LUXEMBOURG - For Wolfgang Schäuble, the world is sometimes a pretty simple place. Cyprus, for example, just had the wrong business model. Those were the words the German Finance Minister used to explain the problems that that European Union island nation is experiencing now.
According to Schäuble, the Mediterranean state counted too much on its banks and allowed its financial sector to get bloated. And indeed Cyprus’s banking sector, with its 47 billion euros in deposits, is two-and-a-half times the size of the country’s 18-billion-euro economy.
But Schäuble’s explanation is flawed: the beautiful island nation of 800,000 inhabitants is not the only country in the euro zone with a ramped-up financial industry. In no less than 10 countries, the volume of bank deposits totals more than real economic value – sometimes several times more.
Heading the list is not Cyprus, but the Grand Duchy of Luxembourg. The tiny country brings in less than 44 billion euros from its goods and services, yet its banks boast a whacking 227 billion euros in deposits, which is to say over five times the GDP.
Malta and its 7-billion-euro economy is home to nearly 12 billion in deposits. Other countries with significant deposits are the Netherlands, Spain, Belgium and Portugal. Even Germany’s 3.1 trillion euros in bank deposits exceed actual economic performance.
The uproar over proposed bank account levies in Cyprus brought to the surface the dangers of financial overreach. If the financial crisis put the security of bank investments to the test, now the issue is deposits.
What bank clients had in savings and checking accounts had been considered the solid part of the banking business, up until now. That’s changing now. After seeing small-timers in Cyprus expected to ante up, bank account holders everywhere have seen their security depleted. Particularly in crisis countries like Spain or Italy, this could lead bank customers to withdraw their funds out of fear of being asked to bail out the banks or indeed the state.
In both countries, you have a precarious public financial situation face-to-face with considerable private wealth. That’s a situation that could push highly indebted governments to see a source of revenue, and consequently fuel account-holder anxiety.
U.S. investment bank Goldman Sachs calculated how much governments could make if they levied or taxed bank account holders. The results show that such a move would be particularly lucrative for the Spanish government: with an 8.5% tax on savings, Madrid could rake in 129 billion euros.
Ready to cause pain
That would wipe out 15% of public debt in one fell swoop. In Portugal too, the move could be attractive from the government point of view: according to Goldman calculations, by imposing a 8.5% tax the government could take in nearly 18 billion euros.
The dangers are, however, significant. For account holders, such a tax would amount to an abuse of confidence – bank deposits in the EU are guaranteed to up to 100,000 euros per customer.
With the imposition of a tax or levy, the government would get its hand on account holders’ purse strings. Even just a rumor that such a move was in the offing would probably result not only in capital flight but a possible full-on bank run.
How quickly uncertainty can take hold was demonstrated in Greece. From a high of 244 billion euros in the winter of 2009, bank deposits have shrunk to just 156 billion. That’s over one third less.
Even Spain’s much larger economy experienced a meltdown of deposits during the crisis, from 1.7 trillion euros in the summer of 2011, to as low as 1.49 trillion. The volume of Spanish deposits has now stabilized at 1.5 trillion euros.
The present situation has the mighty rating agencies flustered, and they are in the process of changing the way they rate a bank’s creditworthiness. "In the future we will be taking a more critical look at deposits," says Vincent Truglia, a former director of Moody's. It used to be that customer savings were widely considered a solid form of financing. For the euro zone, that’s now been put into question, he said.
His former employer had already fired a warning shot about the long-term effects of a levy: "The Cyprus package is negative for all European account holders," says Bart Oosterveld, Managing Director of the New York rating agency.
European politicians have now established that they are prepared, if necessary, to cause account holders some financial pain. The logic goes like this: if the previously sacrosanct customer’s neck is on the line, it sends a warning signal to bond creditors financing the banks. And to Oosterveld that by no means only applies to the creditors of Cypriot banks – it applies to all other Old World banks as well.
An immediate consequence is that the connection between public finances and the financial sector will now be very much on investors’ radars. They will be casting particularly critical eyes not only on customer deposits but the volume of bank business.
Here again, Luxembourg takes the lead. If you add up all the balance sheets, the banks of this tiny state are leveraged to GDP by a factor of 22. Would Wolfgang Schäuble approve?
