While the creditors have tried to make it clear that this is a ‘one-off’ levy, nobody else is going to believe them. Imagine again that you have a Spanish or a Italian bank account, wouldn’t you be afraid that your bank account might now be subjected to German-led creditors? Wouldn’t you think again about leaving your money in Spanish or Italian banks? Probably yes.
The idea of taxation has always been one of taxing wealth – either through income or consumption, but never savings. This new ‘levy’ is a de-facto tax on bank deposits that introduces a whole new element to taxation that is more punitive than fair. Do expect that the Eurozone will now be embroiled in another crisis as new austerity measures such as this deposit ‘levy’ will be invented by the more conservative bloc of creditors in the European Community. Headlines about the break-up of the Eurozone will now probably dominate financial news outlets worldwide and cause continued weakness in the global stock market, including the S&P 500.
As Cyprus attempts to renegotiate this onerous deal imposed by the creditors, the recently elected President of Cyprus might just need another miracle to save his countrymen from ruins – and pray to the gods that the creditors will lose its ivory façade and be imbued with some empathy and compassion.
Compare recent performance of the Market Vectors Russia Small-Cap ETF and FTSE Greece 20 ETF, both of which have significant exposure to Cyprus, to the S&P500 index.
Written by Kapitall Contributor SiHien Goh