Bankers might have caused the never-ending global financial crisis but it is politicians who are perpetuating it as the latest European farce, a raid on bank accounts held in Cyprus, so brilliantly illustrates – not that Australia is far behind with some of its actions.
In one astonishing decision the European Union shattered trust in its banking system by unilaterally proposing the apply a levy of up to 15.6% on all savings accounts, with levy being bureaucratic speak for steal.
The theory behind the attack on savers is that the government of Cyprus needs a €10 billion bail-out from the EU despite having a grossly swollen banking system that operates as tax haven for Russian mobsters and money launderers – hence the nickname for Cyprus: “a sunny place for shady characters”.
Australians might laugh at the ham-fisted way the EU has attacked Cyprus if it wasn’t for two important points:
- Fear that the raid on savers in one small island could spread to the rest of Europe and possibly the rest of the world as governments scramble to plug budgetary holes, and
- Our own unsuccessful attempts to raise additional tax revenue such as through the failed mining super-tax which has left the Australian Government looking for new tax tricks with the banking and superannuation system prime targets.
The mining tax, despite having the appearance of an attack on what was once a booming resources sector, came undone spectacularly because the government spent the theoretical proceeds before raising a dollar only to discover that the tax was a flop – and will remain a flop because the resources boom has ended in the way of all booms; busted.
It’s not much better in the U.S. where the economy is recovering, but politicians cannot decide on how to cut spending, or which taxes to raise, leading to a form of government paralysis that originated in the sub-prime crisis of 2008 but which has been kept going by weak government unable to make tough decisions for fear of losing the next election.
Or, as the Prime Minister of Luxembourg, Jean-Claude Juncker, so famously said a few years ago: “We all know what to do, we just don’t know how to get re-elected after we’ve done it”.
That comment from the head of a small country goes to the heart of the current status of the global financial crisis; a banking event which has become a political event and while it started as a form of theft by financial manipulators it is now becoming a form of theft by people elected to run governments.
Unfortunately, what’s happening in Cyprus will reverberate around the world because of the ham-fisted way EU regulators have attacked even the smallest saver with an account at a bank in Cyprus with the only reason for there not being an almighty run on the banks a decision to keep them closed until Thursday.
Proposals to water down the tax grab are being discussed but as the world will discover on Thursday, if the banks re-open as promised, there will still be a run because the cat is out of the bag and everyone knows that it’s their money that the EU wants.
What started as a plan to hit hot money parked in a small island could easily become an uncontrollable event spreading across Europe which is already in the grip of a nasty recession, verging on a depression.
Italian, Spanish, Portuguese and even French savers will be thinking hard about what the EU might have in mind for their cash because, despite promises that they will not repeat the Cyprus raid, the governments of those countries are already insolvent.
The solution, as Luxembourg’s Juncker alluded to, is to savagely cut spending on the European “cradle to grave” social welfare system that has become spectacularly unaffordable.
But, until the savage cuts are forced on government there will be repeated attempts to plug the holes with higher taxes, a process which will inevitably lead to a repeat of the Cyprus bank raid and/or blood in the streets.
Australians might like to think that they’re immune from this awful outlook, but in reality we are travelling the same path with a government that has failed to implement its tax plans, and failed to curtail spending, something it cannot bring itself to do with “only” 180 days to the next election.