What's going on?
In order to receive a bailout from the troika, Cyprus is closing their second-largest bank, Laiki, and restructuring its largest, Bank of Cyprus. The shutdown of Laiki spares deposits below €100,000, but above that amount, because nothing is guaranteed, depositors may lose everything. The Bank of Cyprus restructuring also spares all deposits below €100,000, but may result in as much as 40% losses for amounts over that (backstopped at 40% by the EU).
The shutdown of Laiki, as well as the restructuring of the Bank of Cyprus, ends up cutting thousands of jobs, too. You know where I stand on austerity.
Bank controls have placed the clamps down on withdrawals, now at €100 daily limits; all last week, banks were closed.
Moral play in Capitalism
I've read a lot of moralizing, suggesting that because a lot of this money being confiscated could be ill-gotten goods from Russian oligarchs, it is better than hitting the average Cypriot under the initial bargain. I have mixed feelings about this, and in any case, I think this is a false choice.
Do we have a case of Cyprus and the troika trying to play Robin Hood? (Aside note: redistribution of income is not Robin-Hoodish, in my opinion, because most rich people support redistribution, even if they disagree on how much redistribution to apply.) The way I read it, people are saying that it's okay to steal, so long as the money was stolen from someone else. The logic breaks down however, because the aggrieved are not made whole; the parties being saved are separate from those whose money was initially stolen.
Frankly, because Cypriot bank losses stem from their poor choice to invest in Greek bonds, essentially the troika is saving itself from the haircut they pushed on Greek bondholders -- that is how we should look at this situation, in my opinion.
The better path, I believe, would have been to allow large depositors to choose between a large, one-time tax on their deposits (say 20~25%) or have 100% of their deposits pushed into 10+ year bonds. This way, large depositors could choose the plan most appropriate to their needs.
Do we have a case of Cyprus and the troika trying to play Robin Hood? (Aside note: redistribution of income is not Robin-Hoodish, in my opinion, because most rich people support redistribution, even if they disagree on how much redistribution to apply.) The way I read it, people are saying that it's okay to steal, so long as the money was stolen from someone else. The logic breaks down however, because the aggrieved are not made whole; the parties being saved are separate from those whose money was initially stolen.
Frankly, because Cypriot bank losses stem from their poor choice to invest in Greek bonds, essentially the troika is saving itself from the haircut they pushed on Greek bondholders -- that is how we should look at this situation, in my opinion.
The better path, I believe, would have been to allow large depositors to choose between a large, one-time tax on their deposits (say 20~25%) or have 100% of their deposits pushed into 10+ year bonds. This way, large depositors could choose the plan most appropriate to their needs.
The bailout may not be good enough
There are questions over whether or not the numbers add up, however. And,
With its banking sector responsible for most of its income, it's difficult to see how the Cypriot economy will recover, any time soon, now that it will shut down one bank and restructure another. Transitioning an economy takes a very long time, after all.
Thus, we're just reading one part of the Cypriot story, which is itself just one chapter in the EU economic experiment.
No comments:
Post a Comment