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Special Report

All-Star Panel: Impact of Cyprus rejecting tax plan

This is a rush transcript from "Special Report," March 19, 2013. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

ANDREAS CHARALAMBOUS, CYPRIOT FINANCE DIRECTOR: The president and the minister of finance were absolutely, absolutely clear that this approach would have very detrimental effects on the economy.

NIKOLAS PAPADOPOULOS, CYPRIOT PARLIAMENT MEMBER: This is a lose-lose situation for us. There is absolutely no guarantee that even if we do pass this, this bill, we'll have -- we won't have a bank run tomorrow morning, because I believe that the credibility of our banking system has been totally been destroyed.

(END VIDEO CLIP)

BRET BAIER, ANCHOR: Well, Cyprus, the parliament there voted down this controversial plan to take out some from savings deposits for this bailout that they need. But now what? We're back with the panel. Jason, Germany's finance minister saying tonight that it's unclear whether the banks in Cyprus will ever be able to open again.

JASON RILEY, WALL STREET JOURNAL: Well, the parliament in Cyprus must think that the Germans are bluffing given the way that they voted down this deal. Stocks fell today, too. So clearly the markets think this situation is not over. It's going to get worse before it gets better. And they are probably right.

On a fundamental level, the EU leaders have to come up with a way to force these countries to be able to pay their bills. And they've been unable to do that. It seems like they are just throwing things at the wall to see what sticks. The bailout in Spain is different from the one in Ireland, different from the one in Portugal and so forth. Here, they are trying to get depositors to recapitalize the banks and in the process doing this end run around the protocol for senior creditors, which has created all kinds of problems of its own. But this is a crisis that is far from over, I think.

BAIER: A.B., it doesn't seem like they were not into this plan, but they don't have another plan.

A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: Right. This raises so many alarming questions, starting with what is plan B. Will the Germans hang in and tolerate continuing to bail out these fragile nation? Isn't a bailout supposed to inspire confidence among depositors? Will the EU survive? Will there be contagion and runs on banks in other countries? But I don't think it actually raises the question about deposit insurance in the U.S. and I don't think it's something that we're going to sit around and compare ourselves to Cyprus.

BAIER: Yet, it could have market impacts, obviously, if it goes beyond Cyprus.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Look, if you have a loss of faith throughout Europe in the safety of your deposits then we really have a problem on our hands as Americans. But what's so hard to understand is Cyprus is a tiny country. It's a million people. The amount of money here is trivial, $6 billion on a continent with trillions -- $16-20 trillion worth of an economy. And in order to recoup that amount of money it decides to undermine faith people have in their deposits, it's as if here it was declared that yes, you have a safety deposit insurance. However, we are going to take 10 percent of your savings tomorrow. It will disappear. And that will cause a run on the banks. It's like Sarajevo. This is a very small country, a very small incident, but it could be a long fuse.

BAIER: Back here in the states, California has this -- now this deal, a 50 percent tax break for small business and startups. The taxpayers, they got a letter saying they are no longer able to take that. Even if they took it over the past five years now they have to pay that up. Take a listen to this, Jason.

(BEGIN VIDEO CLIP)

BRIAN OVERSTREET, ADVERSE EVENTS PRESIDENT: How would you feel if you made a decision four years ago that you knew -- absolutely knew was legally correct, and four years later a governing body came in and said, no it's not correct and now you owe us a bunch more money and we're going to charge you interest on money that you didn't even know you owed?

(END VIDEO CLIP)

BAIER: That is quite a story.

RILEY: It is. Though, it's a little hard for me to have too much sympathy for some of these business owners who after all – many of whom backed a taxed hike initiative by Jerry Brown that was on the ballot in November which was also retroactive. But that said, yes high taxes are bad for business, which is why low-tax states like Texas are drawing in a lot of businesses and have lower unemployment rates.

BAIER: A.B.?

STODDARD: Well, I was actually going to say that -- this is why people are leaving California, because all these state budgets are broke and they are trying to raise taxes on everybody, and the states with the lowest taxation and regulation are attracting the most businesses.  But it's especially cruel when you've given something out something like that to encourage small business to then take it back retroactively with interest. That is a little extreme.

BAIER: It's not Cyprus, but it's extreme. OK, Charles?

KRAUTHAMMER: I think we do have to revise our doomsday pronouncements. We had been saying up to now that America is headed the way of Greece. I would say it's headed the way of Cyprus, because if you start to confiscate people's money retroactively, you got a real problem on your hands. And I'd guess, I think if you put it to a vote for the people of that state, you get the same result that you got today in Cyprus in the parliament where nobody, not a single member of the parliament supported an agreement that the government itself had proposed. The government party, not one of them voted yes. It abstained entirely on a proposal that it had agreed to. So that tells you how unpopular it is.

BAIER: The state says affected taxpayers can request a waiver and hope that lawmakers and the governor can strike a deal. We will follow this one.

That is it for the panel. But stay tuned to see the winner of the no respect award. 

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