Noah denkt™  -
    Project for Philosophical Evaluations of the Economy
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This is outrageous!
Dialogue with the Alter Ego about the EU’s one-off depositor tax lie in Cyprus, drafted and published on March 28,
2013
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Question by Alter Ego of Noah denkt™ (AE): In our first Cyprus-Dialogue (“
Bad Boy Germany, yet again!”)
published on March 21, Noah denkt™ reassured us that the EU’s  “proclamation of Cyprus being an exception” as
far as levying a bank rescue tax on savings accounts “is pretty credible”. In fact, you warned us to “take it easy
with our criticism of the EU” on this. Now, it turns out that the EU and Germany, in particular, are actually pushing
for Cyprus being the “template” for future bank rescues in the EU.
(See: “Berlin presiona para accelerar las quita en
futures crisis bancarias, in:
El País of March 27 and “Cyprus rescue signals new line on bailouts”, in: Financial Times of March 25).
What do you say now?
Answer by Noah denkt™ (Nd): We are outraged by this. First, because we feel that we have been recklessly lied
to. And second, because it is completely mistaken to use the Cyprus savings account tax as a blueprint for future
bank rescues.

AE: Why do you think the European Union is making this, in your words, outrageous mistake?
Nd: Because they have moved themselves into an untenable position as far back as 2008 by subscribing to the
common wisdom that it was wrong
to let Lehman Bros go bust and that every bank should instead be rescued in
order to avoid a systemic risk for the entire financial system.

AE: But the Lehman Bros - bankruptcy did in deed show how close the world got to an entire system break-down.  
After all, it did cost the tax payer a lot of money to avoid financial mayhem back in 2008. Is it, hence, not
understandable that European governments do not want to run a similar risk again?
Nd; Well, first of all,
the Bush bank bail-out money has been repaid with an interest to the US taxpayer. So, the US
government didn’t make a loss on that. And secondly, it is simply wrong to believe that you can manage the
danger of moral hazard adequately without taking the risk of systematic failure to its very limit.
In other words,
you have to find a balance between the moral hazard of providing bail-outs on one side and the
systematic risk of not providing one on the other side.
If you blindly go with the view that any kind of
systematic risk whatsoever needs to be avoided as the European Union does you will eventually end up in a very
difficult situation.
In fact, it seems to us, as if European politicians are by now more concerned with
avoiding personal hardship for themselves rather than accepting the excruciating responsibility
which comes with having to stomach the social stress that a balanced risk management generates.  

AE: But what we are seeing now in the EU is not a moral hazard problem in the markets, is it?
Nd: Well, in a way, it is. It is the moral hazard that comes with defending an overly risk averse mentality. And we
are talking here about a mentality that is the natural consequence of
Europe’s feel-good-capitalism which in turn
has been generated by an overly patronizing social market economy. In fact, this desire to have a fatherly
protection against each and ever possible scare that might be out there has reached such perverse levels in
Europe that by now it is starting to unearth the foundations of capitalism by destroying the trust that depositors
can have into the integrity of their savings accounts.

AE: So what do you suggest instead?
Nd: Well, the EU has to find the courage to let some banks go bust and rescue only those institutions that really
are too big to fail. That would considerably lower the tax payers’ rescue burden and it would make such measures
as levying a tax on saving accounts unnecessary. In this respect, we have always maintained that
it was a mistake
to bail out Germany’s IKB Bank. To this day, we are not sure whether Northern Rock really needed to be saved.
We are doubtful
that all Irish banks and Spanish Cajas de Ahorro needed to be rescued. And we certainly are not
convinced that the
Cypriot state needed to help their local banks. Just witness the Icelandic case where banks
weren’t being bailed-out. And Iceland has recovered wonderfully from its earlier state of emergency.

AE: Is it likely though that the EU will modify its stance on bank bail-outs along the lines you have delineated here?
Nd: Probably not.

AE: So it all looks pretty bleak for the future of Europe’s capitalism.
Nd: In a way, yes.  
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Keywords:


Using Cypriot levy on savings accounts as a blueprint for future bank bail-outs, integrity of
saving accounts, Cyprus bail-out as a template for future bank bail-outs, safety of  
depositors money, confiscation of Cypriot savings, EURO rescue effort, Germany's
international image, Germany's international reputation