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Cypriot disastrous decision: How to turn a drama into a crisis

By Richard Quest, CNN
updated 12:08 PM EDT, Mon March 18, 2013
STORY HIGHLIGHTS
  • The money of German housewives should not bail out Russian oligarchs, writes Quest
  • Quest: Taxing deposits under €100,000 at over 6% is effectively punishing the Cypriot people
  • Quest: The Eurozone has shown it is better at creating crises than confronting them

Editor's note: Richard Quest is CNN's foremost international business correspondent and presenter of Quest Means Business

(CNN) -- Never underestimate the capacity of the Eurozone to shoot itself in both feet.

"Breath-taking," "Staggering," "Bewildering." Just some of the adjectives we could use to describe the latest Eurozone fiasco where the troika -- made up of the European Commission, the European Central Bank and the International Monetary Fund -- has managed to snatch defeat from the jaws of victory.

The decision to "bail-in" depositors in Cyprus -- to make ordinary people pay for the mistakes of the banks -- is extraordinary. Nothing like this was done in Greece, Portugal or Ireland.

Why, oh why, it should be up to the Cypriots to test drive this dangerous and maverick policy remains unknown.

Cypriots bear the brunt of a bailout

To be sure, the presence of large Russian and offshore funds in Cypriot banks is cause for a different format than those used in other peripheral countries. For example, you could not realistically have the money of German housewives bailing out Russian oligarchs.

There were more sophisticated and rapier like ways to achieve the same goal, taxing deposits under €100,000 at over 6% is effectively punishing the Cypriot people.

Cypriots are already going to feel the ferocity from the effects of a recession caused by lower wages and high unemployment, they do not need the additional confiscatory measures of their deposits being taken.

Once again the Eurozone has shown it is better at creating crises than confronting them.

In the past few hours, I've spoken to bank CEOs and top economists. Words like "great mistake" and "disastrous" are being used. So far I have not spoken to anyone who thinks this is a good idea. At all levels, for depositors, future foreign investors and Eurozone policy, the decision on tiny Cyprus is going to have huge ramifications.

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