An interesting juxtaposition Updated! Cyprus Parliament saves lawmakers’ lives rejects bank account levy

From First was a link to an article in Bloomberg:

Europe’s Reckless Raid on Cyprus’s Savings

By the Editors Mar 18, 2013 3:44 PM ET

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.

We’ll have to wait and see whether this breach of the principle of deposit insurance triggers a run on the banks of other endangered economies, such as Greece and Spain. Yet even if no contagion results, Europe’s governments have knocked a supporting wall from beneath their financial system. As today’s flight to safety in markets shows, the euro-area crisis is center stage once more.

Technically, the rescue package for Cyprus doesn’t violate the euro area’s guarantee that all deposits up to 100,000 ($130,000) are insured. That’s because the proposal for the Cypriot government to take 6.75 percent of all bank deposits less than 100,000 euros, and 9.9 percent above that amount, is defined as a tax. Depositors, however, will see this for what it is: a raid on their savings.

Such an attack on ordinary depositors is unjust, politically obtuse and economically destructive all at the same time. It has rightly fueled popular outrage. Savers in Cyprus are being asked to give up 5.8 billion euros so that international creditors will provide the remaining 10 billion euros required for a bailout. Thus will bondholders in London, Frankfurt and New York be spared a haircut.

And, immediately below on the JOURNAL’S main page was this one:

Workers Saving Too Little to Retire

By KELLY GREENE and VIPAL MONGA

Workers and employers in the U.S. are bracing for a retirement crisis, even as the stock market sits near highs and the economy shows signs of improvement.

New data show that powerful financial and demographic forces are combining to squeeze individuals and companies that are trying to save for the future and make their money last.

Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes, according to a report to be released Tuesday by the Employee Benefit Research Institute. Only 49% reported having so little money saved in 2008.

The survey also found that 28% of Americans have no confidence they will have enough money to retire comfortably—the highest level in the study’s 23-year history.

In both articles referenced, there is more at the links.

But your Editor found it humorous — darkly humorous, to be sure — that the JOURNAL would be telling us that Americans were saving too little money for their retirements right next to a story about how a European government was going to be seizing taxing part of its citizens’ savings to bail out the government.

A revised plan which would spare depositors with less than €20,000 from the levy won’t meet the targets required by the IMF and euro-zone finance ministers:

(A) Cypriot lawmaker, citing the island’s central bank governor, said that the tax plan in the draft bill would fall €300 million short of the €5.8 billion revenue target the euro zone and the International Monetary Fund had demanded. A second official confirmed that the plan wouldn’t meet the promised amount.

Even though the plan might fall short, it’s having a huge impact in Europe:

Cyprus plan to seize savings shocks Europe

Menelaos Hadjicostis, Associated Press
Posted: Tuesday, March 19, 2013, 3:01 AM

NICOSIA, Cyprus – A plan to seize up to 10 percent of people’s savings in this small Mediterranean island nation sent shock waves across Europe on Monday as households realized the money they have in the bank may not be safe.

A weekend agreement between Cyprus and its European partners called for the government to raid bank accounts as part of a $20.4 billion financial bailout, the first time in the eurozone’s crisis that the prospect of seizing individuals’ savings has been raised.

Facing outrage, Cypriot authorities delayed a parliamentary vote on the seizure and ordered banks to remain shut until Thursday while it tries to modify the deal to reduce the hit on people with small deposits.

Several hundred protesters gathered outside the parliament building, with some chanting “thieves, thieves,” and “people wake up, they’re drinking your blood.”

In order to get $13 billion in bailout loans from international creditors, Cyprus agreed to take a percentage of all deposits – including ordinary citizens’ savings. The surprise deal stoked fears that deposits in other countries could be targeted.

More at the link.

The Cypriot economy is a very small fraction of the total eurozone, just 0.2%, but now everybody in Europe has been put on alert: part of their savings could be seized to bail out banks or governments. Cypriot banks hold huge amounts of foreign investments, primarily Russian, much of which is thought to be a way of laundering money, and the government is hardly loathe to seize some of that cash, but that distinction seems to be escaping the Cypriots and the rest of the Europeans: the levy would still hit everybody, not just the Russians, and the principle of seizing savings established.

This is the kind of plan which could result in a run on the banks, not only in Cyprus, but elsewhere in the eurozone. Financial stocks fell in both the United States and Europe after the plan became public.

The Cypriot plan is just utter madness. The last thing anyone should want to do is to undermine confidence in the banks, but that is exactly what the plan would do. That the confidence would be based not on the failures of the banks but upon the government simply seizing people’s savings matters little: it still means that depositors will have less confidence that their money will be there when they want it. Even Paul Krugman, not an economist in which your Editor places much respect, wrote, “It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying ‘time to stage a run on your banks!’”

This one could get ugly.
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Cyprus lawmakers reject proposed bank tax

By Alastair Jamieson, Staff writer, NBC News

Cyprus’s parliament overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on Tuesday, plunging one of the smallest European states closer to financial oblivion.

The rejection, with 36 votes against, 19 abstentions and one absence, brought Cyprus to the brink of financial meltdown.

But jubilant crowds outside parliament broke into applause, chanting: “Cyprus belongs to its people.”

More at the link.

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