Πέμπτη, 16 Μαΐου 2013

Cyprus: Europe’s Big Fat Banking Blunder


Cyprus protest
HALC is pleased to present a guest post by Alexander Billinis, a Greek American currently living in Serbia. A writer and banker, he has worked in Serbia, Greece, and the UK. His views on the Balkans are further elaborated in his 2011 book, “The Eagle has Two Faces,” available at amazon.com
BY ALEXANDER BILLINIS
“Stay where you are folks, it’s a Hold-In!” If you are a depositor in Cyprus, the European Union’s easternmost bastion, you have just been robbed—by the Cypriot Government, who was made an offer by the EU it could not refuse. Cypriot depositors, or rather, depositors in Cyprus, are being forced to pitch in for Cyprus’ EU-sponsored bailout. The deal is not (as of this writing) still clear, but currently includes big depositors with deposits over EUR 100,000. The first proposal also wanted to include depositors under the (formerly sacred) threshold of EUR 100,000.
Yes, that’s right, the 100K threshold is analogous to FDIC insurance for US bank accounts. And yes, the EU has sanctioned, demanded in fact, that the Cypriots pay for their bailout by raiding deposits. How uncomfortable do you feel about this? Cyprus is far away, but the tiny island country is a member of the Eurozone, the group of countries that use the world’s second most important currency. So if it happens there, it can happen . . . elsewhere/anywhere. How do you feel now?
Of late, Europe has made one mistake after another. The EU is trying to reduce debt, particularly in southern European countries, by destroying their economies’ ability to grow out of the crisis. In the midst of an already questionable policy of austerity, the EU, spurred on for the most part by domestic political concerns in countries such as Germany and the Netherlands, has now resorted to raiding bank accounts. Done once, it can be done again. If you are a depositor in Greece, Italy, Spain, or, eventually, anywhere in Europe, you cannot but feel worried about your money.
This is just what Europe doesn’t need. In the midst of the worst economic crisis since the Great Depression, the last thing needed are bank runs, which cause panic, strip banks of liquidity, and freeze economic activity in terror. Even Third World countries do not raid their depositors without really thinking about the consequences (unless they are criminally insane or just plain thieves); that Bonehead Bureaucrats from Brussels (hereafter “BBB”) concocted this idea is nothing short of terrifying. It may be the beginning of the end for Europe as we know it.
As if realizing after the fact their huge gaffe, the BBBs went to great pains to say that Cyprus is a “one off” and “no template” for future bailouts. I don’t blame you if you lack confidence in these words. Confidence, further, is what banking is all about. As a matter of fact, confidence is what a confederation such as the European Union is all about. When this has been violated, there is very little soothing words can provide. Precedent is precedent, and now we have a Cypriot case where confiscation is going to occur. Despite protesting (“too much,” to quote Shakespeare) that this was a “one off,” and “no template,” now, the BBBs are now proposing an EU law that provides a framework for future confiscations but reinstates the formerly sacred EUR 100,000 threshold. Feel better? I, for one, do not. It feels like watching a train wreck in agonizingly slow motion.
The implications go far beyond the financial and economic. It goes to the heart of the experiment called Europe, one I, as a Greek citizen, believe[d] in. How long will Europeans, well-educated and used to living in prosperous social democracies, tolerate the BBBs’ slash and burn tactics? As for the Cypriots, they are probably going to see their economy drop by 20 percent over the next couple of years. Cyprus is already in existential peril, and the Cypriots, notwithstanding severe corruption and cronyism, did their level best in extraordinary circumstances to develop the their economy since the barbaric Turkish invasion of 1974.
It is easy to fault the Cypriots for cozying up to Russian money, much of it hot, but a small island 40 percent occupied has few choices besides offshore banking and tourism. Any number of small islands or nations runs similar shops for similar types of clients. Further, it is unfair to paint all Russians with a mafia brush; many Russian companies used Cyprus as a low tax haven, just as American companies once used Irish Finance Companies to run their European businesses with a favorable corporate tax. Both Ireland and Cyprus were heavily exposed and suffered as a result of this, but to throw down this boneheaded bail in scheme will serve to destroy in a flash Cyprus’ strongest industry which also has implications for the professional and real estate sectors. Across the Attila Line, the Turks watch with glee.
Europe put Cyprus in a hopeless dilemma. Acquiesce and witness the implosion of your economy, and the potential for severe social unrest in a very rough neighborhood, or refuse and be forced out of the Eurozone, perhaps the European Union and become the southernmost province of the Russian Federation. This is bad enough, but Europe’s BBBs may have set the stage for the demise of the European Union itself.

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