In sad Cyprus…
I can’t complain about lack of press coverage on the outrage in Cyprus. It neatly brings together my last two blogs, on safety of bank deposits and how, nearly 300 years later, our rights are determined by whim. While George Osborne has offered to compensate British troops in Cyprus who have lost money, the very arbitrariness of that intervention (the value of your bank account is determined by your employment) underlines my point.
Cypriots will themselves be considering what legal challenges are open to them. It would be attractive if European law could rescue them from European politics. I imagine that they will look carefully at Article 1 of the First Protocol to the European Convention on Human Rights, the first paragraph of which provides that–
Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The question is whether levies of the kind proposed amount to a breach of either the first or second sentence which on a cursory reading appear to be engaged. This is however a remarkably difficult area in which I am not qualified to offer an opinion (I am not a lawyer, and you should be warned that I failed in an attempt to raise this in a UK court in a different context), but it is a fair summary to say that the European courts generally do not look favourably on these challenges, holding, for example, in The Holy Monasteries v Greece (1994) that compensation for compulsory purchase of land rights need not reflect full market value (so there may be no mileage in challenging the value of the shares depositors are to receive); while in Bramelid & Malmstöm v Sweden (1982), in relation to compulsory purchase provisions in domestic Swedish law, it was held that “This type of rule, which is essential in any liberal society, cannot in principle be considered contrary to Article 1 of the First Protocol” provided only that “the law does not create such inequality that one person could be arbitrarily and unjustly deprived of property in favour of another.” (One wonders whether the talk of changes to the haircut levels do not demonstrate the arbitrariness of these inequalities.)
There are of course other rules which are essential in any liberal society, or indeed in any economy that has any chance of functioning properly, and they are that contracts entered into with reasonable expectations of what they entail should be upheld. Whether in Cyprus or the UK those of us who are interested in depositing cash at the returns currently offered reasonably expect to have a commensurate level of risk. If we wanted equity, convertible bond or permanent interest-bearing share levels of risk we would have bought those instruments, and enjoyed a much higher return (at least until they went wrong). A resolution regime which swaps the utilitarian deposit with casino products guarantees panic and undermines the basic workings of everyday commerce. It will not do.