Once meant to protect the royal family, the century-old law has become a tool for the military-led government in Bangkok to stamp out all dissent. A new report outlines the abuses.
"We need to reform the institution of the monarchy in Thailand. It is the root of the problem." Those words, from Thai student activist Juthatip Sirikan, are a clear expression of the growing youth-led movement that is challenging the legitimacy of the government and demanding deep political changes in the Southeast Asian nation. Yet those very same words could also send Sirikan to jail.
Thailand's Criminal Code 'Lèse-Majesté' Article 112 imposes jail terms for defaming, insulting, or threatening the monarchy, with sentences of three to 15 years. This law has been present in Thai politics since 1908, though applied sparingly, only when direct verbal or written attacks against members of the royal family.
But after the May 2014 military coup d'état, Thailand experienced the first wave of lèse-majesté arrests, prosecutions, and detentions of at least 127 individuals arrested in a much wider interpretation of the law.
The recent report 'Second Wave: The Return of Lèse-Majesté in Thailand', documents how the Thai government has "used and abused Article 112 of the Criminal Code to target pro-democracy activists and protesters in relation to their online political expression and participation in peaceful pro-democracy demonstrations."
Criticism of any 'royal project'
The investigation shows 124 individuals, including at least eight minors, have been charged with lèse-majesté between November 2020 and August 2021. Nineteen of them served jail time. The new wave of charges is cited as a response to the rising pro-democracy protests across Thailand over the past year.
Juthatip Sirikan explains that the law is now being applied in such a broad way that people are not allowed to question government budgets and expenditure if they have any relationship with the royal family, which stifles criticism of the most basic government decision-making since there are an estimated 5,000 ongoing "royal" projects. "Article 112 of lèse-majesté could be the key (factor) in Thailand's political problems" the young activist argues.
In 2020 the Move Forward opposition party questioned royal spending paid by government departments, including nearly 3 billion baht (89,874,174 USD) from the Defense Ministry and Thai police for royal security, and 7 billion baht budgeted for royal development projects, as well as 38 planes and helicopters for the monarchy. Previously, on June 16, 2018, it was revealed that Thailand's Crown Property Bureau transferred its entire portfolio to the new King Maha Vajiralongkorn.
Protestors In Bangkok Call For Political Prisoner Release
Freedom of speech at stake
"Article 112 shuts down all freedom of speech in this country", says Sirikan. "Even the political parties fear to touch the subject, so it blocks most things. This country cannot move anywhere if we still have this law."
The student activist herself was charged with lèse-majesté in September 2020, after simply citing a list of public documents that refer to royal family expenditure. Sirikan comes from a family that has faced the consequences of decades of political repression. Her grandfather, Tiang Sirikhan was a journalist and politician who openly protested against Thailand's involvement in World War II. He was accused of being a Communist and abducted in 1952. According to Sirikhan's family, he was killed by the state.
The new report was conducted by The International Federation for Human Rights (FIDH), Thai Lawyer for Human Rights (TLHR), and Internet Law Reform Dialogue (iLaw). It accuses Thai authorities of an increasingly broad interpretation of Article 112, to the point of "absurdity," including charges against people for criticizing the government's COVID-19 vaccine management, wearing crop tops, insulting the previous monarch, or quoting a United Nations statement about Article 112.
Juthatip Sirikan speaks in front of democracy monument.
Shift to social media
While in the past the Article was only used against people who spoke about the royals, it's now being used as an alibi for more general political repression — which has also spurred more open campaigning to abolish it. Sirikan recounts recent cases of police charging people for spreading paint near the picture of the king during a protest, or even just for having a picture of the king as phone wallpaper.
The more than a century-old law is now largely playing out online, where much of today's protest takes place in Thailand. Sirikan says people are willing to go further on social media to expose information such as how the king intervenes in politics and the monarchy's accumulation of wealth, information the mainstream media rarely reports on them.
Not surprisingly, however, social media is heavily monitored and the military is involved in Intelligence operations and cyber attacks against human rights defenders and critics of any kind. In October 2020, Twitter took down 926 accounts, linked to the army and the government, which promoted themselves and attacked political opposition, and this June, Google removed two Maps with pictures, names, and addresses, of more than 400 people who were accused of insulting the Thai monarchy. "They are trying to control the internet as well," Sirikan says. "They are trying to censor every content that they find a threat".
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