Following the dramatic showdown between Cyprus and the Troika (IMF, ECB, EU), during which the future of both my tiny homeland and the Eurozone behemoth were at stake, and which resulted in a dubious outcome, I decided to mark the occasion with a dramatic but appropriate tune, which I played all day on my PC.
The reason? To remind myself of what the next steps are, other than a plunge into Tartarus.
Let me put things in context. Why was the outcome dubious to begin with? Or, as they say in Germany…
Warum, Warum Ist Die Banane Krumm?
The reasons are five:
First, Cyprus had to accept a destructive rescue plan that will most definitely cripple its entire banking sector, and, thus, its economy.
Much of the decision-making was conducted under pressure. The negotiation process was attritional.
Second, this was done under the worst possible circumstances. Much of the decision-making was conducted under pressure. The negotiation process was attritional, shredding the ties of goodwill between the EU and Cyprus, while sending unnerving signals to other member states.
Third, a bail-in (bank levy) of approximately 30% was agreed on all Bank of Cyprus accounts that hold over and above 100,000 Euros, a taboo never before broken in modern Europe. Though the Euro Group emphasized that Cyprus was a special, one-off case, it spooked people round the continent. (Note – Latest rumors speak of 40%, as an ELA debt of 9 billion Euros is transferred from the state-owned, and now defunct, Cyprus Popular Bank to Bank of Cyprus.)
Fourth, Russia is currently aggravated by the fact that roughly 20 billion Euros held by Russian offshore companies in Cyprus will be trimmed. Retaliatory action will surely be taken in due course, which Europe may well be able to afford – or indeed be expecting under the auspices of an ongoing economic war, which Germany is currently waging on both friendly and rival countries – but which Cyprus will have a very hard time dealing with.
Last but not least, the rescue plan isn’t targeting the problem at its root. The Cyprus economy will not become more sustainable.
Last but not least, the rescue plan isn’t targeting the problem at its root. The Cyprus economy will not become more sustainable, as was the ostensible aim of this foul memorandum, despite the noble and bold intentions of the government, who negotiated it. Even though the island had it coming for a while, having failed to act accordingly when the first signs of trouble became evident months ago – some say years ago – this was ‘overkill without return.’ The overgrown and overexposed Cyprus banking sector has been shrunk overnight, crippling GDP growth and shocking the island into trauma, while the bloated and unsustainable public sector that has been eating away at the country’s viability for years has not been dealt with at all. It has not even been mentioned.
Thus, a second memorandum is bound to follow. Rational or not, it will address not only an imminent GDP shortfall, but also the clogging of the economy’s arteries from chronically-bloated state expenses, abused state pensions, belligerent union initiatives, and inefficiently state-run organizations.
It is an inevitable development. What doesn’t work must be either fixed or replaced. There’s no way around it.
If only it could take place without throwing everything to the dogs. There are parts of the island that work admirably well, from select public sector departments to numerous private enterprises.
Unfortunately the healthy parts of the island are inextricably entwined with toxic appendages and faltering organs. They will have a hard time escaping the scalpel, if not the cleaver.