The decision to start confiscating bank deposits in Cyprus was not something that Europe’s political leadership came up with on a whim. It’s been long in the making, part of a carefully laid-out plan.
Those who believe that Cyprus was only the start appear to be right.
More on that in a moment. First, let us put this decision in its proper context. The leaders of the EU and the ECB – and the finance ministers of the euro zone – were all in on this deposit confiscation deal, and the idea very likely saw the light of day in the EU leadership. This is important, because it helps us understand whether or not this is indeed something that the EU will implement in more countries than just Cyprus.
The Eurocrats within the EU and the ECB have been trampling on the people of Europe for several years now. They have gotten high on their own political arrogance after having forced Greece into submission and years of bone-crushing austerity. They have put country after country under their authoritarian policies, apparently believing that they could continue to rule Europe at their own discretion.
If you can eradicate one quarter of the GDP in Greece and still subject tens of millions of other Europeans to the same anti-democratic, fiscally torturous policies, then why should the confiscation of people’s bank deposits present you with any more than minor white noise of protests?
The problem for the Eurocrats is that this might have been the worst possible thing to do at the worst possible point in time. It is one thing to tax people to death on their income, and to put heavy weights of value-added taxes on their spending. It is an entirely different thing to start going after what people have managed to set aside for themselves and their families – out of money that government has already taxed both one or two times.
A savings account is one of the few remaining sources of personal pride that citizens in Europe’s fiscally oppressive welfare states have left. Not to mention the fact that for many millions of middle-class families all over Europe, the money they have in the bank is a critical life line in tough economic times. Since these are tough economic times, they really do need to be able to rely on those savings.
Add to this that welfare state after welfare state in Europe has begun defaulting on their spending promises, cutting down on entitlements of all kinds, from unemployment benefits to college tuition assistance to subsidies for pharmaceutical products – and we have a full, sharp and chilling picture of why the Cypriot bank-deposit confiscation comes at exactly the wrong time.
Precisely because this looks small compared to years of austerity, at least from the viewpoint of someone up in the EU ivory tower, I highly doubt that the Eurocrats understand the depth of fear that their plan to seize bank deposits has stoked in Europe’s middle class. I also doubt that they will realize what the political fallout from this will be. If anything could cause the EU to unravel, it would be a widespread application of this kind of organized theft of people’s property.
However, we might never get that far. While the people’s will is little more than the irritating sound of a mosquito in the ears of the Eurocracy, the reaction on the financial markets might actually cause them to rethink their plan, or at least limit its application to one country. Consider this good analysis from Stefan Kaiser at Der Spiegel:
The shock waves of the Cyprus bailout deal hit financial markets on Monday, as anger spread over a one-time levy on bank deposits on the small island at the fringe of the euro zone. This marks the first time since the start of the European sovereign debt crisis that average savers are being forced to help rescue a country’s finances alongside taxpayers, investors and private creditors.
And this after years of higher taxes and government spending cuts that, each time they were introduced, were sold to the public as “the” solution to the current crisis. And just like each round of austerity proved to be just a prelude to the next one, people in Europe now have good reasons to ask themselves where this bank-deposit confiscation scheme will strike next.
According to Kaiser and Der Spiegel, investors on the financial markets have already made up their mind:
Financial markets reacted nervously, as share prices of banks across Europe dropped. Monday’s biggest losers were financial institutions in countries hardest hit by the debt crisis, like Spain’s Bankia, whose stock temporarily slipped by more than 8 percent. Deutsche Bank was also not immune, losing 4 percent of its stock price. Investors appeared to be fleeing to assets perceived to be safer, like German bonds or gold.
Then Der Spiegel reveals the true depth of support among Europe’s political leadership for the confiscation scheme:
It looks as if the deal struck by euro-zone finance ministers in Brussels over the weekend is already in doubt as a result of massive uncertainty among the public and on the finance markets. Several news agencies have reported that the terms of the deal were to be renegotiated on Monday. Proposals include lowering the levy on bank deposits below €100,000 ($129,000) to 3 percent from 6.75 percent, and potentially increasing the forced contributions of deposits above €500,000 to 12.5 or 15 percent, up from 9.9 percent.
In other words: all the finance ministers of the euro zone were in on this deal. This means that the plan to seize bank deposits has been in the making for quite some time. It is therefore not a desperate measure aimed at simply saving Cyprus, but something that will become a regular part of the European policy tool box for grabbing more money whenever government needs it.
This, in turn, means that the Eurocracy has been planning to do this for a long time – and as we know by now, whenever the Eurocracy decides to do something, they will stick with it regardless of the consequences. You don’t need to look further than to Greece where the persistence of the Eurocracy to force austerity down the throat of the Greek people has now cost that nation one quarter of its GDP.
That tells us quite a bit of what they are willing to do in terms of trampling on public protests in order to get their will; if they can basically transform an EU member state into a complete economic wasteland and throw half of all the young in that country into unemployment and economic despair, then why would they worry when their plans to seize bank deposits draws flak in the media?
Their determination to stay the course is put on full display in how they are considering a re-arrangement of the confiscation rates. By suggesting to take more from large deposits and less from small deposits they are playing the same despicable class-warfare tones as the left always uses when it wants to go after private property.
Then Stefan Kaiser at Der Spiegel reminds us that there is actually a precedent to this deposit confiscation:
In the case of Greece’s second loan program in 2011, private investors were called on to take part for the first time. German Chancellor Angela Merkel insisted that such action would remain unique to that program.
This was when the Greek government declared that it would write down what it owed them. Backed by the EU, the ECB and the IMF they basically unilaterally seized a portion of the money people had lent them by buying their treasury bonds.
It was, in some way, possible for them to get away with that scheme since the bond buyers had technically deposited their money with the government. The Cypriot bank-deposit confiscation plan is different in that those who have the deposits have given their money to another private entity, a bank. Even with the Greek debt writedown in mind you would expect private-to-private transactions to be safer.
Not so, alas, which explains why this is becoming such a toxic political issue. In fact, it is becoming so toxic that the leaders in Europe who concocted the scheme are now trying to pass the blame to someone else. From the EU Observer:
German finance minister Wolfgang Schaeuble and European Central Bank board member Joerg Asmussen during parallel events in Berlin on Monday (18 March) tried to blame each other for an unprecedented eurozone bailout deal demanding small savers in Cyprus to take losses on their bank deposits. “The levy on deposits under €100,000 was not an invention of the German government,” Schaeuble said during a conference on taxation. He insisted that the “configuration” he and the International Monetary Fund were defending was to tax only deposits above €100,000 – to a much higher rate than what was finally agreed. “The figures we have come up with are at the lower limit. If another configuration was chosen, touching only deposits above €100,000, the result would have been different and we would not have had these problems,” Schaeuble said.
The last statement is startling. Apparently, Mr. Schäuble seems to believe that all he and the Eurocracy need in order to get away with their deposit confiscation is a little bit of class-warfare rhetoric.
But his statement also reveals the utter contempt that he and others in Europe’s power-hungry political elite have acquired for the rule of law. This contempt is extremely dangerous, because it opens the floodgates of completely unabridged government power. It is very easy to transition from today’s policy paradigm where private property rights are worth defending only insofar as they produce taxable economic activity, to a paradigm where property rights are not even given such scant recognition.
America can learn a lot from this moment in Europe’s downward spiral. One lesson is that when a welfare state finally plunges into a deep crisis, no rules apply anymore. When government has brought the private sector to its knees in its desperate attempt to save the welfare state, then the distance between the welfare state and the totalitarian state will be so short that no one can see the difference anymore.