Euro-area finance ministers’ decision to tax bank deposits in Cyprus as part of a bailout signals the “slow death” of European political integration and will hurt the economy, according to former Cypriot central bank governor Athanasios Orphanides.
“What we have seen in the last few days is a very serious blunder by European governments that essentially are blackmailing the government of Cyprus to confiscate the money that belongs rightfully to depositors,” Orphanides said today in an interview on “Bloomberg Surveillance” with Tom Keene. “Not everybody is equal under the law the way European governments are behaving these days. It’s not clear how this can affect in a positive manner the European project going forward.”
The decision to tax deposits as part of a 10 billion-euro ($13 billion) bailout, aimed mainly at rescuing Cyprus’ banks, sparked outrage in the island nation and concern among investors about setting a precedent by breaking the taboo against raiding bank accounts. With Cypriot lawmakers voting today, finance ministers have since backtracked on the levy’s structure, which initially called for a 6.75 percent tax on deposits under 100,000 euros and 9.9 percent over that amount.
“What we are witnessing is the slow death of the European project,” Orphanides said. “The way the strongest governments of Europe have blackmailed the Cypriot government to confiscate deposits, it’s essentially sending the message that nobody with deposits in a small country like Luxembourg should feel safe. Nobody with deposits in a weak country like Spain should feel safe. You realize this only makes the economic climate in Europe worse instead of contributing to a solution.”
Orphanides, a former European Central Bank policy maker, also said the Cypriot deposit levy undermines moves to set up a regional banking union.
“The governments who pushed for this measure are sending a message that they want no part of a banking union,” he said. “I would much rather go back and ask the other European governments that contributed to this blackmail to rethink, ‘Is it really a positive for the future of Europe to be working in this way?’”
To contact the editor responsible for this story: Craig Stirling at email@example.com