While waiting for Cyprus’ Godot….

Here are some unedited thoughts I just shared with the BBC’s Radio 4 on Cyprus while we are all waiting for the new deal to shape up:

Cyprus’ banking sector must shrink. As did Ireland’s, the hard way. What is essential, as every Irishman and woman will tell you, is that the politicians do not load up the weaker citizen’s/taxpayers’ shoulders with enormous debts on behalf of bankers that refuse to wither.

Every bailout agreement, beginning with Greece’s in May 2010, seems less logical and more toxic than the previous one. The culmination was of course Cyprus this past week. Think about it: In one short week, Europe has managed:

  • To put in jeopardy the hitherto sacrosanct concept of state guaranteed deposit insurance
  • The monetary integrity of the Eurozone
  • The European Union’s single market principle according to which capital controls are a no-no.

If only the agreement reached at last June’s EU Summit to de-couple the banking crisis from the public debt crisis had been implemented, we would not be having this conversation now.

The Cyprus debacle is the homage that denial of the systematic nature of the euro crisis pays to a systemic crisis.

Cyprus parliamentarians offered the Eurozone a reprieve from the stupidest and most potentially destructive Eurogroup decision since this Crisis began three years ago. It now remains to be seen whether, scared by the sound of their own NO, they will now succumb to an even less rational deal.

32 thoughts on “While waiting for Cyprus’ Godot….

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  4. One cannot but be struck by the stark difference in language and ‘arguement’ employed by the Cypriots today and the Icelanders half a decade ago. The latter took the hit on the chin, not least because they like the Irish recognised that the entire population was to some extent culpable for the collapse, and have since (with typical northern European pragmatism) got on with the job of re-structing their economy.

    Contrast this with the classic begging bowl dependency on show in the Med. Simply amazing. For years we lived it up on a heady diet of dirty money, EU handouts and leverage, but when it (inevitably) goes horribly wrong the knee jerk response has been straight out of the naughty school boy playbook – “no it wasn’t me, another boy threw the stone”.

    The sheer self delusional chutzpa of the Cypriot political class is simply breathtaking and will I fear only act to strengthen the electoral appeal of anti-European parties across northern Europe. The big question that those in southern Europe and Ireland need to ask themselves is why is it that they continue to elect people who are not just incompetent (something we in the UK are sadly all to familiar) but who are so obviously nothing more than out and out criminals? Instead of moaning about Merkel these populations need to direct their ire closer to home, oh and get their noses out of the trough marked ROUBLE.

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  10. In an increasingly globalised and interconnected world, it seems that investing in European manufacturers of bed mattresses is a safe bet….

  11. Since the banks are already shut and de-facto capital controls are in place, now is a good opportunity for Cyprus to leave the euro.

    In the long term I’m very pro-euro, but it takes a debacle like this to motivate a change in policy.

    • In the Long term more and more countries will see how well the countries that left the Euro are doing and will want to leave the Euro too!

  12. This from Malta’s finance minister is worth a read:

    An excerpt:

    “All this was “agreed” to by the Cypriot government representative who, with a pistol to the head, was naturally unusually co- operative. But it took nearly 10 long hours before the Cypriot minister’s body and soul became exhausted enough for him to assent to this accord. As soon as that happened Schauble demanded that all wire transfers to and from the Cypriot banks would cease forthwith.”

    It does not sound, as some here say, that it was up to Cyprus politicians to write the accord.

  13. Why those on the left are so concerned with the fate of ‘the banks’ is quite beyond me. Hell we should be jumping for joy. Instead we have irony upon irony; having spent years prophesying (in many cases from the comfort and security of a tenured position at a state funded university) the imminent collapse of capitalism, when it actually rolls around the response is look to the heavens and wail like a lot of Old Testament types. Look, the entire system is bust and no amount of technical fixes – left, right or centre – are going to alter this fact.

    At the heart of this crisis lies the systemic and progressive degradation of paid labour. Which by definition underpins the entire mass production = mass consumption model we’ve lived under since the Industrial Revolution. The more far sighted members of our ruling elites have seen this one coming and various responses have been tendered: rising public sector employment rolls and massive credit expansion being the most significant. However, as Andre Gortz pointed out decades ago this will only get you so far, and thus we now find ourselves in permanent depression, and it will be permanent make no mistake.

