Greece announced it intends to take drastic measures to obtain the social security contributions owed by commercial enterprises in the country, without having to slash pensions and benefits.
The announcement by the Labor and Social Insurance Ministry has raised the question for Americans: Are your bank deposits in a Federal Deposit Insurance Corporation-protected financial institution safe from confiscation?
Though little noticed at the time it was issued, a 15-page paper jointly issued Dec. 10, 2012, by the FDIC in the United States and by the Bank of England, titled “Resolving Globally Active, Systematically Important, Financial Institutions,” makes clear bank deposits can be confiscated by a bank defined as a “globally active, systematically important, financial institution,” or G-SIFI. The deposits can be seized if the depositors receive equity in the form of bank stock in one or more of the newly reformed operating entities after a bank failing economically is resolved or restructured.
That means the type of assets confiscations witnessed today in the Eurozone can happen in the United States. Bank deposits, even in a FDIC-protected bank, are subject to confiscation provided the crisis involves a G-SIFI and the depositor is given bank stock of one form or another once the financial institution under consideration has been restructured.
In Greece, the labor ministry is planning to force corporations operating in the country to pay up to a total of 14 billion euros of pension contributions due or face having their assets held in banks confiscated by the government. The amount is equal to 8 percent of Greece’s Gross Domestic Product, or GDP.
Greece’s fiscal gap expected at the end of 2013 from social security is expected to equal at best 1.06 billion euros, with next year’s government budget requiring a 1.8 billion euro reduction in state subsidies to social security funds.
Reporting on the possibility of a confiscation of corporate assets in a Cyprus-style “bail-in” in Greece, ZeroHedge.com commented: “Aside from the obvious, namely that this ‘plan’ will be merely the latest disaster to hit the long-suffering Greek economy, now caught in the worst depression in its history, and where greedy and corrupt politicians will promptly ‘confiscate’ whatever benefits there are to have been made from this confiscation plan … the greater problem is that any entrepreneurial confidence that Greece may be a sound place to do business, has just gone out of the window as nobody will know if they are safe from arbitrary prosecution, and subject to a wholesale asset confiscation at any moment of time.”
“Bail-in” confiscations of assets are becoming more widespread in the Eurozone.
WND reported Sept. 9 that Polish Prime Minister Donald Tusk announced a government decision in September to transfer to ZUS, the government pension system, all bond investments in privately held pension funds within the state-guaranteed system.
Polish Finance Minister Jacek Rostowski said the change was projected to reduce the Polish national debt about 8 percent of Polish GDP, a move that allows the Polish government to resume another round of aggressive debt creation by borrowing in international markets.
By confiscating or otherwise “nationalizing” the bonds held in the private retirement accounts of Polish citizens, the government – with public debt standing at that time at approximately 52.7 percent of GDP – was able to circumvent two threshold restrictions that were deterring the government from allowing debt to rise to over 50 percent of GDP, followed by a second deterrence that kicks in when national debt hits 55 percent of GDP.
In March, the government of the Mediterranean island nation of Cyprus followed Ireland, Greece, Portugal and Spain in obtaining an emergency Eurozone bail-out of 10 billion euros, but only after Cyprus agreed to confiscate 10 percent of all deposits in Cypriot banks, calculated to result in a 10 billion euro “bail-in.”
“Bail-in” is the current term used in counterpoint to the more commonly known term “bail-out.”
A “bail-out” typically is a government injecting taxpayer funds into a failing financial institution or business to make up for insufficient reserves, or otherwise prevent or forestall a bankruptcy.
A “bail-in” is a relatively new term being used increasingly in international finance to refer to a situation in which private assets, including private bank deposits, are confiscated by government institutions to compensate for shortfalls. The bail-ins are used to address problems ranging from inadequacies in financial institution reserves to situations in which a government needs to reduce debt ratios to resume borrowing.