Everyone is to blame
22 March 2013
Wisdom has it that history is endlessly starting over. The question is: have politicians, and in particular the ones who lead us, learned this lesson?
In the last few days, the frenetic pace of the Cypriot saga, which Europeans have been distractedly following since the summer of 2012, has prompted fears of another Greece. That is to say, a scenario in which a financial crisis in a country that only accounts for 0.2 per cent of the Eurozone’s GDP will nonetheless destabilise the entire currency bloc and plunge the EU into yet another systemic crisis.
This time around, the danger has not come from instability on speculative markets, but from the breaking of a taboo. In taxing bank deposits of less than €100,000, the threshold below which they are usually assumed to be guaranteed, the Eurogroup, the Cypriot government and the International Monetary Fund took the risk of prompting a bank run, and an even more powerful rejection of their management of the crisis by an outraged public.
In view of the economic and political dangers of this dual risk, was it really worth it? The account of the Eurogroup meeting which was held behind closed doors on the night of March 15 appears to show that the finance ministers had to tackle a problem for which there was no satisfactory solution. Given the need to avoid the collapse of a banking system that sustained a country with no alternative economic model, the need to rescue Cypriot banks without launching a flight of Russian capital, the need to secure local finance for a bailout with neither the IMF or Germany wanting to exceed €10bn, and to find all of this money very rapidly, it is clear that they were called on to square the proverbial circle.
This state of affairs is the necessary consequence of years of complacency and negligence. On the one hand, when Cyprus adopted the euro in 2008, all of its partners were well aware that the island’s economy had been pumped up with money that was often of dubious origin. On the other, it has now been 10 months since the Cypriot government requested a bailout, which at the time was estimated to be between €3bn and €4bn. The plan agreed at dawn on March 16 was for €10bn, with an additional €5.8bn collected by the now notorious levy.
Europe is having to pay for its reluctance to deal with the question of tax havens, which also includes Luxembourg, and its pusillanimous treatment of Cypriot leaders (the communist Dimitri Christofias and, latterly, conservative Nicos Anastasiades, elected in late February) who postponed an overhaul of the island’s banking system to conserve its profitable relationship with Moscow.
After China in Greece, now it is Russia’s turn to position itself as an alternative source of assistance, at a critical moment for EU-Russia relations and amid speculation about who will extract the extensive gas reserves that lie off the shores of the island. This is all the more galling when you consider that Russia’s use of Cyprus as a hub for offshore capital and an entry point for the Eurozone played a major role in the origin of this problem.
A fine mess from a minor crisis. We are owed greater wisdom from the EU's leaders after three years of economic shocks.