You couldn’t make it up. ….in Cyprus they just did!
Is anywhere safe from the clutches of the TROIKA? The tripartite committee led by the ECB, the EU and IMF has set a dangerous precedent in Cyprus by forcing the government to tax those with deposits of over €100,000 in local bank accounts by up to 40%. The new legislation has been followed by the enforcement of capital controls therein limiting transfers of bank deposits and cash withdrawals. Such a move is surely against the spirit of the EU and the free transfer of Euros from one Member State to another.
When the initial bill to tax all deposits failed to receive support in the Cypriot parliament, Germany done the math’s and came up with a 40% ‘depositor haircut’ for those with accounts of over €100,000. Although such deposits are mainly owned by Russians, there are also a number of British expatriates who will suffer. There is estimated to be 25,000 retired Brit’s living on the island of Cyprus. As of the end of 2012, British expatriate exposure to Cyprus was said to be in the region of €1.9bn. This move by the Cypriote authorities has wreaked havoc on their pension savings.
Although there is the perception that it is only the wealthy who are being ‘hit’, there is also concern that such a levy on deposits could be repeated at some stage in the future.
The risk of the country defaulting on its sovereign debt and a potential run on the banks may have been averted, but at what cost? This wealth tax on depositors may do irreparable damage to the reputation of the island as a financial hub and retirement destination for British expats.
It is indeed a dangerous precedent that is being set…which country is next? If governments believe that the logical step is for future bank rescues to be co-funded by depositors, it will not be long before depositors decide that the logical step for them is to move their money out of the Eurozone altogether!!