First they came for the deposits….

Izabella Kaminska:

This won’t be popular.

But it’s an important alternative to the “it’s expropriation” view on Cyprus.

While the decision to force a bank levy on depositors creates an important precedent, it also represents something much more complex than pure confiscation or forfeiture. It’s certainly not expropriation in the communist or command economy sense, that’s for sure.

In fact, I’d argue that what it really represents is the inevitable shift away from a debt funded economy to an equity funded one.

That’s not to say the shift has been managed fairly or logically. I’m with Willem Buiter on the point that it would have been better if small island depositors had been spared. But I’m also with him on the point that this is ultimately a step in the right direction.

It all comes down to the need to capitalise failing banks with equity, and to get creditors taking responsibility for their bad investments.