Tuesday, March 19, 2013

Commentary: Cyrpus Sets Dangerous Precedent

Somewhere in the Fox News echo chamber the real lessons about Cyprus has been lost.  No United States is not 'becoming like Cyprus.', The US is not teetering on the edge of debt crisis, or on the verge of national bankruptcy.

Equally inane are the talks of 'confiscation' or 'theft.' Governments have the right to levy taxes.  A bank levy is no more theft than an income tax.  And then again, theft is a matter of perspective.  If anyone has a case of theft to report, it is the taxpayer in the core of Europe who is being asked to help finance the recapitalization of the banks of a remote island in the Med which comprises 0.02 percent of the EU's economy.    

The real danger afoot in the Cyprus affair is that even the European Union, a 27-member bloc comprised of respectable governments and wealthy nations, losses can still be imposed on depositors, bank runs can still occur, and entire national economies can suffer liquidity crises when ATM machines run out of notes.  

Certainly, finance ministers back on the Continent are just in the desire to make Cyprus pay for the excesses of its bloated banking sector.  This could be accomplished by structuring the larger assistance package to repaid with future income tax receipts and a savings from a broader austerity program.  The effect would be the same.  The average Joe in Cyprus would still experience pain every paycheck when more tax was withheld.  The difference is that he wouldn't think twice about depositing his earnings in a bank.  With the current plan which hits bank deposits only further undermines the system EU policy makers are trying to save.     

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