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Why the Cyprus levy on people’s savings is bad morality, bad economics, and bad politics

pickpocket

As part of the price they must pay for an EU bailout, the Cyprus government has agreed to impose a levy on the savings people have in the country’s banks.  Where these are less than €100,000 the levy will be 6.75%, but for savings in excess of €100,000 the charge will be 9.9%.  In return they are ‘compensated’ with worthless shares in worthless banks.  This is theft, pure and simple.  The Cyprus government is taking money from people simply because they own it.  It is not a tax imposed on a transaction, such as receiving wages of buying goods.  All taxes take money from people by compulsion, and are therefore a sometimes necessary evil, but taxes on wealth are the worst.  The state’s usual excuse, that it is justified in taking its cut because it provides and maintains the infrastructure that makes the transaction possible, does not apply to wealth taxes.  In most cases the money has already been taxed when it was being earned.  People who could have spent it chose to forego pleasure and save instead, with their money invested and creating jobs and opportunities for others.  It was not savers who caused the financial crisis, but it is savers who are being punished.

The signals this action sends out tell people that saving is foolish and that they should put their money in places other than banks.  The government has also reneged on the government deposit insurance, which signals that banks are now much riskier places than they were.  There will probably now be runs on several banks as people struggle to get their money out of reach of similar government action in the future, and shock waves will ripple across other European countries as savers start to wonder if their own deposits are safe.  From time to time the EU does amazingly stupid things, but this one is breathtaking.

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