ΣΧΕΤΙΚΑ ΑΡΘΡΑ
By Endy D. Zemenides
“If this is successful then it will be used in the future. If this is not successful, then who cares about Cyprus.”
– Senior eurozone official on Cyprus’s bank deposit levy vote
In most of Europe on Sunday, the Resurrection of Christ was celebrated. Christian faithful around the world believe through the Resurrection, humanity can overcome original sin and be granted eternal salvation. In little over a month, Easter will also arrive in Greece and Cyprus. Yet there is little expectation of salvation in either country. Indeed, last week – during the Holy Week of most of Greece’s and Cyprus’ European allies – the people of Cyprus were promised a future that would be more akin to the Passion of Christ (Τα πάθη του Χριστού) than to salvation.
Over the last two weeks, Cyprus – with an economy roughly the size of Vermont’s and smaller than many U.S. cities – presented the latest, greatest threat to the global economy. Despite planting the seeds for this latest crisis by forcing a catastrophic haircut on the Greek debt held by Cypriot banks, European allies and the media decided to blame (and mock) Cyprus’ banking practices as the cause of the crisis and suggested that the catastrophe about to befall Cyprus’ banking sector and economy was the penance the Cypriot people had to pay for such sin.
Undoubtedly, mistakes were made in Cyprus. The economy became overly reliant on the banking sector, and Cypriot bank portfolios were not sufficiently diverse. The resolution of Laiki should have been taken up long ago. The government should have not blindly believed in a Russian back up option. The Bank of Cyprus made disastrous bets on buying Greek debt at a discount and lost $2 billion on this wager.
Yes, mistakes were made – but not the ones that Cyprus’ European allies decided to spin about in order to justify their approach. We heard about Cyprus’ large banking sector and status as an offshore financial center. Yet these were prominent features of the Cypriot economy during Cyprus’ EU accession negotiations and well before Cyprus’ entry into the Eurozone. We were subjected to talk of Cyprus as a tax haven and money laundering center, with insinuations of illegality that had no basis in truth. Cyprus is in fact a low-tax jurisdiction, not a tax haven. Cyprus is on the OECD’s ‘white list’ of jurisdictions complying with the global standard for tax co-operation and exchange of information. Incidentally, the most popular destinations for U.S. companies and citizens that “offshore” have been classified by the OECD as “tax havens” while other European banking centers – Switzerland and Luxembourg – don’t meet the OECD standards as Cyprus does.
As for the “money laundering” malarkey, the OECD financial task force found that Cyprus complied with all 49 of its recommendations to combat money laundering, whereas Germany failed to comply with five of them. Cyprus also received high marks in the Council of Europe’s last money laundering report in 2011.
Then there was the gem about the Europeans and the IMF being frustrated at the lack of communication by Cypriots. This ignored that: (a) Cyprus had agreed to a bailout with the Troika last November; (b) that President Anastasiades was openly talking about austerity measures and the Troika program during his campaign; (c) as recently as 2011, the IMF was forecasting a balanced budget in Cyprus by 2014. During all of these communications with the Troika, the deposit haircut was not put on the table. The Troika blindsided Anastasiades, and did it with such speed to prevent a serious plan to either withdraw from the Eurozone or to turn to a Russian option.
Why so many lies about Cyprus from its European allies? In this case, lying is the transgression that covers up the more serious, original sin: the launch of the euro. The Eurozone – as presently constituted – was an ill-conceived apparatus. A monetary union without the proper institutions (i.e., a banking union, coordinated fiscal policies), the euro itself was the root cause of most of the crises that Europe faces (by allowing poorer European countries to borrow on Germany’s credit.) It is also the reason why southern European nations cannot climb out of recession and depression. It robs governments in Athens, Dublin, Lisbon, Madrid, Nicosia and Rome of the tool of monetary policy, and makes these governments completely dependent on Germany’s tolerance of inflation. The inadequacies of the Eurozone to deal with these economic crises may be ensuring its doom.
As the quote at the beginning of this piece signifies, Cyprus became the latest guinea pig in an attempt to save the ill-conceived euro. European leaders still don’t know in what direction they are headed, as evidenced by their flip-flopping on whether the Cyprus bailout serves as some type of bailout. But until they address the original sin of improperly launching the euro, the only salvation for Cyprus, Greece, and others may be to abandon the euro. Orthodox Easter is a month away. The people of Europe have borne their cross; now they deserve the promise of salvation.
http://hellenicleaders.com/blog/europes-original-sin/#.UVpWyN7D-M9