In order to provide a 10 billion EURO loan to CYPRUS the Eurozone Leaders have imposed on Cyprus an obligation to tax all loans made to Banks in Cyprus below 100 000 Euros at 6.75% and all loans above 100 000 Euros at 9.9%.
Although it would be Cyprus that taxes and receives the benefit of the tax, the next question is "does the EUROZONE have the right impose such a tax ?".
The solid financial condition of Cyprus has recently deteriorated partly due to bad debts connected with receivables from Greece.
Cypriot Banks also harbour enormous loans from, amongst others, Russian citizens. Are these loans "tainted" ? Hence the idea to "tax" them.
The hidden problem is that if Cyprus is no longer a safe haven (a Financial Paradise), there will shortly be a scramble to transfer Billions of Euros to other safe havens outside the EUROZONE !!! The result then could be that the Loan of 10 Billion Euros to Cyprus would not be enough !!! Another 10 Billion may be necessary.
If Cyprus would then face the task of repaying 20 Billion Euros, this would be colossal and too much for such a small island economy.
To put it another way, the EUROZONE would then suffer the loss of 20 Billion EUROS, but would then also face a "run" on the EURO due to Speculators throughout the Financial World !!!
Would it not have been much simpler and prudent to let little Cyprus quietly withdraw from the EURO, readopt its old currency, "Piaster and Pound", and then devalue by 25% to reorganise its internal structures ?
Once again, now in Cyprus just like previously in Spain, Italy and Greece, the draconian measures to "save the EURO" are hurting local populations. There will again be revolts !!!
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