Must be rescued from too many binges,
There's something to lose
And the rescuers choose
The party on whom it impinges.
When the eurozone finally begins
To determine who loses and wins,
Will the outcome be fair
To depositors there
Or the wishes of Germans and Finns?
This past weekend, the banking crisis in the tiny Mediterranean island nation of Cyprus came to a head with the announcement of a recapitalization plan. However, the plan - co-authored by the "Troika" of the European Central Bank (ECB), European Commission, and the International Monetary Fund (IMF), along with the government of Cyprus - contained a shocking, new element: in addition to a bailout funded by the rich, northern countries, there is a "bail-in" funded by Cypriot savers. In a development that is still open to change at this writing, deposits of €100,000 or less would be subject to a 6.75% levy, and any deposits greater than that could be taxed at a 9.9% rate.
This provision seems designed to ensure that the Cyprus banks' depositors "feel the pain" along with German voters who are asked to underwrite yet another bank rescue in the periphery of Europe. Also, Cyprus has become a huge offshore financial center for wealthy Russians, so the idea of virtuous, hardworking northerners bailing out presumed gangsters and oligarchs is politically explosive in Berlin and Helsinki. However, small savers in Cyprus were supposed to have an ironclad deposit guarantee, which has now been run over roughshod.