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Major shock for Cypriots


hssutton

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anywhere else in the world this would be called theft

In the EU it's called a bail out levy.

People in Cyprus with less than 100,000 euros in their accounts will have to pay a one-time tax of 6.75%, Eurozone officials said.

Those with greater sums will lose 9.9%.

EU's latest bailout rules for Cyprus

I wonder what savers in Italy, Spain and Portugal think about this?

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Flak999

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What fourm member says is correct, in the most literal sense this is not theft. If the government of Cyprus pass a law which is voted on and passed by their parliament then it is not theft because they have changed the law to make it legal.

However, it is not moral. Many countries with legally constituted governments have changed laws legally but the results of that law change are grossly immoral. For instance the German government in 1935 instituted what were to become known as the Nuremberg laws, These laws deprived Jews of German citizenship and prohibited marriage between Jews and other Germans. They allowed the German state quite legally to formulate and put into practice measures that led to the gas chambers.

Now nobody is suggesting (certainly not me) that this legal change in the law in Cyprus will have the enormous consequences that the German Law change led to, but if governments quite legally enact laws which are not moral, then that government loses it's legitimacy in the eyes of it's people and the rest of civilised society.

What this action by the Cypriot government (and by association the ECB) does is to cast massive doubt over the stability of the whole of the international banking system. If people around the world lose faith in their banks, if they believe that their money is no longer safe and that the guarantees that they have been given over the financial security of their deposits are no longer worth the paper they are written on, then we are entering a very dangerous time.

What if the populations of Spain and Italy say to themselves "we're next" and start to remove all of their money, (buy gold as someone else has said) the whole rotten edifice will crumble and the banks will be shown to have been running the biggest ponzi scheme ever.

By it's action on Cyprus the ECB may have lifted the lid on Pandora's box, I think they may come to rue the day they made this fatal decision!

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Flak999

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Good article in the Telegraph on this, the economist Ros Altmann says:

"Cyprus may be tiny but it could bring down the EU banking system. Bust banks cannot be saved by robbing savers - small depositors must be sacrosanct. This is another example of short-term thinking that misses the longer-term dangers."

She added: "Have EU policymakers taken leave of their senses? For them to insist that Cyprus confiscate small savers' bank deposits in order to save its banks makes a mockery of depositor protection schemes everywhere and runs the risk of bank runs across Europe.

"Trust is the cornerstone of banking. It is essential that those putting their money into banks believe their funds will be safe. The whole point of depositor protection is to reassure ordinary people that they can trust the system and know that their money is going to be protected at least up to the promised level. As soon as that trust is lost and depositors want their money back, the banks will no longer be able to function."

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spuds

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Surely we have already seen the insecurity of banks. As I said earlier, Northern Rock saw queues forming outside their premises and the on-line services were disconnected, because people were very concerned about what savings or investments they had with that 'banking' institution. Yet these very same people or savers were being told how stupid they were, and some forum members expressed that same view at the time.

I always recall the statement Alistair Darling said, regarding the meeting he had on the eve of the disaster. The banker's were making demands, and Alistair Darling clearly told the banker's that they had nothing to demand with, in fact the banks were bankrupt, and perhaps still are to this day!.

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sunnystaines

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cyprus govt now wants to up the 10% to12.5% and lower the 6% to 3%

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fourm member

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'Trust is the cornerstone of banking.'

And that is also true when it comes to savers expecting to earn interest. But, recently, there's been talk about the Bank of England paying commercial banks negative interest on deposits and speculation about whether that would be passed on to savers.

From the little I've read it appears that banks in Cyprus have been paying too much interest in order to attract deposits.

That's remarkably close to the sort of Ponzi schemes that, usually, end up with someone in prison and lots of people losing a lot of money.

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oresome

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Savers have been hammered in the UK for some time.

I retired 6 years ago and my ability to do so rested in part on having a positive return on cash savings. Positive meaning a genuine return after taking into account inflation as it affects those who are retired.

Ironically the world is in this financial mess because we have been living beyond our means, but those that are in debt have been protected by low interest rates while savers have been punished.

At the same time we are encouraged to save for our old age (rhetoric rather than deed).

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fourm member

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This from the Washington Post seems to be a useful explanation.

The key point is that there is a lot of foreign money in the banks so the levy means foreigners are paying for the bailout. In other countries, bailouts have meant big tax increases that affect citizens.

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Flak999

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There is a lot of foreign money in Cyprus, but according to the graph in this piece from the BBC Cyprus told it can amend bailout the vast majority of deposits are held by domestic residents.

In a quote the German finance minister said:

German Finance Minister Wolfgang Schaeuble insisted he and the International Monetary Fund had been in favour of "respecting a deposit guarantee for accounts up to 100,000" euros

These figures and quotes make it all the more unreasonable that the Cypriot government has decided to hit the small saver, as well as the Russian oligarchs who are laundering dirty money through Cyprus.

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Quickbeam

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How will this affect investors in the Isle of Man of the Channel islands, will they start clearing their accounts into Swiss banks?

If the secret investors start to get twitchy everywhere, are they capable of bringing about financial ruin by default if the safe tax havens suddenly become unsafe?

Whatever we think of the dirty money investors, if they feel too insecure, they can crap on fragile recovering economies from a very great height.

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wee eddie

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Which would you rather have:

A bankrupt Bank and lose all your money!

or

An EU Bail-out and lose 10% of your money!

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