To listen to the German and French governments, the European Central Bank and European Commission, no one was responsible for the Cypriot deposit tax that was unanimously endorsed in the early hours of March 16 and fell apart yesterday.
German Finance Minister Wolfgang Schaeuble opened the blame game on Sunday, telling ARD television that the commission, ECB and Cypriot government engineered the swoop on ordinary bank accounts and “now they have to explain it to the Cypriot people.”
By then, the Cypriot people were lining up at cash machines and painting “No” on the palms of their hands to protest the levy that, even with a tax-free allowance built in for the smallest savers, didn’t win a single “Yes” vote in the Cypriot parliament.
“The Cyprus fiasco has the hallmark of a classic whodunit,” Sony Kapoor, head of the Re-Define think tank, said in an e-mailed note. “Someone somewhere took a decision that now no one nowhere appears to have made.”
Indignation in Nicosia led other finance ministers to disown what they had decided.
France’s Pierre Moscovici said he had wanted an exemption for accounts worth less than 100,000 euros ($129,500). Austria’s Maria Fekter said ECB demands made that impossible.
The central bank, Fekter said on Monday, wanted to lowball the tax on larger depositors, magnifying the hit on the smaller ones. Joerg Asmussen, the ECB Executive Board member who took part in the finance chiefs’ all-night Brussels meeting, pleaded not guilty, saying the central bank didn’t insist on “this specific structure of the levy.”
Other non-authors of the tax on sub-100,000-euro accounts included Spanish Economy Minister Luis de Guindos, Finnish Finance Minister Jutta Urpilainen and the Brussels-based commission, which said today it wasn’t comfortable with the package in “all its elements” and added that “decisions are taken by the member states.”
Luxembourg Finance Minister Luc Frieden pointed at everyone, saying in a March 18 interview that it was a “very difficult compromise” backed by “all euro-zone member states,” the commission, ECB and International Monetary Fund.
A reconstruction based on interviews with European officials suggests the chain of causality went like this: first, Germany and the IMF demanded a full “bail-in” of Cypriot bank creditors and depositors; then, to counter this nuclear option, the commission, with ECB backing, came up with the levy idea; then the Cypriots, fearful of scaring away big, mostly Russian bank clients, spread the tax between the two classes of depositors.
One person who wasn’t at the Brussels meeting, German Chancellor Angela Merkel, had no trouble identifying the culprit. Cyprus has to give up “a banking model that isn’t sustainable,” she said at the DIHK chamber of commerce in Berlin today. “We all know that banks that take risks, banks that operate on the wrong model, are a threat not just for the home country but a threat for all.”