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Cyprus’ bluff has failed

21 March 2013 / 22:03:47  GRReporter
5882 reads

Anastasia Balezdrova

The initial ardour of the almost unanimous "no" of the Parliament of Cyprus to Eurogroup’s proposal began dampening after it became clear that plan B to save the banks and the economy has not been drawn up in advance. Moscow has showed no intention of buying the problematic Cyprus Popular Bank, banks will remain closed at least until next Tuesday and for the time being, no one has undertaken to predict how this thriller will develop.

GRReporter has sought the opinion of professor of economics at the Panteion University in Athens and Vice-Chairman of the Liberal Party Drassi, Antigone Lyberaki, of how things have ended up here, how sincere the Cypriot politicians are, who had staked on the patriotic fervour at the expense of the genuine tone to their constituents.

Mrs. Lyberaki, how do you assess Europe’s position regarding Cyprus?

It has been some time since Europe made some observations on the situation in Cyprus as regards the debt sustainability, the economy and banks, the need to recapitalize them, which is an important prerequisite to avert the financial collapse of the country.

The problem of Cyprus lies in the banks. The banking sector is over-inflated. Three years ago, it was 8.5 times greater than the GDP. Now, it is about seven times greater. It should be reduced to three times. Otherwise, we will be facing a miniature of the world economy with the uncontrolled development of financial institutions that had led to the crisis in 2008.

So, Cypriots were very well aware of the position of Europe and what they had to do. However, they are like us in many ways: they were delaying things, trying to pass the problem into the hands of the next government, they were pretending to discuss a memorandum of financial support but were not signing it. From time to time, they were making small changes in the management of public finances but it was not enough. The amount needed for the bank recapitalization is huge.

The Cypriots attended the meeting of Eurogroup last Friday but they were somewhat unprepared in the sense that they did not actually believe that things had reached their limits and that they were to take a final decision. It seems that they themselves insisted on not cutting the large deposits contrary to the position of other Europeans and everyone else. The Cypriot position was that the burden should be broken up into many pieces and the owners of deposits under 100,000 euro, which generally must be guaranteed, should bear part of it.

Unfortunately, Eurogroup fell into this "trap" because Cypriot President Nikos Anastasiadis and Finance Minister Michael Sarris had assured their European partners that this was their choice. Eurogroup probably should not have accepted their machination.

Figuratively speaking, it was as if they had shown them a baby that was in the hands of a warrior armed to the teeth and they said, "You want to harm the baby." But the issue is not the baby, the issue is the warrior who must put aside his weapons and become a man, a European, since he wants to be a European.

So, the next day, Eurogroup issued its second decision, saying that Cyprus was free to decide how to provide the amount needed for its involvement in the recapitalization of banks. Then, the masks fell and the Cypriot parties almost unanimously said they were opposed to any cuts in deposits and would solve the problem alone.

"Meanwhile, they had closed the banks. They did it hoping that it would cause panic in the banks of all weak economies and they would press the Europeans to fear that there would be chaos in Greece, Spain, Ireland, and Portugal; that the people would run to withdraw their deposits from fear and everything would collapse. But this manoeuvre has also failed because Cyprus’ banking sector may be very large but it is a very small part of the European and global economy. Fortunately, nothing has happened."

Meanwhile, they had closed the banks. They did it hoping that it would cause panic in the banks of all weak economies and they would press the Europeans to fear that there would be chaos in Greece, Spain, Ireland, and Portugal; that the people would run to withdraw their deposits from fear and everything would collapse. But this manoeuvre has also failed because Cyprus’ banking sector may be very large but it is a very small part of the European and global economy. Fortunately, nothing has happened.

Nevertheless, banks in Cyprus remained closed for almost a week and this will last until next Tuesday. Yesterday I listened to correspondents in Cyprus, who claimed that the price of the Cyprus Popular Bank was 3-4 billion euro. At the same time, the government was asking Russia to redeem it for one euro. The Russians have refused, because you must be paid to take over a bank lost in liabilities. It is just unreal.