    Following the advice of our host and other more enlightened commentators might well produce ‘better’ outcomes for the majority than what’s currently on offer but it will be marginal at best because from what I’ve read on this site and elsewhere (Steve Keen, Richard Duncan, etc) there remans a persistent failure amongst progressive opinion to acknowledgement and accept that the political lexicon of the industrial age no longer applies. And that if the ‘left’ is to mean anything it must embrace and direct (in so far as it can) these changes instead of continuing to keep it’s collective head buried in the sand.

  14. As Yani has said time and time again, being part of the EZ is like, on the whole, being a well-fed prisoner shackled to the system for life. It is plainly difficult to get out for many reasons starting with the case of Greece, where it would haven taken 8 months to print a new currency and bring it into operation. Cyprus is a small place and would have presented an easier chance to escape, yet all the wise commentators, like the former President, George Vasiliou pooh-poohs even the thought! I believe that Cyprus must stay close to the European block in the hope that they will provide support in case of altercation with Turkey, which is surely on the horizon. But will such support be there when it comes down to it?

    Angela Merkel has an election in autumn. Now that Greece has been house-trained and quietly sits in the dog basket, Merkel needs another naughty dog to ‘master’ in front of her electorate. A ‘crude’ electorate, probably similar to the readers of the Sun newspaper in England but who, nevertheless, are keenly courted at election times. Just wait and see, after the elections she will be all goodness and light.

    The de-coupling of bank debt from sovereign debt is essential. Also, the transparent distance between Government officials and politicians is crucial. The relationship is much too cosy and this is not only in Cyprus. The Minister of Finance, Michael Sarris was the former non-executive Chairman of Laiki Bank. He must surely have been aware of Laiki’s financial position and it’s activities.

  15. Sadly, this is the first time here in Greece that I hear many formerly adamant supporters of a unified Europe, myself included, openly voice a change in thinking towards dismantling the Euro and going back to national currencies. Just a report of (perceived, at least) public sentiment in Greece…

    • I, too, am shifting my position on the desirability (let alone attainability) of a unified Europe. Far better to abandon the whole project than to have a Germanicised Europe, with effectively colonies in the South and bitter rivals in the North. If the goal of a federal Europe cannot be achieved rather quickly, maybe we should regress to earlier patterns of national sovereignty and co-ordination or collaboration across countries.

    • I fully agree! A Europe of sovereign Nation States is much better than a zentralistic bureaucratic EU superstate!

    • @EUdSSR
      MY preference remains for a functional European Union. The fact is, though, that the German neoliberals are doing everything in their power to distort structures to suit their ideological interests and the nationals interests of German politics.

      My solution is the solution of despair, that once again Germany is trying to destroy Europe. How many times do we have to go through this nightmare?

    • Maybe you should look what everyone signed. All countries agreed to enter a currency union where the ECB has price stability as primary mandate. Everything the South wants is contrary to this. So who is “destroying” what?

  16. Hi, some questions regarding Cyprous and the road towards a banking union.
    1) Since it seems inevitable that some sort of deposit haircut will take place, isn’t it preferable for Cyprous to minimize or possibly get rid off all together the need of a bailout package by going all out and implementing a large haircut? The damage to the banking sector seems cripling anyway, why not get rid of the troika all together by using a 50% or higher haircut?
    2) Some rummors are making the rounds that variations of this bail-in method will be implemented from now on on all insolvent banks on the road to the banking union by 2016 and the ESM method will be scrapped completely? Any thoughts?

  17. Hi Yanis, given that the banking union is not effective (darn!) and that direct recapitalization of banks is not effective (darn!) then isn’t a levy on the non-guaranteed part of the deposits (over 100,000) a fantastic way to place the burden away from (most of) the ordinary folk?
    Just a second point, direct recapitalization of banks is a great objective, however there are a few question-marks when it comes to directly recapitalizing profligate bankers and bankrolling their even more profligate UHNW clients.

  18. What eurogroup decision? By all accounts, the eurogroup only demanded 5.8bn contribution from Cyprus. It was completely up to the Cypriots how exactly to achieve this. They themselves came up with the bail-in of all deposits, never mind the guarantee of up to 100k€.

