NewburyportNews.com, Newburyport, MA

Opinion

March 23, 2013

Anderson: Opening a Pandora's box in Cyprus

“We loiter in winter while it is already spring. In a pleasant spring morning, all men’s sins are forgiven.”

— Henry David Thoreau

As I write this, I’m loitering: The snow is still falling, my golden daffodils are buried, it’s too cold to be called “pleasant.” Furthermore, too many sins have piled up since Thoreau was chronicling the advent of spring at Walden Pond. Forgiven or not by a loving God, we are going to have to pay for them.

One word, as the sun crosses the equator: Cyprus.

A group of Eurozone finance ministers in Brussels agreed last Saturday to give Cyprus’ government a $13 billion bailout, but demanded that depositors in the island’s banks pay between 6.75 and 9.9 percent of their bank deposits as their share of the bailout cost.

At first, that didn’t seem like much; as I did my own taxes last weekend, I had to add my interest to my other income and under $200 to my taxes. But wait!: The proposed Cyprus tax isn’t on the interest, it’s on the entire amount of money in the account! And the government, on behalf of the European central bank, would seize it directly. The Cyprus Parliament has to vote on this plan, but if it’s rejected, the country will not be able to pay its bills, will financially collapse.

Imagine being told that the government is going directly to your bank account and immediately, electronically, extracting 7 percent of your checking and savings accounts. You might be tempted to get your money out of the bank before the government gets there, though where you’d put it, I can’t imagine. As Cypriots considered this defensive action, the government closed the banks so they couldn’t withdraw anything.

Meanwhile, as depositors in other debt-ridden European countries became concerned, investors everywhere began to worry about runs on those nations’ banks.

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