytime soon. The Eurozone is in big trouble: it simply cannot work when you have people who only want to work 32 hours / week and stop working at 60 years old (France) while on the other side you have hard-working germans. The crisis we're witnessing since a few years in the eurozone is really simple: the GDP growth number in most of the eurozone are fake in that they do not correspond to wealth created but to wealth created + state debt. Nearly every single country in the eurozone is running at deficit. The crisis is due to one and only one thing: states that are so indebted that they cannot borrow anymore. Economists warned about precisely that scenario before the first euro even circulated: Greece, Spain, France, Cyprus... 15 years ago people warned that it would happen just like that. It was just a matter of time. I can tell you what's coming next: Greece is going to default a second time. In 2014 France shall have its deficit skyrocketing and shall have issue re-financing itself on the market. France is the 2nd biggest economy of the eurozone and the eurozone is f^cked. It's game over. France has taxed the private sector so much that it cannot tax it anymore and, anyway, it's too late: investors did flee the country and now individuals are engaging in a bank run (or leaving the country). The obvious solution would be a massive devaluation of the euro but this cannot happen because if it happens Japan goes down (and probably the U.S.). We're near the endgame: the house of cards may fall soon. And I can tell you thing: I want less state. This entire euro-crisis is a debt of sovereign states having way too much public debt because they've constantly been running at deficit, for decades. And now they're running out of money. It didn't help that they borrowed money to save banksters but don't be mistaken: nobody forced these states to run with crazy-high deficit for decades. F^ck socialism. Really f^ck it. Btw I don't care if Cyprus was supposed to be very liberal: Cyprus is 0.2% of the GDP of the eurozone and doesn't matter. What matter is that socialist Spain, Greece, Portugal and France are close to state default. They'll be watching closely how announcing money confiscation just before a long week-end plays out (monday is a legal day off in Cyprus) and they'll probably be desperately trying to do the same in these countries. And it's not going to work. People should really start realizing that Keynes was all wrong all along and that the Friedman school is the only correct one: they did predict all this. Keynesians didn't. Btw if the eurozone goes down dont' think the U.S. is going to be fine: some economists are predicting a worldwide drop of the world GDP by as much as 30%. It's just a matter of years, maybe less.
• Pro_bity 14y ago
  Anyone want to put odds on this starting bank runs across Europe?
  • martinced 14y ago
    Not gonna happen. Several countries moreover already have withdrawal limits per day / week / months to precisely prevent bank runs. Those limits have recently been lowered (for example in Italy). Laws are passed nearly on a daily basis to lower the maximum amount of "physical" money (bills) you can use to buy stuff. What is going to happen is lots of politicians blatantly lying and saying: "Something like this is unthinkable in our country, even if we're in the eurozone our situation is not the same as that one of Cyprus". Just as politicians from Cyprus blatantly lied throughout all this week when that option was mentioned: they said it wouldn't happen. And people didn't bank run. Cyprus is too small (0.2% of the GDP) to be detonating factor.
    • Pro_bity 14y ago
      It not the size of the GDP that is at issue, bank runs happen out of fear. I can tell you from conversations I have had with friends (not very scientific, admittedly) that people in European countries are legitimately freaked out by this. Additionally, there may be a physical limit on withdrawals, but electronic transfers are far easier and more common in the EU. That is the real threat. If we are all lucky, tempers will cool by Tuesday.
    • Gormo 14y ago
      > Laws are passed nearly on a daily basis to lower the maximum amount of "physical" money (bills) you can use to buy stuff. Do those laws also prevent people from transferring funds into other banks or currency denominations, or purchasing gold or other liquid assets?
• rafski 14y ago
  It's funny to see a bank holiday used for what it was initially invented for — preventing a bank run.