  19. It seems that the Cypriots are in the process of voting on a compromise to the original proposal, leaving the 100.000 intact. In a previous article, that was the proposal you had favored within the mind set of the “eurozone leaders” (call me Germany).

    So what is your plan B for the Cypriot MP voting again on a slightly improved proposal from the overlords? Vote again NO without a plan B, a la Sampson pulling down the temple and calling “αποθανέτο η ψυχή μου μετα των αλλοφύλων” ?

    It seems again to be an Iphigenia proposal, sacrifice Cypriots so that the Eurozone will wake up? By that time the food lines will be kilometers long in Cyprus and possibly starting in Greece .

    What is your plan B so that misery is avoided for the Cypriot population?

    • It seems that nothing can shake up the fundamentalism of Greek pro-bailout supporters. Not even the reality around them and the admittance of officials that they do not want to repeat the mistakes they did to Greece with the Cyprus package, not the fact that direct recapitalization via the ESM was decided at top level, then sabotaged, then abandoned, not even the fact that the first paragraph of this post is as clear as it gets.

      Regardless of that, I would like to note that this attitude by all pro-memorandum Greeks towards Cyprus is shameless. It is understandable since Cyprus stance makes them look terrible. Cyprus is facing enormous problems partly due to the Greek psi. All the options laid out for them are extremely difficult and all of them painful. They plan to not go down without a fight. At the very least they try to find a reasonable compromise according to their interests. They deserve respect for that. No matter the outcome, their stance will serve them in the future. It is preferable to fight and lose than to surrender completely without a fight. The people that chose the former have a good chance to recover and find their way because they have exhibited that their spirit is alive, the people that choose the latter have no hope, servitude is what they are used to.

    • @Tasos.

      An your plan B? Embrace misery? ( for the Cypriots of course, not oneself ).

    • @Anna V
      You really think that the Cypriots will avoid misery one way or the other? You think the slow death option that was presented to them viable? Did the Greeks avoid misery or were they presented with any better option? What we are experiencing constitutes a plan? What will it take for some people to wake up and realize what is happening?
      Rhetorical questions. The answer to your question is that sometimes more are at stake than economical misery. Sovereignty, democracy, social fabric. Unfortunattely due to demographic reasons it seams the only thing that matters in Europe right now are how to salvage pensions. It certainly was the defining point in Greece and the last elections. I wonder what it will take for pensioners to realize that the reductions the now experiencing are pretty much the same that they would experience had their currency been devalued by say 40%? What again will it take to wake up? How small the breadcrumbs they recieve would have to be in order to realize their situation? When will the young workers realize they are being robbed blind by the pensioners? Again rhetorical questions. Stick to the plan you were presented then if you don’t have answers to these. I won’t and if given the chance, and I will one day, my vote and the votes of my generation will change that.

  20. “What is essential, as every Irishman and woman will tell you, is that the politicians do not load up the weaker citizen’s/taxpayers’ shoulders with enormous debts on behalf of bankers that refuse to wither.”

    Would it that this were the case, I’m not sure if even a majority of Irish people would say this sadly. There is a shocking amount of people who will be adamant that the bank debt is our responsibility and that it is rightly being paid off by the state (it was laughably sold to us by Fianna Fáil as “the cheapest bailout in the world so far”, a party who just two years after being voted out of office are (horrifically) once again top of the polls, in the forthcoming by-election in the constituency of Meath East the bookmakers have the Fine Gael (our current government party) candidate topping the poll with the Fianna Fáil candidate in second), granted though this is mostly due to people being misinformed and/or willfully ignorant.

  21. Hi Yanis,

    I start from a position of extreme skepticism with regard to the banking sector or – as I like to call them – articulate and well funded con artists. That said, a piece I read yesterday on the BBC seemed to imply that – for the depositors – the choice was between the levy or losing a substantial part of their deposits (when the banks failed).

    Any thoughts?

  22. Yanis,

    I fail to understand how the powers that be at the EU continue to go from one folly to the other. The words and actions coming out of Belgium and Berlin suggest that the EU is annoyed with some of its member states…all the while making a lot of money off of their misery. It’s like they’re talking out of both sides of their mouths.

    I sincerely hope Cyprus doesn’t concede to the authoritarian approach taken against them. And if the EU does indeed proceed with that approach, then I fear it may be time to reconsider the whole notion of the union.

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