So the new deal is fairer; the markets like it and the majority of Cypriots no doubt feel a sense of relief, although that might dissipate when the true implications of the latest package to save Cyprus are understood. But is the latest programme to save the little island from the full ravages of capitalism really in the best interests of Cypriots? In the medium term is it in any of our best interests?
The good news is that the first 100,000 euros of bank deposits in Cypriot banks is safe. The deposit insurance guarantee, has, as it were, been guaranteed. That is a relief for many, but much of the damage has been done, pretty irrevocably. The fact that imposing a hair-cut on bank deposits less than 100,000 euro was even considered is enough. From this moment onwards, depositors in all Eurozone banks will feel slightly less confident that their money is safe.
Nigel Farage said: “Now that we see the EU are prepared to resort to anything to keep alive their failing euro project, our advice to expats living down in the Mediterranean must be, ‘Get your money out of there while you’ve still got a chance’.” For what it is worth, I am not a fan of Farage and his politics, and maybe this is my own bias coming out, but I think those words were pretty irresponsible. It is incumbent on politicians not to increase the chances of bank runs, yet that is precisely what the UKIP leader did.
Then again the Troika – and indeed Cyprus’s own politicians – did a pretty good job of that anyway.
The new deal won’t need to go through the parliament in Cyprus, because this time no tax is being proposed. Instead, some banks will go bust. You don’t need permission from parliament to go bust – just a lack of money.
At the time of writing the details are still sketchy, and I will not waste space here going into them.
But we can start drawing general conclusions.
It is clear that the TROIKA wanted to punish Russian oligarchs for money laundering and Cyprus for encouraging them. In so doing they have punished Cypriot businesses with more than 100,000 euros in their bank account.
The ‘FT’ speculated that customers of the Laiki Bank could lose every cent over 100,000 euros.
Consider the impact this may have on companies set to pay the month’s payroll? Or, to give a very UK twist, the impact on people planning to get married in Cyprus and who had deposited money with a wedding organiser which held its main banks account with Laiki.
Clearly the impact on the economy of Cyprus will be devastating. Unemployment will rocket, the economy will suffer depression, and Cyprus will join the long list of countries that are suffering enormous hardship – thanks in part to the existence of the euro.
Part of the problem here is that the remedy being prescribed for Cyprus – just as is the case for Greece Spain and the rest – is all stick and no carrot. If you have to penalise a country for its past mistakes, at least give it hope and a means by which it can work its way out of trouble. In short, combine the punishment with investment.
For Cyprus – despite the efforts of the Troika – hope may, however, arrive, and in three forms. Firstly, its people may pull together, and evoke a kind of spirit of the blitz, and thus create a quite formidable kind of national determination/solidarity. Secondly, Cyprus may finally see the euro for what it is, and enjoy the benefits of cheaper currency. Thirdly there is gas. Reports suggest that later this decade tax revenue from gas deposits off the coast of Cyprus could top 1 billion euros a year.
But this begs one question: if Cyprus is going to be so wealthy in a few years’ time, why not lend it the money it needs to survive for the time being? I can’t help but feel that the Troika wanted to make a point; to inflict punishment, and that its package has nothing to do with sound economics.
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees