19 Mar '13, 3pm

Would Cyprus be better off calling the European Central Bank's bluff instead of taxing its own savers?

Would Cyprus be better off calling the European Central Bank's bluff instead of taxing its own savers?

Cyprus is unusual: a tiny economy – less than 0.2% of the eurozone’s total output - run as a tax haven with gloriously lax regulation and monitoring, but also a euro member. Since entering the single currency in 2008, deposits have flooded into its banks from those seeking a no-questions-asked entry for into the euro area. The German secret police, the BND, estimate that Russian deposits alone amount to €17bn – about the same as Cyprus’ entire GDP. That flood of deposits enabled Cyprus’ banks – otherwise severely constrained by their limited capital – to go on their own lending spree. By 2011, the IMF estimates that Cypriot banks had loans and other assets on their books equivalent to 835% of Cyprus’ GDP. Historic ties and EU encouragement led to Cypriot banks investing heavily in Greek bonds, both public and private. By 2010, two banks alone had loaned the Greek governmen...

Full article: http://www.neweconomics.org/blog/2013/03/19/the-dangers-o...

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