Blog: Cyprus Euro Bailout and Mandatory Deposit Levy (2013-03-19)

Last weekend started with a very surprising deal struck to bail out Cyprus in its Euro debt crisis: Namely that all deposit holders would have to pay a mandatory bank deposit levy to support the deal. Before the parliament even discussed the deal (which is not yet signed into law), the respective balances were already frozen off all accounts. This is a unprecedented step in the crisis, given that in principle there's a deposit insurance of up to € 100,000 in the EU. However, it seems that it was not a very difficult task to bypass the insurance right away.

Generally I'm in favour of implementing a wealth tax to help in balancing out social inequalities, and also this deposit levy can be seen as a form of wealth tax. However, I believe that such a tax should be democratically decided upon, implemented fairly and the proceedings should be used to diminish social differences. Apart from that, I think that a government is responsible for good functioning of the country's monetary system, which is a vital tool for each and every society. The Cyprus bailout deal is the exact opposite, in my opinion:

While it will be decided upon in parliament, the account freeze happened as a surprise to almost all people and sparked great anger in the population.
Saving banks is probably not the best way to diminish social differences. While it may be necessary (or not) for continuing the system as it was before the crisis without crashing it, a more radical change may be the better way.
The bank deposits of someone at a precise moment in time are probably correlated to that person's wealth, but are surely not a really fair measure of it. Instead, there should be a more thorough and solid system implementing a wealth tax.
Freezing accounts and basically taking the banking system offline over night is what I expect to happen after a successful hostile attack on the banking infrastructure, but not as a measure taken in the society's own interest.

Certainly, this made me lose some more trust into kind of "take what they give you" centrally controlled systems. (I'm already mistrusting authorities, given things like the failed ACTA negotiations or the Tierschutzcausa here in Austria. But this is one critical step supporting my views even further.) And it is a prime example for a situation where decentralisation of the monetary system like using Bitcoins would have helped the ordinary users defend themselves from arbitrary harmful actions of a central authority—even if they have no crime in mind or "something to hide".