Cyprus bailout rattles nerves worldwide
Fears of renewed economic crisis in Europe flared on Monday as officials took the unprecedented step of targeting bank deposits in Cyprus to help rescue the country's ailing financial system.
The proposal to tax bank deposits, which requires approval by Cyprus' parliament, led depositors to empty ATMs during the weekend and raised questions about whether the precedent could upset Europe's banking system more broadly. By taxing deposits, even those covered by government deposit insurance, the plan slaps at an important presumption of modern banking — that small accounts in publicly insured institutions are safe.
The proposal upset world markets, led Cyprus to keep its banks shuttered until Thursday while its parliament debates the deposit tax and prompted an angry backlash from Russian President Vladimir Putin. Russians have tens of billions of dollars at risk in the island nation — some of it representing legitimate investment, some of it laundered from illegal enterprises, some of it an effort to avoid Russia's political uncertainties.
Putin called the tax “unfair, unprofessional and dangerous” — unusually sharp opposition by a major power to a bailout program vetted by European leaders and the International Monetary Fund.
The United States has little direct exposure to Cyprus. A statement from the Treasury Department said officials were watching the situation closely and urged “that Cyprus and its Euro area partners work to resolve the situation in a way that is responsible and fair and ensures financial stability.”
World markets dropped modestly, and the euro fell against the dollar, but analysts said the real costs may occur later if depositors in struggling countries such as Spain and Italy question whether their money is safe in their banks.
Bank depositors have been spared in the eurozone's other bailouts, though other classes of asset holders and investors have suffered officially sanctioned losses — including owners of Greek government bonds, and bank stockholders in Ireland and Spain.
Jacob Funk Kirkegaard, an analyst at the Peterson Institute for International Economics, noted that Cyprus, the IMF and other international creditors had few options.
The country's banking problems are so deep that the Cypriot government could not afford the loans needed to fix them.
And within Cyprus' banks, deposits are the only pool of money large enough to raise the $7.5 billion international lenders want Cyprus to contribute to a roughly $20 billion total bailout.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Israeli leader signals no quick end to Gaza conflict
- Israeli PM warns of ‘prolonged’ campaign in Gaza
- Israeli death toll climbs to 25 in Gaza ground offensive
- Putin’s stance on Ukraine is bad for business, Russian billionaires say
- Pakistani mob attacks minority Muslims, suffocates 3 over Facebook rumor
- Syrian casualties surge amid rise in attacks by Islamic State
- Iraq’s split into 3 states becomes a reality
- Obama, European leaders agree to new Russia sanctions
- U.S. claims images prove Russia firing into Ukraine
- Libya torn by worst fighting since 2011 revolution
- Fighting in Ukraine prompts residents to flee