Tucked away in the Eastern Mediterranean Sea, uncomfortably close to both Greece and Turkey, you will find the tiny island nation of Cyprus. This mere speck of land was briefly in the news back in the ‘70s, when the Greek Cypriots and the Turkish Cypriots inevitably fought it out after winning independence from centuries of Western or Ottoman rule, but then returned to its usual blissful obscurity until the past weekend’s Great Cyprus Bank Run.
Poring through the resultant slew of news stories has proved fascinating, and more than a bit frightening. So far as we can gather from the various foreign correspondents, the country finds itself broke and in need of a bail-out from its fellow members of the European Union. The reports offer no explanation for the country’s destitute condition, but the words “Mediterranean” and “European Union” offer some hints, and to be fair these days such a situation does seem rather unremarkable in any corner of the world. Thus the EU has generously offered to provide the country with €10 billion, which is more or less worth $12.6 billion, whatever that’s worth, but only on the condition that the Cyprus government pitch in beginning today with a 6 to 10 percent tax on every bank account in the country. Unsurprisingly enough, although it seems to have taken the geniuses at the EU by complete surprise, this sent everyone in Cyprus scurrying to the nearest automatic teller machine hoping to draw out all their money before 6 to 10 percent of it is gone.
None of this should be a matter of international concern, given the relatively small economy of a rather remote country with a population less than half that of Kansas, except that Cyprus’ famously customer-friendly banks contain deposits worth more than eight times the country’s gross domestic product. A significant portion of the money is said to come from “Russian oligarchs,” which is press-speak for mobsters, and much of the rest comes from citizen of other EU countries who are now complaining to the very governments whose outrageous taxes they have been trying to avoid by sheltering their hard-earned money in Cyprus. Whatever the source of the huge pile of cash, it is huge enough to cause concern that it’s sudden implosion will infect the bank systems of the rest of Europe and then the economies of the rest of the world.
That possibility is scary enough, but almost every aspect of the story has an unsettling feel to it. It is jarring to realize that the profits of Russian organized crime vastly exceed the gross domestic of an EU member country, that the tax structures of the entire developed world have become so burdensome that the investors of every nation require an off-shore account, that even those safe havens are not safe from the reach of ever-expanding governments, and that the supposedly smart people running this international operation are so very inept that they will inadvertently wreck a country’s valuable banking system in a ham-fisted effort to rescue its less valuable domestic economy. Frightening, too, to think that the world is so small that such a tiny nation could have such a large effect.
— Bud Norman
The Central Standard Times 