Paying for the gross mistakes of Greece
THE vindictive nature of the decision for collective punishment of all depositors in Cyprus banks is likely to sow the seeds of the end of the eurozone as we know it.
While Cyprus may be a small country and the Eurogroup can allude to the size of the banking system, this comes after the “uniqueness” of Greece. The real question which the Eurogroup should have addressed is whether the debt amount and the issue of “debt sustainability” which the IMF cast in stone, was really worth taking the big gamble of imposing the haircut on Cyprus, a small member of the European Union. And what message is the Eurogroup sending to other countries such as Italy and Spain.
The Eurogroup and IMF’s imposition of the unprecedented measure of a deposit haircut is the outcome of those groups’ failings in Greece, and to a lesser extent Cyprus is a victim of the domestic politics in Germany. The Eurogroup cannot show any success in its handling of the Greek debt problem and has moved the goalposts several times since the first days of the crisis. The Eurogroup did not diagnose Greece’s problem as one of solvency (as the Bank of England governor said) but instead started by dealing with it as one of liquidity.
When Christine Lagarde was finance minister of France in 2009 she never contemplated a debt forgiveness of 80 per cent for Greece since French banks had much to lose. She waited until she was at the IMF to support the measure giving French banks ample time to sell their Greek exposure. The Greek debt sustainability programme prepared by the IMF to justify debt forgiveness included privatisations in Greece providing €50 billion by 2020. Can Mrs Lagarde and the IMF explain to the world how much they expect now? Is it not true that because Greece could have contaminated the rest of the eurozone they bent over backwards and forgave Greece hundreds of billions of euros.
Cyprus did not ask for forgiveness and needed to borrow €13 billion using the basic scenario of PIMCO. How does this compare with the €160 billion Greece was forgiven by the Eurogroup.
Can the Eurogroup claim success in Greece? By pumping billions of euros into the banks, which bought their countries’ respective bonds, Mr Draghi has postponed the day of reckoning. By delaying the much needed reforms which come with bitter austerity the ECB has managed the markets well but when the markets wake up to reality and see that nothing has changed (Italy is even worse off after the recent elections) they will punish the Eurogroup and there will be little left of the eurozone.
Germany may have its own reasons not to unravel the euro as it suits Germany to have a weak currency and does not want to be blamed for destroying Europe again. The question for the Eurogroup though is that Italy, Spain and Portugal have problems of adjustment and high unemployment. Why should any politician have faith in the Eurogroup if they can blackmail the country into submission to prescriptions which are untested?
Clearly, Cyprus faced with the treat of bankruptcy and the haircut has been cornered and made to accept the terms set by the IMF and not the EU. The IMF threatened that unless its terms were accepted it would not participate and this was the excuse given by some eurozone countries not to participate either. Hence the IMF held all the cards to give Cyprus some breathing space in adopting a flexible repayment of the debt, especially when the gas reserve revenues could meet the debt payments after five years. The Cyprus government has been harshly treated by its so called partners and there is no guarantee at all that the prescription will work. If the Eurogroup has the confidence that it could succeed it should underwrite the future increase in the Cyprus debt that will result from their decisions. Judgement without consequences is undoubtedly unfair and undemocratic.
The Eurogroup, and the architects of the haircut may live to regret the day they imposed on Cyprus such a harsh decision for what is clearly an unknown result and without any consequence on the people who take such decisions.
The EU Commission had stated that a haircut of deposits was not on the table and yet since the decision has gone totally quiet on the subject. How can Spain and Italy have any confidence in what EU officials tell them?
Erol Riza is manager of SME Markets Limited in London
end quote from:
http://www.cyprus-mail.com/opinions/paying-gross-mistakes-greece/20130319
Germany as the "only game in town" in Europe except for Great Britain in some ways might in the end be blamed for what has happened to Cyprus because it is a direct result of how Greece was dealt with. So, Germany might be blamed financially for a similar kind of financial debacle of europe as Hitler caused violently during the 1930s and 1940s.
I think it is Germany's successful model economically and it's lockstep mode that might bring criticism in the future. Germany just like under Hitler might become a victim of it's own success in running the EU. Efficiency likely will create jealousies among EU neighbors. The U.S. has had to deal with this kind of thing ever since World War II as well. However, Germany being a smaller nation this might be more difficult for Germany to ride out over the next 10 years or so or even longer.
I bet Great Britain in some ways is thanking it's lucky stars that it didn't join the Euro group because it can see clearly what is going on as well and is thanking it's pound sterling every day.
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