EU to tax Cyprus' bank accounts?

Checking the news today, I’ve seen reports on pretty every major news website on how the EU is forcing Cyprus to tax people’s bank accounts. For the sake of those that don’t care to read the article, this is an allegedly one-time tax that would range between 6.75 - 9.9% of your bank account.

That they would try such a thing boggles my mind. If this was attempted in the US, there would be near-universal outrage, to the point where lawmakers would have to hide in bunkers in secure military facilities. Even beside that, this is a sure-fire way to obliterate the public’s confidence in your banking system. It’s guaranteed to create a generation of people who keep their money stuffed in mattresses and cookie jars and whatnot, like the generation of people who suffered the bank failures in the 1920’s.

Most of Cyprus’ $1000,000 plus depositors are offshore businesses or criminal syndicates. Estimates vary, but I gather the number of actual residents who will get a haircut is tiny.

Vlad Putin has registered his disapproval-seems a lot of his friends were big depositors in Cypriot banks!

The plan, at least as of yesterday, was to tax all depositors. People below 100k got a slightly lower rate, but still got a haircut.

$100,000 even.

Latest news is that Cyprus has closed their banks until Thursday. Seem that there was a rush on them for some strange reason.

Most countries can effectively accomplish more or less the same ends by devaluing their currency. There is little difference in seizing $10K from a $100K bank account or devaluing the currency so that the $100K now has lower buying power. But individual countries cannot devalue the Euro.

Maybe, but I imagine the sting is exponentially worse when the government just sucks the money out of your bank account one day. And closes the banks beforehand so you can’t do anything about it.

Plus, like Simplicio said, the plan as it now stands is to tax everyone. So, if this is some kind of covert swipe at Russia and/or organized crime, it’s a very poorly-aimed one.

Cyprus has less than 1 million residents, but I know how I would feel if the government took 10% of my savings. Not good.

I read that “a messy default [of Cyprus’s debt] could lead to exit from the eurozone.” Does that mean Cyprus can’t be in the EU if their credit is no good?

Yeah, this is pretty terrible. Definitely going to incentivize bank runs.

On the other hand, Cyprus got themselves into a pretty unworkable position. Their bank deposits were something like 8 times as large as their GDP. There’s no meaningful way for them to raise money to deal with insolvent banks except seizing it from the depositors themselves.

I expect that in the future depositors will consider the size of the banking industry relative to the rest of the country before depositing money.

Devaluing your currency discourages imports and encourages exports, but does not affect purely local transactions that much. From my understanding the reason for this is to balance the budget under orders of the EU. How it helps trade and thus jobs is beyond me. I can’t imagine people who just lost around 10% of their wealth are going to be very eager to buy much.
On the other hand it will be great for the vault-in-mattress makers.

I think economists will be writing papers for decades about the laboratory for bad economic ideas which Europe has turned into.

So the gubbmint just said “Oops, we couldn’t solve the problem on our own, so we’ll just take YOUR money, nyah!”

Sounds like theft to me. “One time tax” my ass!

I saw a cartoon one time that showed two people looking through their front door. Coming from outside were two hands. One held a gun on them and the other was making a “gimme” gesture. The caption said “We’re from the government, and we’re trying out our new, simplified tax system.”

The government in Cyprus must have seen it too.

From this article it seem to me that large deposits are not the issue, it is that the banks screwed up their investments, including in Greece. Depositors are supposedly going to get shares in the banks which I’m sure makes them feel great.
It might go over better if they string up a few bank execs as an example. But I’m sure that instead they will demand bigger bonuses so that they will stay and work through the crisis.

The screwed up investments are why the banks need a bailout.

The large deposits are why they sort of had to do things this way. If the banking industry’s total deposits were half the GDP and the banks were short, say, 5%, they could sell some bonds, raise taxes a bit, and bail out the banks. 2.5% of GDP would hurt, but it’d be doable. When they’re 8+ times the GDP with the same losses, they’d have to raise taxes by 40% of GDP. Simply not feasible. So they take it from depositors. Where else are they going to get the money?

If it works like the typical EU bailout, the bank shares will probably take 300 years to fully vest, and give you 0.000000000000001% ownership after that:p