With Europe facing constant debt crises, politicians and bureaucrats are negotiating and arriving at different solutions to deal with the crises. But the worst step that was unanimously accepted includes a raid on the savings on Cyprus. According to a recent list of measures, Cyprus’s ordinary savers would have to contribute directly to the economy to ensure that their country’s bailed out of the crises.
This measure involves depositing insurances to bailout the country from debt crises. Well, it is yet to be seen whether such measure is triggered on other endangered economies, including those of Greece and Spain. One thing is sure – with this measure, the European crises have taken centre stage in global arena.
This rescue package guarantees that up to 130,000 dollars or 100,000 Euros are insured. This is in coherence to the Cypriot budget policy where 9.9 percent above the amount of 100,000 is defined as a tax. However, the depositors consider it as a reckless raid on their savings, which it actually is!
The decision has met popular outrage from ordinary depositors, who regard this as unjust, destructive economically as well as obtuse on political levels. These ordinary savers are required to pay a total sum of 5.8 billion Euros and only when this sum is paid, international creditors would pay the remaining 10 billion Euros that are required for the bailout. For a nation like Cyprus, this tough choice only accounts for less than 0.2 percent of Euro zone’s economy. But since the economy has developed assets over eight times larger than their GDP, it is expected to pay a part of its bailout. And as Cyprus as a country is not large enough to rescue itself, hence the decision might just see light of the day.
On other countries, a bailout in Greek-style is expected where taxpayers, pensioners and public sector would be squeezed until the country covers up its debts. Such a bailout is affordable for other European countries that currently account for 17 billion Euros in debt.
The reason behind such a measure is that Cypriot banks have huge amounts of Russian currency that has escaped taxation and laundered via Cyprus. Therefore, it would be better if high value depositors share the costs of bailout instead of ordinary depositors, as such a measure would indicate that these kinds of measure would not be repeated elsewhere in Europe. Also, this measure would serve as an example for tax evaders, money launderers and spare longer term savers with large deposits. At the same time, those who evade tax would only consider a 30 percent loss of their assets as the cost of doing business.
In fact, even the EU finance ministers have reflected their openness to different arguments. So, at this point it would be baseless for Cypriot government to include savers with less than 100,000 Euros in their account. The current scheme is damaging and EU needs to recognize its mistake to ensure that the damages are controlled; if they aren’t, the Cypriot banks would risk the withdrawal of Russian of other foreign investors.