Bank of Cyprus Wealthy Depositors May Lose Up to 60% of Savings, But They Aren't all Russians
It was clear that the "bail-in" part of the EU-IMF restructuring deal in Cyprus was set to draw more wealth from the wealthy depositors. It was not clear that it would be this much until recently. For any Bank of Cyprus depositors with holdings over 100,000 euros, 37.5% of holdings above this amount are to be converted into bank shares. Another 22.5% will be withheld and placed in a fund that garners no interest in case it is decided that more is needed to prop up the banks.
Analysts like Paul Krugman have chosen to focus on the foreign investors, specifically Russians, that allegedly use Cyprus as a tax haven. After all, Russian citizens and banks account for 22% of deposits in Cyprus banks. However, spotlighting the moral evil of tax evasion while ignoring the moral evil of lawful plunder paints a grotesquely prioritized vision of reality that unfortunately, too many of us subscribe to.
It would stand to reason that Cypriot businesses will take a big hit (and now an even bigger one). Sofronis Clerides from the University of Cyprus commented to the Associated Press that"'Most of the damage will be done to businesses which had their money in the bank' to pay suppliers and employees." The economics professor continued, saying "There's quite a difference between a 30 percent loss and a 60 percent loss."
Mark Lowen from BBC news gave some anecdotal evidence as an example of direct domestic effects:
"Before leaving Cyprus, I visited the Junior and Senior School of Nicosia, which teaches the British system to 900 children. School fees are paid into Laiki Bank, taking its deposits well over 100,000 euros. With huge losses, it will now struggle to pay staff salaries. Those who recently invested proceeds from house sales will also suffer. There's talk of one university with a 6m-euro EU grant in its account."
To top it off, Russian depositors losing out will be bad for business in Cyprus as well. In the port city of Limassol, business owners are losing customers. Out of the 180,000 residents of Limassol, there are some 25,000 Russian consumers who will not be consuming at their normal rate. One Mediterranean restaurant has not had a customer in two weeks.
It is almost as if preventing Russians from evading taxes makes everything alright. It seems like the assumption in cases like this is often that it is mostly "rich people" being affected and, they can afford to give up what they have. This is all well and good, but there are many people at the low end of that "rich" pile who are entrepreneurs.
These are people who take big risks. These are people who might have everything invested in their company with little cash on hand. These are people who are responsible for job opportunities that employees would not have otherwise. These are the people who only take a "profit" after wages, rent, utilities, accounting fees, legal fees, taxes, interest, and everything else is paid for. These are people who could also possibly lose everything if they fail.
Calling out tax evaders, without considering the coercive and often irresponsible nature of the taxes that precede them, flips the moral discussion on its head. The coverage of the Cyprus crisis serves as a perfect example, as we see the media largely ignoring the plight of hard-working business owners who, through no fault of their own, are being punished in spite of their striving for success.