Gold 
”Now, the crisis has flared anew in the euro zone’s easternmost outpost in the Mediterranean, Cyprus. On Saturday, March 16, the first day of a three-day holiday weekend on the island nation, Cyprus announced plans to levy a 6.75% tax on bank deposits of 100,000 euros (about $130,000) or less, and a 9.9% tax on deposits over that mark.
The announcement stunned not only the bank’s customers but the global financial markets because it violated a crucial principle going back to the 1930s: that bank deposits would be protected. But instead of protecting depositors, as the Federal Deposit Insurance Corp. does for Americans, the Cypriot government would be taking a portion of bank customers’ money. That would produce some 5.8 billion euros that Cyprus needed to raise in order to receive 10 billion euros from the ‘troika’ of the International Monetary Fund, the European Central Bank, and the European Union. Cyprus’ parliament promptly voted down the proposed levy.
Why should anybody care about Cyprus, which accounts for a mere 0.2% of the euro zone’s economy? As in virtually all of these crises, the financial sector dwarfs the real economy. According to BCA Research, assets of Cypriot banks equal 7.1 times Cyprus’ gross domestic product, a result of the island’s becoming an offshore banking center that especially caters to rich Russians. That is exceeded only by Luxembourg, whose banks’ assets equal 21.5 times its GDP, and Malta, with bank assets totaling 7.9 times GDP. Even major international financial centers, such as the U.K. and Switzerland, have bank assets of 5.1 and 4.8 times GDP, respectively. In the U.S., bank assets total 0.8 times GDP.
The reality is that Cyprus became a mini-European version of the Cayman Islands, a salubrious venue for the wealthy for second homes and stashed wealth. That boosted the country’s economy, with a large portion of the workforce employed by the financial sector, and worked against the rest of Europe’s willingness to rescue it. German reluctance to help Cypriot banks and their Russian oligarch depositors was palpable, especially with Chancellor Angela Merkel seeking re-election in September. The German electorate already thinks it has kicked in too much to bail out feckless euro-zone debtors.”
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