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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

on Cyprus « Previous | |Next »
March 27, 2013

The Troika insists that troubled countries get their financial house in order as a condition for receiving bailout money. But the specific austerity measures they have chosen are killing any chance these countries have to grow, and therefore repay their lenders. This creates a vicious cycle, as the less borrowers are able to pay, the tougher the repayment terms get.

In this column on the economic crisis on Cyprus Paul Krugman takes a different tack. He asks us to:

consider the incredible fact that tax havens like Cyprus, the Cayman Islands, and many more are still operating pretty much the same way that they did before the global financial crisis. Everyone has seen the damage that runaway bankers can inflict, yet much of the world’s financial business is still routed through jurisdictions that let bankers sidestep even the mild regulations we’ve put in place. Everyone is crying about budget deficits, yet corporations and the wealthy are still freely using tax havens to avoid paying taxes like the little people.

Cyprus is a place where people, especially but not only Russians, hide their wealth from both the taxmen and the regulators. Whatever gloss you put on it, it’s basically about money-laundering.

Cyprus ran large current-account deficits, experienced a real estate bubble, developed a runaway banking system, public finances were mismanaged, and the state could not afford to rescue insolvent banks. The Cyprus government is trying to remain in the eurozone while retaining the country’s offshore banking model, hence their resistance to imposing a big haircut (40%) on the large (mostly foreign) creditors. Hence their proposal too impose a one-time tax on accounts holding less than €100,000

Democratic resistance by ordinary Cypriots to the one-time tax on accounts holding less than €100,000
has meant that the large (mostly foreign) creditors are to take a large haircut. Can they keep their offshore banking model?

| Posted by Gary Sauer-Thompson at 11:04 PM | | Comments (2)
Comments

Comments

Well, it does two things. firstly it ensures a sense of disempowerment within wider society, creating resentment, which is useful for divide and conquer. Secondly, it means that its business as usual as to the ransacking of civilisation.

Contemplative and ultimately restful Easter to GST and other posters.

Everyone seems to be focusing on the deposit side of the bank. the implication is that because Russian money (presumably illegally earned money)made up a large proportion of the deposit base, this caused the problems.

I don't follow the logic. Surely the situation has been caused by making bad loans. There has been no reporting on what sort of loans they were making that lead to this.

While there has been some comment about the lack of Prudential Regulation of the Cypriot Banking System (they are not alone in that) surely this is the reason that Russian money was attracted in the first place.

There has been an implicit expectation that the EU (in some form) would stand behind all the banks in the EU zone. They haven't to date. The Irish banks were bailed by the Irish government, with Irish taxpayers taking the loss. The Cypriot is just not that big.