The purpose of the EU / IMF interventions in Ireland, Greece, Portugal and Spain was supposedly to restore confidence and stability to the banking sector (what it has turned out to be in practice is to socialise the debts of incompetent bank management onto the innocent publics of those countries, while protecting the profits of bank share- and bond-holders, who are mostly German). But when faced with the prospect of another bailout in Cyprus, instead they have insisted that the bailout be funded by a "one-off" tax on people's bank-deposits. The result was easy to predict: a bank-run:
Cypriots reacted with shock that turned to panic on Saturday after a 10% one-off levy on savings was forced on them as part of an extraordinary 10bn euro (£8.7bn) bailout agreed in Brussels.
People rushed to banks and queued at cash machines that refused to release cash as resentment quickly set in. The savers, half of whom are thought to be non-resident Russians, will raise almost €6bn thanks to a deal reached by European partners and the International Monetary Fund (IMF). It is the first time a bailout has included such a measure and Cyprus is the fifth country after Greece, the Republic of Ireland, Portugal and Spain to turn to the eurozone for financial help during the region's debt crisis. The move in the eurozone's third smallest economy could have repercussions for financially overstretched bigger economies such as Spain and Italy.
People with less than 100,000 euros in their accounts will have to pay a one-time tax of 6.75%, Eurozone officials said, while those with greater sums will lose 9.9%. Without a rescue, president Nicos Anastasiades said Cyprus would default and threaten to unravel investor confidence in the eurozone.
So, in order to restore confidence in Cypriot banks, the EU / IMF has destroyed confidence in Cypriot banks. Who'd have thunk it? Meanwhile, the Cypriot government has been forced to impose a ban on electronic transfers and a bank holiday, which now looks set to stretch into mid-week. Which, if the aim is to keep the banks function so the wheels of commerce keep turning, seems hugely counter-productive as well. And even then, its not going to help: the moment the banks re-open, people will pull their money out and stash it under a mattress (or, in the case of those non-resident Russians, in some other tax-haven), because its clearly not safe there anymore. Which means Cyprus is back where it started, only billions of Euro poorer. Some "bailout".
And the kicker is that the legislation to do this hasn't been passed, and is already looking dodgy. Cyprus' President does not have a majority in the legislature, and needs the support of other parties to pass the bill - and they are looking decidedly dubious. Will Cyprus be the country that finally says "no" to the EU / IMF gangsters and brings the whole rotten system down? I'm kindof hoping that they will be.
[More commentary on European Tribune]