March 19, 2013
In an editorial signed by The Editors, Bloomberg View thrashes the Cyprus bailout, and its element of confiscating a chunk of everyone’s bank deposits in order to bail out the banks.
Of all the many steps that the euro area has taken to contain its debt crisis, the decision to force ordinary savers in Cyprus to contribute to their country’s bailout is the worst.
The problem? It’s just such a violation of trust, especially as it falls on those with “insured” depositors under 100K euros.
What’s impossible to understand is how these finance ministers agreed to let Cyprus attack insured depositors, an act of recklessness sure to have implications for the rest of the currency zone. Even if, as seems likely, the Cypriot deal is now changed to redistribute the pain from small to large account holders, the finance ministers have sent a damaging signal: Europe’s guarantee that its governments will stand behind deposits of less than 100,000 euros is no longer certain.
The euro area needs to recognize its mistake quickly and control the damage. It should demand that Cyprus levy its tax only on deposits above the insured level — and impose losses on the banks’ bondholders as well, even if the sum raised is only symbolic. The Cypriot government will then have to increase the levy on savings exceeding 100,000 euros to make up the difference, taking the risk that Russian and other foreign investors withdraw their funds. If that ends the Cypriot offshore banking model, all the better.
This article was posted: Tuesday, March 19, 2013 at 6:15 am