The initial “Plan A” of the Cyprus bailout was simple.
Those holding less than 100K euros in their bank accounts would be subject to an instant deposit levy of 6.75%.
Those holding more than 100K euros would face a tax of 9.9% (on deposits above the threshold).
Yesterday there was growing talk about making it all more progressive, and even completely sparing sub-100K depositors, who were technically “insured.”
The downside of sparing sub-100K depositors is that you have to really crank up the tax on the rich, and that means hitting the Russians and other folks who use Cyprus as an offshore banking centre, which is fine, but then you’re decimating one of the island’s biggest industries.
The new proposal that’s coming out — being reported in multiple outlets — seems pretty close to Plan A.
Skai TV: New proposal: No tax on deposits under €20,000, 6.75% on 20,000-100,000, 9.9% on deposits above 100k. Shortfall of €400 mln #Cyprus
— Nick Malkoutzis (@NickMalkoutzis) March 19, 2013
So everything stays the same, except the very low end gets no hit.
That’s marginally more progressive, obviously, but then as Nick notes, you have a 400 million euro shortfall, which is problematic. And then you still have the problem of the principle of violating insured sub-100K deposits.
Meanwhile, headlines about whether there will be a vote today conflict every few minutes.
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