"Confiscating saver's money will knock confidence in the bank. Trust in the government will also take a hit, since Nicosia has theoretically guaranteed all deposits up to €100,000. Small savers should be encouraged not penalized" Hugo says, adding that "the current Euro-zone mechanism is still an effective breach of promise."
The total sum needed to save Cyprus government and banks from bankruptcy was in the tune of €17 billion or 100% of its GDP.
Since the approved bailout has failed to find enough solidarity among Eurozone colleagues, only ensuring €10 billion, the remaining €7 billion left, as Hugo mentions, had to come from one of two options, "a haircut of the government's own bondholders or hit bank creditors..."
But since most Cyprus bondholders are their own banks, citizens are the ones to pay the consequences.
In Cyprus, there are customers that were supposedly enjoying insured deposits - amounts below €100,00 -, that is why facing the proposed 6.75% tax on this insured deposits becomes an act of legalized rip-off.
Hugo argues that it would be better to hike the tax but get it from the uninsured €100,000+ account savers, mostly Mafia/dubious origins-related reports suggest, which stands at over €38 billion.
However, as Mr. Dixon stresses, this is unlikely to happen since most of this capital is held by foreigners, thus the decision to inflate the tax on the richer may lead to extend distrust among foreign savers with the deepest pockets.
"Even if there is domestic political logic in cushioning Rusian Mafia at the expense of Cypriots widows, such a policy is bad for the Eurozone" Hugo says, adding that the event sets a precedent.
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