The Cyprus Bank Tax

When Adolf Hitler and his mob had invaded a small nation it was important to them to give their conquest the appearance of legality. They did this by getting the leaders of the conquered nation to sign a document, chasing them around the table or making physical threats if necessary. It seems old habits die hard. When I wrote about the proposed Cyprus bank deposit tax last Sunday, I believed the story put out by all the news media that this tax was approved by the government of Cyprus as part of a deal with the European Central Bank. It now emerges that the ECB had rather chased Mr Anastasiades, around the table, but Mr Anastasiades did not sign. He said he would sign after the Cypriot government had approved the tax. It now emerges that the tax was dreamt up by the technocrats of the ECB and the European Union, not by the Cypriot government.

In the past when the European Union and the ECB were asked to rescue the banks of a nation they imposed their terms upon the nation in question. The nation, be it Greece, Italy, Portugal, Ireland or Spain, felt it had no alternative but to do as the International Monetary Fund, the ECB and the EU demanded. The Greek Prime Minister wanted to put the austerity measures to the people in a vote. This was not allowed. The Italians found themselves with an appointed technocrat as a Prime Minister. The Irish went meekly and did as they were told, and so did the Portuguese.

The Cypriots it now emerges did not want to tax bank deposits. They were told to. It was, as one Cypriot MP has said “a kind of blackmail”. If Cyprus did not agree its banks would not be supported; they would fail wiping out the savings of those who had deposited in those banks.

I pointed out on Sunday that it was wrong to tax bank deposits which the government had guaranteed.  I was wrong to believe that this tax idea was the decision of a democratically elected government.

Yesterday the Cypriot members of parliament voted on the bank deposit tax. They overwhelming rejected it with every MP either voting against the tax or abstaining.

The way to deal with blackmail is to stand up to it and expose the blackmailers. That is what Cyprus has done. It may cost them their banks, some great economic damage but there is no point in making a gift to the world of democracy if you yourself do not use it and democracy includes the right to refuse to do what outside agencies tell you to do.

A very small nation has stood up to the might of the unelected organisations whose decisions shape the lives of billions. In doing so it has exposed the fragility of the euro. The EU has a very clear choice now; it must support Cyprus or see Cyprus leave the EU, which in turn will affect the value and stability of the currency and all the chasing around the table of leaders of small nations will not engender confidence in the economy of the European Union. Cyprus has put the problem firmly in the lap of the European Union.

There are several lessons to be learnt from these events.

We as developed economies have to move away from the idea that banks must not be allowed to fail. We must create good rescue mechanisms for savers and depositors and good safety nets for borrowers. But it is not the borrowers and savers who cause bank failure but speculators. Rescuing banks to save economies has been tried and has so far failed. We should allow failed banks to go into liquidation, just like every other business that fails.

The European Union is not much of a union. In a Union a rich nation helps the poor nation, just like within a nation the rich pay taxes which help the poor. The European Union’s richer nations do not want to lend money to the poorer nations. That is the most serious betrayal of the principles which we are told should govern the European Union.

If the EU, the IMF and the ECB decide that it is time to dip into the savings of people like some pick pocket on the London Underground then who can possibly have confidence in depositing money in banks? Banks are supposed to be safe havens for deposits, not as insecure as putting your money in your pocket and going for a ride on the underground.

I have long held that banks are still not secure and a bad place to have your deposits and if they fail governments could not afford to pay the amounts for which the depositors are insured. The banks can continue and might even bring themselves back to solvency, but to do this there needs to be confidence. Tax bank deposits is probably the best way to shatter confidence, and it is astonishing incompetence on the part of the EU, the ECB and the IMF to chase the Cypriots around the table asking them to sign up to taxing bank deposits.

The United Kingdom has been accused of wanted to pick and mix from European policies and directives. That picking and mixing is invariably about matters of principle, such as immigration, justice and working hours. On these matters the rest of the Union insist that nations cannot pick and mix, but on matters of money Germany, the Netherlands, and Finland all insist on picking and mixing when how and who they will permit the ECB to support. It seems that the EU is united on some things but the glue that is supposed to hold it together, the common currency, is a not something on which the nations should pursue a common policy.

I watched Newsnight on television last night and smiled at the ignorance of Mr Paxman when a Cypriot MP told him that Cyprus would revert to the pound if necessary. “The pound sterling?” boomed Paxman, ready to enquire into why Cyprus would realign its currency to that of its old colonial masters. “No,” came the reply patiently “the Cyprus pound, of course.” Paxman’s question betrays the extent of ignorance that exists about Cyprus.

The German reaction to the Cyprus Parliament’s vote was a typical EU reaction to democracy. “It is only one vote”. Yes, in the past some nations of the EU, to their shame, have held votes again when the electorate got the first wrong, according to the EU’s technocrats, who take the view that they know more and know better than the electorate.

I also saw the vote in the Cyprus Parliament on television. Seated in a small chamber the majority of MPs raised their hands to vote against the bank deposit tax. Others voted to abstain. Not one voted in favour of the tax. It was a courageous act. Cyprus may be heading into the unknown, but it is doing so with the consent of its people, a highly educated and intelligent people, who fully understand the issues; it made be proud to have Cypriot blood flowing through my veins.

2 Responses

  1. Good post Rob, have your noticed that the theives always do this kind of act on a bank holiday, when the people cannot act against the idea until the following Monday.

    This was a testing of the waters like Iceland, I wounder who will be next the Cayman Islands maybe, lol.

  2. Get ready to fly, there is a turn around started in Cyprus, the vote is now YES for more wealth to be stolen.

    It was 17 and 4%, now 20 and 4%.

    If this is accepted it is the beginning of the end for savings all over the EU.

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