Suppose the following:
- a small island
- a small population ( less than 800,000)
- with an extensive tax treaty network (to make transfer payments across borders easier)
- a low corporation tax (currently 10%)
- stable governmental structure
- located next to a large region with one of the most populated areas
- A high standard of living
And that’s how Cyprus became an international banking center.
Surprisingly a large financial player and part of the Eurozone, with a banking sector four or five times as big as you might expect given the size of its economy, its no wonder why this tiny nation is causing so much financial havoc worldwide.
“A sunny place for shady people” is how I’ve felt when people frequently ask me how it is to live there. Basically, Cyprus is a place where people, especially but not only Russians, hide their wealth from both the taxmen and the regulators. Whatever gloss you put on it, it’s basically about money laundering.
With Cypriot banks buying up Greek debt and lending into a real estate bubble, it was a matter of time before things went seriously wrong. And they have.
Without its own currency, dependent on EU decision makers, and the reluctance to accept the end-of its money laundering business. In the typical ‘little man carries the burden while big guy skates’ scenario, Cypriot leaders are trying to limit the losses to their foreign investors in the vain hope they can still resume at the expense of small domestic depositors. With the ordinary Cypriots outraged (and rightfully so) and the plan proposed getting rejected, Cyprus has 72 hours to come up with a plan to raise 5.8 bn euros before the ECB pulls emergency funding.
No one knows what will happen next, but if this has taught us anything its that tax ‘treasure’ islands like Cyprus are still operating in the same way they did before the global financial crisis. How EU leaders continue to make bad political decisions using the excuse of ‘unique’ situations that need ‘unique’ rules. How many ‘unique’ custom crafted solutions will they come up with next before they realize this will inevitably lead to a massive EU bank run and financial downpour? Everyone is crying about budget deficits, yet corporations and the wealthy are still freely using tax havens to avoid paying taxes like the little people.
So don't cry for Cyprus. Cry for the world we live in where time after time our leaders refuse to learn from their mistakes.