On Tuesday 19th March 2013 the Cypriot Parliament said “no” to the 16 March 2013 Eurogroup decision to apply a levy on the bank deposits in Cypriot Banks.
This vote has triggered multiple questions and I want to try and address some of them. Mostly by posing more questions.
I would like to start from the North – South divide of the Eurozone and the European Union overall.
It is quite clear that the divide is getting bigger by the minute.
Cyprus though has an additional problem compared to the other countries of the South.
For unknown reasons, the Germans have decided to shrink the Cypriot Banking Sector, and they thought that the best way to do it is by providing dis-incentives to depositors out of Cyprus.
What best dis-incentive than the haircut of the deposits?
What makes this much worse, is that it is not only the CDU – the Christian Democrats – of Germany behind all this. They are in full agreement with the SPD – the Social Democrats – and the Greens!
And this is developing in the context of the German post-election scenario of an alliance between the CDU and the SPD.
The Financial Times reported that the Germans were rather unmoved by objections to the deposit haircut decision. They allegedly pointed out that Cyprus is so small an economy, that if this doesn’t work, they will try something else. Trial and error. No need to worry about repercussions to other parts of Europe.
There have been many scenarios about the Russians in Cyprus.
The Finance Minister of Cyprus has flown to Moscow to explore deals with the Russians.
One should take into account that Germany is one of the best trading partners of Russia and the second largest investor in the country.
Are the Russians stupid enough to put their relationship with Germany in jeopardy for Cyprus’ sake?
For now it suffices to say that the Cypriot Banks will not re-open until Tuesday 26th March 2013. This is the latest information that I have.
In any case, the Cypriot Banks today still have access to the European Central Bank’s Emergency Liquidity Assistance (ELA), which is keeping them alive.
The ECB’s governing council will meet again on 21st March (tomorrow) to decide on extending ELA to the Cypriot Banks.
In passing, I would like to note that the problem of recapitalizing the Cypriot Banks could have been easily solved by using the European Stability Mechanism’s funds (500 billion Euros).
But Germany objects to that, citing “legal” reasons. This provides a sort of “proof” for the design behind all this.
The Americans are keeping quite about all this.
They will not get involved.
After the enthusiasm of the “no” vote, a cloud of uncertainty looms over the island of Cyprus.
And the problem is that there is no forecast for a weather improvement.