The rule of law is a cornerstone of Western Civilization. The rule of law means that government protects the life, liberty and property of its citizens.
Another cornerstone of Western Civilization is accountable government. It goes hand in hand with the rule of law, such that the protection of life, liberty and property is executed with the consent of the governed.
The two remaining cornerstones of Western Civilization are individual and economic freedom. A necessary (but not sufficient) condition for economic freedom is the protection of private property.
Remember the Cyprus Bank Heist? If you had money there, I am sure you won’t forget it for as long as you live. Under the auspices of wanting to save the nation’s banks and rid them of allegedly widespread money laundering, the Cypriot government and the European Union seized up to 40 percent of people’s bank deposits. On May 25, though, I reported that the portion about money laundering was a complete fabrication: a whopping 0.000049 percent of all bank transactions in 2008-2012 were possibly illegitimate.
That is a rate of compliance with the law that maybe Mother Teresa can match. If government can seize private property – yours or others’ – because you violate a law once for every 20,344 things you do every day, then there would be no private property left in this world.
The Cyprus Bank Heist was a floodgate of authoritarianism, opened to unleash hitherto not-seen government powers against private citizens. Even the creatively constitutional Russian government was astounded and compared the entire scheme to actions taken by Communist thugs in the old Soviet Union.
Needless to say, this assault on one of the cornerstones of a free, civilized society has had decisively negative influence on the banking industry in Europe, with shrinking deposits and lost faith in the safety and security of what people still have in their savings accounts.
To make matters worse, soon after the heist we learned that this was not a one-time, one-country deal. On the contrary, other governments followed Cyprus with pledges or laws to allow the same confiscatory scheme to be applied within their jurisdictions. The Canadian government, e.g., announced in its federal budget bill this spring that it wanted the authority to save what it called “systemically important” banks by permitting those banks to “convert liabilities into assets”, i.e., take people’s bank deposits.
It is bad enough that we have a widespread tax system in all Western countries, allowing governments to seize property on a regular basis. At least in terms of taxation there is a sense of stability and predictability that allows people some foresight and opportunity to plan their economic activities based on the confiscatory scheme. But bank deposit confiscation is an entirely new instrument for governments to grab people’s money. It is unpredictable in time – the Cyprus Bank Heist happened after the banks suddenly closed and refused to open for days – and it is arbitrary in size. Even after the Cypriot government ordered the banks closed (how they could do that is another interesting question) there was still a great deal of uncertainty and debate among the Eurotarians who made this happen as to exactly how much of people’s money they were going to take.
All in all, the Cyprus Bank Heist dealt a serious blow to one of the cornerstones of the Western world. But perhaps it would be possible to repair the damage if there was some kind of economic logic to all this? Maybe, if the confiscation saved Cyprus from some kind of cataclysmic macroeconomic event, it would make sense?
As an economist by training and unstoppable habit I cannot find any such event, even remotely conceivable, that would justify what the Cypriot government and their Eurotarian co-conspirators did. Perhaps if I kept looking I’d find that justification, but I doubt it would be worth it, especially since the Cyprus Mail reports that nothing good came out of the Cyprus Bank Heist:
Rating agency Fitch on Monday cut Cyprus’ rating further into junk and warned more cuts could be on the way as an EU/IMF rescue programme could fail. The agency cut Cyprus’ long-term foreign currency issuer default rating to B-minus from B with a negative outlook due to the country’s elevated economic uncertainty.
One of the motivating factors behind the Cyprus Bank Heist was to remove a critical threat to the country’s economy, namely a bank collapse. If the confiscation was so necessary, then why did it not even make a dent in the downward spiral of the Cypriot economy?
Cyprus Mail again:
“Cyprus has no flexibility to deal with domestic or external shocks and there is a high risk of the (EU/IMF) program going off track, with financing buffers potentially insufficient to absorb material fiscal and economic slippage,” Fitch said in a statement. The local currency issuer default rating (IDR) was cut to `CCC` from `B`. … The downgrade of the foreign currency IDR to `B-` reflects the elevated uncertainty around the outlook for the Cypriot economy due to the high implementation risks on the agreed programme and the restructuring of the banking industry.
And listen to this:
Fitch acknowledges that the programme improves the immediate position of the sovereign from both a liquidity and solvency perspective, however, it notes that Cyprus has no flexibility to deal with domestic or external shocks and there is a high risk of the programme going off track, with financing buffers potentially insufficient to absorb material fiscal and economic slippage.
In plain English: the Cyprus Bank Heist provided a one-time replenishment of bank balance sheets but did not change anything at all in the rest of the economy. The Cypriot GDP is still forecast to shrink by 1.7 percent this year and 0.7 percent next year – and that’s on a good day. Youth unemployment was 27.8 percent last year, up from nine percent in 2008. And the banks’ balance sheets are still full of junkyard-grade treasury bonds from Greece – and Cyprus.
Government debt was 54 percent of GDP in 2008 and is now, according to Cyprus Mail…
likely to peak higher than the 126 per cent of GDP by 2015 assumed under the programme, reflecting Fitch`s view a deeper recession in the later years of the programme is possible and that there is little sign at this stage of the potential for Cyprus to transform its economy successfully away from sectors associated with the shrinking financial sector.
So the financial sector is shrinking, huh? What a confounding surprise. The one industry that had given the Cypriot economy a real boost is now bruised, battered and shattered by authoritarian government intervention.
There is little doubt that the real purpose behind the Cyprus Bank Heist was to politically “legitimize” an entirely new form of taxation. By starting off in a small country, wrongfully vilified as the home of rampant tax evasion and money laundering, the EU was able to get the precedent it needed for the future. Never mind that they left an entire nation’s economy in even worse shape than before. Never mind that they dealt a serious blow to the faith in the rule of law in the EU.
All that mattered was that the Eurotarians in Brussels could expand their power.
There is no other conclusion to draw from this than that the EU is indeed a threat to democracy, freedom and the very essence of what Western Civilization represents. The sooner it is dissolved, the better.