Don't rob the common people due to debt crisis

Members of the public are wondering if the current turmoil in Cyprus — where the government is taxing depositors to avoid bankruptcy — can happen in other places. The proposal in Cyprus is not wise and is robbing common people to save the economy, says an article in the Beijing News. Excerpts:

Eurozone leaders have reached an agreement with the Cypriot government to implement a 10 billion euro bailout deal to prevent the Mediterranean island from going bankrupt.

In exchange, the government agreed to increase the corporate tax, sell State-owned property, and force banks' depositors to pay an extraordinary tax.

Under the proposal, depositors in the country's banks will be hit with a one-off tax on their savings, marking the first bailout for any eurozone country in which depositors will directly lose money. Holders of bank accounts with more than 100,000 euros will be taxed at 9.9 percent, and a 6.75-percent tax will be imposed on deposits below that level.

The harsh requirements have triggered indignation in Cyprus. Bank runs happened in several places. Some depositors drove bulldozers and blocked the banks’ doors, threatening to break in if the bank would not pay back their deposits.

Although the economic scale of Cyprus is relatively small, its debt and bank crisis sparked by holding too much Greek national debt, can become a tipping point for the European financial crisis. Estimates by the European Union show that in 2013, the public debt accounts for 93.1 percent of the country's GDP, and is expected to reach 97 percent in 2014.

The one-off tax on depositors' savings is expected to raise 5.8 billion euros for Cyprus, representing 33 percent of its GDP. That would largely reduce the total amount needed for the country's bailout. Moreover, it would help its bank system to get out of the debt crisis and would provide over 8,000 jobs as well.

It seems that the sacrifice of depositors' interests is not that important compared to the current crisis, as the government will offer them equivalent bank shares as compensation. However, the puzzling part of the tax plan is that it will hit everyone, with no different policies for the rich and the poor, which means that poor people will suffer much more.

Once the tax plan is passed, the market is concerned that it will become a bad example for other European countries and definitely hurt their credibility globally. In addition, the plan shows that the regulators in the eurozone are having difficulties in handling the current crisis, which may lead to an even bigger crisis.