It is bad economics and bad politics. There was always a better option.
But let's be provocative. What can one say in favour of the Cypriot raid on bank deposits?
First, it is progressive. The rich pay the most. The very poor pay nothing, as they are usually too poor to save.
Second, what is the worse crime? Taking 7-10% of people's bank deposits or 50% of the incomes of the already poor?
Of course it isn't as simple as that. As a wealth tax it is inefficient. The wealthy will have much of their money in assets not cash and will be more than able to absorb the cost. It is more likely to hit older people. Small savers will often have scrimped and sacrificed to build up some reserves for later in life from already highly taxed incomes. They may have sold assets to fund their retirement or to support their children and grandchildren. To be denied the gratification that they had deferred is a harsh irony. Their inclusion, along with the wealthy, is unjust and quite possibly illegal. Deposits up to €100,000 are supposed to be guaranteed. As for the shares of equivalent value given in compensation, I don't think that many financial advisors would suggest selling at the moment.
But it isn't just that. Why else is there real anger? Certainly, there is the shock of hitting the one area of wealth that was seen to be immune. And we don't like retrospective taxation. It comes far too close to theft for anyone's liking. But then there is also a sense that thrift is virtuous. Taxing virtue is not moral, especially as it is done to recapitalise the banks broken by the immoral gamblers of the financial world. The feckless are to be repaid by the thrifty.
What this seems to show is that moral discourses are inescapable in economics. The attempt to render it a technical subject alone runs the risk of abject moral (and technical) failure. It is good to see that the 19th Century term, political economy, has made a comeback. It implicitly includes the human impact of policy in its calculations. The failure of the well-heeled technocrat is seeing poverty, unemployment, desperation and all the ills of austerity as technical indicators and not as real lives.
Of course, there have also been many trying to turn the crisis into a morality drama of the indolent south against the industrious north. This sophistry has been pervasive. But just as there are various competing policy options there are different moralities that should be at play too. There are alternatives. How about a sense that economics should be based on a sense of the implicit and equal worth of all people? Making the well being of all, rather than the protection of institutions, the first priority would have led to different policies. And they may well have proved more successful.
Made in Germany.
And the risk of a run on the banks.