If the Cypriot government had examined the country’s financial situation the same way a chess grandmaster evaluates a chessboard, they never would have ended up on the verge of collapse.

Ultimately, unfriendly relations between the new conservative president and the governor of the Central Bank of Cyprus (who was appointed by the now-ousted communist party) caused a delay which led to trying to solve a 10 billion euro problem in the course of two weekends. That’s like a chess player letting the minutes on his clock tick away and only starting to move pieces with seconds remaining at the end of the game.

At this point, the Cypriots need to start with the most fundamental principal of chess: don’t sacrifice your king.

When trouble lurks on the board, chess players seek solutions that hurt their opponent, maintain the status quo, or, at the very least, lead to a draw. But they absolutely never move their king into harm’s way. They don’t even threaten a king sacrifice since, without the king, they lose the game (or in chess jargon, checkmate).

To obtain backing from the European Union, however, one of the first sacrifices the Cypriot government offered was a tax of up to 25 percent on large, uninsured bank deposits. Subsequently, that number increased to 60% (though depositors would get bank shares in exchange for some of that money... not a particularly good trade for them).

President Nicos Anastasiades said, the so-called tax on deposits would mitigate the need to reduce social programs, cut pensions or increase taxes. Perhaps he’s right, but the short-term fix will utterly devastate public faith in the banking system. The central mission of a country’s banks is to protect deposits. Taxing deposits also taxes people’s belief in the banking system’s security, and that tax on faith will ultimately cost too much.

Without absolute confidence that banks will secure their client’s money, all levels of financial affairs will crumble. The 100% money-back guarantee from a bank is the king of all financial affairs, and must not be sacrificed for anything.

During the darkest days of America’s most recent financial crisis, the United States government stepped in by increasing the Federal Deposit Insurance Corporation’s coverage from $100,000 to $250,000 in October 2008.

Rather than stoking fears that their banking system could falter, the US treasury backstopped the banks. And regardless of all the pundits talking about the liquidity problems of the FDIC, not one depositor lost a single penny from an FDIC-insured bank account.

Compare the United States’ approach of shoring up the core financial institutions at times of trouble to the European Union’s support of expropriating cash from what should be considered sacrosanct safety. Cyprus’s top business is banking. Taxing deposits doesn’t only hurt the current depositors who get hit by the one-time tax, but will forever damage its image as a world banking center.

Cyprus must immediately undo its plans for confiscation of assets and shelve any further ideas of taking money from bank deposits. The Cypriot government needs to pass rock-solid legislation that will demonstrate to the world that until all other means have been exhausted, from austerity measures and tax increases to restructuring loans and even selling national treasures (including rights to the natural gas finds off their southern coast, for which they have already received offers from Russian energy giant Gazprom), they will never offer up the king of their financial board – their clients’ bank deposits – as a sacrifice to any god, not even the EU.

World chess champion (1996-1999) Susan Polgar and international investment advisor Douglas Goldstein, CFP® are collaborating on a new book, Rich As A King: How the Wisdom of Chess Can Make

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