With lies, we only achieve the imposition of false patriotism and false pride based on a very inaccurate description of the situation. In practice, a clumsy and explosive Mediterranean type comes forward, who starts screaming in the streets and a very strong and favoured oligarch, regardless of the nationality, lies behind it. I am talking about all those who have greatly benefitted from this system over the last year.

What will happen from now on?

The European Central Bank will not give them the 10 billion euro they need. The condition is that Cypriots will have to find another 5.8 billion euro.

Things that are even more unreal have appeared in this regard. They are saying that they will use the money from the insurance funds, which means that they will take the money that people have been paying for their pensions for years to give it to whom? Is it in order for the extremely rich depositor who has benefitted from the system the most not to pay anything? This is ridiculous, shameful and immoral.

Or that the church would give its property to the state. The church that does not pay taxes suddenly is becoming very anxious to save these people and then, it will have no funds to provide free lunches, which the majority of Cypriots will need very soon.

It is simply impossible to say such things and to call them patriotism.

During all these years, the opinion that the Turkish Cypriots are the only obstacle to the solution of the political problem in Cyprus has been imposed in Greece. Do you think so?

No, I do not think so. It is just that the Greek Cypriots had a long diplomatic tradition of managing to keep the role of the victim, without yielding to anything. As a result, each subsequent plan for resolving the Cyprus issue is worse than the previous one. Time cannot stop just because you are trying to stop the process.

Greek Cypriots kicked the last chance to settle the matter with the rejection of the Annan Plan. Perhaps they are now paying the price of this shock, which they had caused among the international community then. Because before that, they had created the impression that they were open to the final solution, that they would accept it if it was proposed by the United Nations. In general, they had almost stated that if they accessed the European Union they would solve the problem quickly. Instead, they have become members but have not solved it.

It is curious that the Greek-Cypriot side was in a better position to negotiate. Turkish Cypriots made many serious mistakes such as the invasion and the establishment of a regime in which democracy was questionable. They violated the international law in many respects and it was logical for a democratic state to have a clearer voice than a dictatorship. But tolerance, patience and good will dry up at some point. In this case, they were completely exhausted by the Cypriot Greeks.

The Greek government bears major responsibility for failing to exert any pressure for the acceptance of the Annan Plan. The "common national policy" doctrine was 100 percent wrong from the beginning to the end.

How do you see Cyprus in 10 years? United, yet divided, inside or outside the euro zone?

I cannot answer for sure. It depends on the Cypriots’ composure and on the presentation of a plan B, which has to be sustainable and to convince the Europeans, even if they have to close their eyes, if not to the whole amount, then at least of a large part of these 5.8 billion euro. They should grant the loan of 10 billion euro to allow Cyprus to stay in the game.

But whatever happens, the Cypriot economy has suffered great damage. Even the closure of banks for so many days has caused much damage. Moreover, I completely exclude the possibility that the country will continue to be the financial haven it was before. It was over anyway, but after the moves of the Cypriot government, the economic contraction will be more dramatic. It could have been a little smoother and they bear the burden of the fact that it is not.

I hope that they will learn their lesson if logic prevails and Cyprus remains in the euro zone. I do not know whether the country will be united in 10 years, but probably the two parts will be closer to unification.

It is doubtful that things would turn out this way. I would not think about the opposite scenario, which is very painful and will have negative consequences for Greece. Another negative feeling will be created in the minds of the people, which will be adopted as national humiliation.

The criticisms to the position of Greek Finance Minister Yiannis Stournaras during the meeting of Eurogroup have already started. And it was very proper, fair and adopted after a discussion with the Cypriot side. I also believe that such a development would stifle the voices of reformers and enhance these of political extremes.

Tags: PoliticsBanks.CyprusEurogroupAntigone Lyberaki
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