Do Not Mess With the Russian Mafia

Published by Filipe R. Costa on Tue, 19/03/2013 - 15:09 in


Cyprus, troika, bailout

Daily Market Commentary for March 19: It seems European officials want to play a dangerous game not only against its citizens but also against the Russian mafia. The untouchable deposited money held at banks is now to be taxed at 10% in Cyprus as the troika unfolds its first austerity measure in the country.

I was shocked with the news that the Cypriot government wants to tax every deposit held at banks, so did people who ran to ATM machines trying to get all they could during the weekend. After long negotiations between Cyprus, the ECB, the European Commission and the IMF, they decided the best way to get fast money is to tax deposits, a measure that will result in €7 billion confiscated from whoever holds money at banks in Cyprus. That is the more unwise measure I ever seen coming from the troika.

Even though such measure has slim chances of being approved under its current terms, a precedent has been opened. Everything is possible to collect money at the EU level. People will be scared and will try to get money from banks not only in Cyprus but also in other European peripheral countries. It may not be in the form of a quick run into banks by now, but with time people will learn to distrust banks and EU institutions. The measure is unfair for people saving money from work and will unnecessary mess with Russians.

As Dennis Gartman, the author of the Gartman Letter noted in an interview "everybody knows that the vast majority of the deposits in Cyprus are from Russia. They're Russian government officials, they're Russian businessmen, it's Russian mafia – and you don't mess with the Russian mafia... People around the world don't kidnap Russians because they know that the Russians will deal with you in a very efficient and very ugly manner," he said.

It’s not that I think we shouldn’t fight money laundering but this is a senseless way of doing it. This is a shot in the foot.