Cypriot bank deposit tax a huge mistake

Bank deposits are generally viewed as sacrosanct havens for funds as long as the bank holding them remains solvent.  With European Central Bank pressure, this plan to tax bank deposits in Cyprus is an immensely dangerous precedent.  To take this risk to increase the solvency of a country that represents less than one half of one percent of the Euro economy is just ludicrous as it could undermine confidence across a range of much larger economies, notably Spain, Italy, Portugal, and even one of the bulwarks of the European economy like France with its socialist leader Hollande and his radical tendencies toward confiscating wealth.

It is true that Cypriot banks were used as huge depositories of wealth by the Russian oligarchs, due to their reliance on an implicit Euro guarantee and loose regulation and maybe even tainted regulation in Cyprus.  A plan to add some tax to these foreign deposits, many of them probably less than legally earned, would be a good way to raise funds and discourage the exploitation of the Cypriot banking system.  Of course, it is likely that the Cypriot banks themselves encouraged these deposits, as their spreads led to higher returns.  These banks should be monitored and sanctioned if justified.

To tax bank deposits of real Cypriot citizens who face the same safety and soundness worries of savers all over the world is just not a good idea.  It sends a terrible message to savers everywhere.  Despite Cyprus's small size, epidemics can always start with one small isolated virus and grow rapidly.  This is an amazingly irresponsible decision.