It’s safe to say that most Americans either have never heard of or could not locate Cyprus on a map. Unfortunately, Cyprus allows a glimpse into a highly possible governmental action in the United States and, thus, contains a vital lesson. The Cypriot government recently proposed a plan to pay off its European Union debts: Take money directly out of bank accounts.
Cyprus, a small island in the Mediterranean, will likely end up just like other European Union nations, economically destroyed and unstable. Their government’s plan is relatively simple—take 6.75 percent out of bank accounts under €100,000 and 9.9 percent from accounts possessing over €100,000. The Cypriot government has further bolstered this proposed action by declaring a bank holiday until Thursday. Additionally, some say the government has also taken steps to prevent moving money out of Cyprus and the ATMs do not work. Some Cypriots are protesting the measure.
Let us now go back a short time and view the Cypriot crisis’s roots.
In 2011, the Evangelos Florakis naval base exploded. The significance of this disaster lies in its location and affects. The naval base lied at a point on the island where a power plant supplied much of Cyprus’s power. The political effects included massive protests and many resignations, including the Cypriot Defense Minister. But the economic impact was greater. The explosion’s costs totaled roughly ten percent of the entire Cypriot economy. Resulting from this and the crushing debt, the financial sector experienced great instability, and Cyprus had its credit rating downgraded. Finally, Cyprus begged for a European Union bailout. After a Russian loan, the problem still wasn’t resolved. Cyprus and the bailout entities squabbled through 2012 over bailout conditions, until they reached an agreement in November. The plan, though, included austerity measures (i.e. cuts in government, public sector jobs and wages, government retirements, etc.) and increased taxes. Upon hearing the news, various leftist elements organized and protested the measures. Now we come to the present moment, with the new plan to raid back accounts. There persists some uncertainty about the measure, as many Cypriot people and politicians do not back the plan. The Russians, many of whom have large amounts of money in Cypriot banks and lent them over two billion Euros, vehemently oppose the plan.
But what does all of this mean? We have briefly looked at the rough data, now it is time to interpret and think about the matter in a “big picture” manner.
The short-term effects include bad stock market reactions. The news negatively affected European and Asian markets, with the Euro moving down 0.8. But this still is not good reason enough to view the Cypriot measures as “bad.” There is much more to economics than stock markets.
The bail outs in other European Union countries, including Ireland and Greece, did not include such a plan. The Irish and Greeks did not have their money stolen directly from their accounts. I do not believe there is any particular reason why they wish to steal from the Cypriots any more they would the Irish or Greeks. There most likely is no hatred against Cyprus or some certain plan, upon which Cyprus hinges. Rather, this shows a fundamental failing with the Eurozone’s economic and political policies. A nation, or group of nations, cannot sustain socialism. It must collapse at some point, due to its very nature. This is the real reason why Cypriot depositors will be robbed.
But what does this mean for Americans? As pointed out, there are some stock market effects, though there are more fundamental lessons that must be learned.
First, and most foundational, Cyprus shows what happens when government is allowed any part in the economy and financial sectors. Government cannot regulate, govern, or guide these areas without disaster. It is simply not in government’s nature. It is only the market itself, based in human action, that can successfully be put in “charge” of the economy. Similarly, government cannot be charged with regulating and controlling the financial sector. Repeatedly, we have seen the error-riddled consequences. For example, the Great Depression’s cause was not the greedy bankers, so often espoused to be the case, but by the Federal Reserve’s policies. Our current economic climate stems from the same causes as well.
The United States of America is not Europe. We might have cultural and linguistic ties to many European regions and base our political system greatly off Enlightenment thinkers, but we still are not Europe. For precisely this reason, many think that the United States, endowed with a magical immunity, is safe from truly terrible government. Many think that the great “it” can’t happen here. The people are far too good and clever to ever allow the government to pilfer their bank accounts, in blatant robbery. But this is untrue. We have already allowed the government great controls over our economy and financial sectors. The road to government openly behaving as a thief does not begin instantly. Most governments, and their supporters, know that they cannot rush to great power at once. This is precisely the reason why we must oppose government’s intrusion into the areas of economics and finances. While, philosophically, the government currently robs us, it does not pillage our bank accounts so clearly and blatantly to prop up their failed system.
As well as the political aspect, the Cypriot bank measures should additionally point to us the importance of seeing what might be coming in the future. We should be knowledgeable on the economy and be prepared for something like this. Now, I am not an expert. I am not telling readers to pull their money out of the banks and buy and bury gold. Our readers may do as they wish. Rather, I advocate for merely acting in a wise manner with one’s property and money.
Ponder how far we have advanced in the past few hundred years. Now ask what enabled this. Deep thought on this matter will show that it was not government, but the free market. Humanity has not reached an age complete with technological wonders, easy communication, and fast travel from government, an entity that violates liberties and steals. Whether in Cyprus or some other part of the world, we must maintain our focus on the true bringer of progress: the free market.