European Haircuts – The Latest Styles from Cyprus and Greece
According to GQ, the hottest haircut trends for 2013 are things like the slick comb over, the short crop, the medium and messy, and the long and parted. Cyprus and Greece have been going a different path; pioneering haircuts that have investors around the world feeling jittery. And by “haircut,” I mean “writedown,” or “loss.” On Saturday, the tiny island nation of Cyprus announced it would raise about €5.8 billion by taxing bank deposits – including individual deposits with only small account balances. This proposal is a means of easing the pain of a bailout agreement. The announcement, which hasn’t stated specific thresholds or percentages, sent a shudder of panic through Cypriots and the wider investment community. Originally, the plan called for a 6.75% tax on amounts less than €100,000, and 9.9% on amounts over €100,000. That means if you had €1,000 in your bank account, after the tax, you’d miraculously lose €67.50. The problem with all of this for investors is not the scope for financial contagion to other periphery markets; the Cypriot economy is relatively small – somewhere around US$25 billion, according to the IMF. No, what has investors spooked is the implication of the bank-deposit haircut. Read more
