EU shocks Cyprus and everybody else

EU shocks Cyprus and everybody else

“The financial crisis is developing into a geo-economic and geopolitical plundering in the southeast Mediterranean,” commented Greek journalists Nikos Xydakis, one of the loudest critics of the EU.

“Plunder” was also the term used by another Greek commentator who commented that the decision by the Eurogroup March 16 to force a one-off levy (9.9 percent for over 100,000 euros and 6.76 percent for below 100,000 euros) on savings in Greek Cypriot banks as part of an extraordinary 10-billion-euro bailout agreed to in Brussels with new president Nikos Anastasiades. It is the same Nikos Anastasiades who only days ago publicly promised that “as long as he is in charge there is never going to be a ‘haircut’ on private savings in Cypriot Banks.” Now he and his Economy Minister, Michael Sarris, will have to deal with a wave of public fury.

The agreement was implemented before its parliamentary approval. Depositors – almost half of the total are Russians – found ATMs closed for cash “for technical reasons” or “after the order of the Central Bank.” With small and medium depositors in shock for the “brutal” loss of their savings and companies facing problems with their financial balances, Anastasiades will have a hard job convincing his people that “he had no other choice except for an unruly default.”

When this article was going to print, mid-day yesterday, the Cypriot Parliament had not yet started its crucial session to approve or reject the agreement that, incidentally, includes taxation on bank deposits, increase of company taxes and sweeping privatizations. The aim is that these measures will close the gap of a 17-billion-euro public debt to which the Eurogroup agreed to lend 10 billion, perhaps with a little help from the IMF.

Although there are many who accuse Anastasiades of “unacceptable compliance,” it seems that the air in Brussels has changed, at least for the indebted countries of the South. Cyprus is one of the smallest eurozone economies but the interdependence of the EU structure has made the euro sensitive even to a minor tremor. Rejection of the deal with Brussels would mean “a collapse of two major banks in Cyprus,” said Anastasiades, whose country has now become the fifth member of the eurozone – all from the South – who has run to Brussels for financial help.

Saying that the EU is turning into a two-tier structure with a rich north and poor south is nothing new; nor that EU is turning into a Germany-dominated economic and political entity remotely resembling the Europe of the past.

Exactly because of that, the recent decisions for Cyprus are important. Because the EU (the rich north) is sending a strong message to its members that the price for staying in the Euro may by higher from now on and they should not count on “European equality and solidarity.” That the economic tools used so far for ailing EU economies, such as slashing salaries, pensions, social benefits, privatizing public assets, squeezing the public sector and limiting labor rights have not proven enough to contain the crisis. So, for the first time in its history, the Eurogroup overstepped its limits and moved to a “confiscation” of bank deposits. How this measure can be seen as legally justified, I would like somebody to explain to me. Could, for example, a similar decision be taken for Italy if needed? And how does this decision comply with the right of the eurozone citizen to use its common currency freely and at will?

So the message is, nothing is given and rules can be bent. Would that not be ultimately a blow to the credibility of the “euro,” I wonder?

Coming now to the specific issue of the Cyprus Republic. Since its adventurous entry into the EU and the eurozone and the pending problems with the Turkish North and Ankara, Brussels was always shown as a safe haven of acquis protection for the Greek Cypriots. The recent agreement may show that this is not a given. Speaking after the EU Summit last week, Greek PM Antonis Samaras referred to the “Strategy 20-20,” an EU development agenda, until 2020. “Europe has energy insecurity, it does not have its own energy resources. Greece and Cyprus are in a position to offer energy to Europe, our energy is that of Europe, provided that all goes as we plan,” he said.

It may be still difficult to detect the future of European energy policy toward the assumed energy riches in the southeast Mediterranean, but the tough attitude on Cyprus may be more of a political than an economic decision to send a message that any negotiations from now on would be tough, not excluding in this the “Turkey factor.”