Recently EU finance ministers forced Cyprus’s governments hand with the choice of implementing inconceivable bank levies as a condition of receiving a 10 billion euro ($13 billion dollar) bailout or face national bankruptcy. The levies as planned will withdraw 6.75% of account balances under 100,000 euros and 9.9% on balances on or above that amount. To put that in perspective someone with $5000 in their bank account would lose $337.50 and someone with $200,000 in their account would lose $19,800.
This is a very real example of how governments may choose with their debt crisis, although one of the more extreme methods. Less hurtful tactics include eliminating deficit spending, increasing economic activity (which will increase tax revenue), or simply increasing taxes or creating new ones.
The photos of folks at ATMs not being able to withdraw their cash will definitely cause some panic in Europe if not around the world. I’m interested in seeing how this plays out in the next few months.
