The Destruction of Cyprus


The Eurozone insistence on a Cyprus bank deposit confiscation has almost nothing to do with a desire to “save” Cyprus, and everything to do with its destruction.


The surprise plan forced through on Saturday, 16 March called for a 6.75% "levy" on deposits up to EUR 100,000, and 9.99% on deposits over EUR 100,000. Although part of this “levy”, which is more appropriately called a confiscation, would have been offset by the issue of bank bonds, the Eurozone finance ministers departed from all previous best practise and EU law.


Specifically nearly all bank recapitalisations and restructurings protect depositors and impose losses on bondholders. Moreover, deposits up to EUR 100,000 in the EU are insured to their full value. No losses on bondholders were proposed, although these would not have been sufficient in any case. And the Eurozone tried to twist reality, explaining that this was a “levy”, or tax, on deposits, not an outright confiscation.


But at the heart of the issue is a dramatic refusal by the Eurozone finance ministers to understand basic financial reality. By embarking on this step, they dramatically undermine faith in the European banking system. Although they claim that this is a “unique instance” (the same term used for the Greek government bond haircuts), it is only a question of time before the hyper-indebted governments of Spain, Italy, Belgium and perhaps France follow suit.


An analysis of the changing objectives and lack of clarity of the Eurozone bailout of Cyprus follows in the article "The Destruction of Cyprus."