Every European who respects himself feels obliged to criticise the financial model of Cyprus and just a couple of hours ahead the crucial eurogroup meeting that might send the country into default, And just a couple of years after these esteem EU partners had accepted Cyprus as member of the Euro zone club.
Hours before the crucial eurogroup meeting in Brussels Sunday evening, French finance minister Pierre Moscovici described Cyprus economy as “casino”. His German counterpart Wolfgang Schaeuble said “the financial model of Cyprus is not functioning.”
“Angela Merkel, the German chancellor, takes the view that the Cypriot financial and economic model is rotten to the core, needs vital overhauling if it is to be saved and that Germany is not going to send its taxpayers’ money to secure the low-tax, high-risk investments of Russian squillionaires dominating the bloated Cypriot financial sector.” (guardian)
For Merkel the big exposure of Cypriot banks to Greek bonds that underwent a haircut of 53% in March 2012 went apparently unnoticed.
Nevertheless, next to the touching Merkel’s, Schaueble’s and Moscovici’s concerns, here is a map listing the tax heavens in Europe in general and Eurozone in particular.
Germany: 9th on tax heaven global map
While Germany holds place 9th in the global map, Cyprus is to be found on rank 20th. Ahead of both countries is Luxembourg (3rd) with Switzerland leading the list.
There are wuite some economists puzzled about the cracking down on Cyprus.
For example German newspaper DIE WELT
After Cyprus, Will Luxembourg Be Next Euro Banking Haven To Implode?
Indeed Cyprus’s banking sector, with its 47 billion euros in deposits, is two-and-a-half times the size of the country’s 18-billion-euro economy.
The beautiful island nation of 800,000 inhabitants is not the only country in the euro zone with a ramped-up financial industry. In no less than 10 countries, the volume of bank deposits totals more than real economic value – sometimes several times more.
Heading the list is not Cyprus, but the Grand Duchy of Luxembourg. The tiny country brings in less than 44 billion euros from its goods and services, yet its banks boast a whacking 227 billion euros in deposits, which is to say over five times the GDP.
Malta and its 7-billion-euro economy is home to nearly 12 billion in deposits. Other countries with significant deposits are the Netherlands, Spain, Belgium and Portugal. Even Germany’s 3.1 trillion euros in bank deposits exceed actual economic performance.
… Here again, Luxembourg takes the lead. If you add up all the balance sheets, the banks of this tiny state are leveraged to GDP by a factor of 22. Would Wolfgang Schäuble approve?” (in English via worldcrunch)
From what I understand the problem in Schaueble’s scheme is that the countries (their public sector or their banks) are in financial troubles while private wealth comfortably sits in bank deposits.
Irish newspaper Indepentent wrote an article stressing the whole idea promoted by Germany about “Cyprus offering money-laundering for the Russian mafia is just a smokescreen aiming to divert attention form the flawed EU policies.
“At least one-quarter of the bank deposits held in Cyprus are believed to belong to individuals and business firms from Russia and the Ukraine. Some of them may be laundering ill-gotten gains, but nobody has ever established that this is the case. There are lawful tax advantages for Russians who keep their savings in Cyprus, and for all we know most Russian depositors in Cyprus are perfectly legitimate. Under money-laundering rules which apply across the EU, criminal proceeds, if proven in a court of law, are liable to 100 per cent confiscation, and nobody could have objected to that. There have been no such proceedings and no 100 per cent confiscations. If all the non-EU deposits (about €20bn) represented criminal hot money illegally laundered into Cyprus, it could all, after due process, be seized by the Cypriot authorities and there would be no need for any bailout.
The reason that this has not been done is that the ‘Russian mafia’ story is a smokescreen. It is a reasonable guess that money has indeed been laundered into Cyprus.
Money laundering banks
HSBC: Europe’s largest bank and the owner of the Midland Bank in the UK, has paid $1.9bn in fines to US regulators over money-laundering violations.
Standard Chartered has been fined $667m over sanctions-busting. The New York Times has pointed the finger at two of America’s largest banks, Bank of America and JP Morgan, alleging the US Treasury suspects them of money-laundering offences. The Swiss bank UBS is under investigation, as is Germany’s Deutsche Bank. The notion that little Cyprus is infecting the blameless paragons of virtue that dominate European banking is a kind of blood libel. How clean are the bank deposits in Switzerland, or Luxembourg? (full story Indepentent.ie)
Does the handling of Cyprus exposes only the inherent flaws of the Euro Zone or do some EZ members of the AAA class want to grab our private money?
Spanish newspaper El Pais posted an article today, accusing Chancellor Angela Merkel of “having declared a war against Europe to guarantee economic living space”. The article was later withdrawn as it compared Merkel with Hitler.
Spain
Recent reports in Spanish Press spoke of low-rate deposit taxes to be imposed.
“A new low-rate Spanish bank deposit tax, which will see banks rather than account holders pay levies, is being introduced to “impose order in the Spanish banking system,” the Treasury Minister Cristóbal Montoro said yesterday .
The new fees will see between 0.1 per cent and 0.2 per cent taxed from bank deposits and is expected to raise between €1.5bn and €3bn.
Spanish bank deposits currently total around €1.5trn and the new measure will take effect in the coming weeks.” (Expansion 21. March 2013 via Press Europe)
And if we are not dead form the distress, we could be soon broke….
PS I think I mentioned before the efforts of German and Maltese banks to get hold of Cyprus bank deposits, haben’t I? Oh, and there is talk that Latvia will be the next tax heaven. 🙂
