March 27, 2013
After panic’s days triggered by the Cypriot crisis, time has come to make a meditated analysis of the scenario in which this calamity matured. Cyprus joined the European Union on the 1st May 2004 and was let into the Eurozone on 1st January 2008.
It was widely known then, as well as it is today, that 50% of the Country population is engaged in the finance business the other half being busy with tourism. Moreover, it was acknowledged that the financial turnover was (yes, was) 7-8 times the national GDP value. As the EU policy in recent years has been directed at curbing offshore financial centres, home to money laundering and tax evaders, logic leads to the conclusion that the “original sin” lays with the EU Commission and the ECB for having allowed a Country with dubious if not dangerous accounts inside the Eurozone.
A second fault, this time to be shared between the EU-Troika and the Cyprus government was perpetrated in 2009, when the Greek crisis caused a hefty “trimming” on substantial Cypriot investments in the Greek banks; this time however, is to be acknowledged that a heavier fault must be attached to the Cypriots as EU legislation decrees that it is the Country’s responsibility (and decision) that to accept financial help.
Beyond the above miscalculations, we can concede that the EU in Brussels and the ECB in Frankfurt in the case of Cyprus have taken the most appropriate decision, i.e. that to protect current accounts below € 100,000 and leave the burden on amounts above that figure on the shoulders of big investors (shareholders, bondholders, and non-insured depositors). However, citizens with liquidity below 100,000 Euro may well be asset-rich; it is the responsibility of Mr Anastasiades, Prime Minister, to make sure that appropriate taxation is applied on those assets. The last rescues in Ireland, Portugal and Greece, were borne by all taxpayers, irrespective of their wealth, while the fault laid with financers and unscrupulous politicians in the case of Greece; alas, they have enjoyed a preferential treatment.
In the case of Cyprus the Troika resisted the show of force exerted by the financial nomenclature in favour of a ‘possibly unintended’ regard for the common citizen; this behaviour was possible given the marginal financial weight of the Country compared to the whole Eurozone and the fact that most investments derived from non-Eurozone countries. If Mr Dijsselbloem, Eurogroup Chairman, spoke the truth when he said that “Cyprus is the way the Eurozone will deal henceforth with failing banks” then the Cypriot citizen should be pleased while the still scarcely-capitalized banks in other Eurozone areas should pay due attention.
Which lessons for the rest of the Eurozone? Financiers and banks should quell hazardous financial instruments in view of the increased risk to see their own institution disappear; citizens should exert increased judgement when voting political characters, possibly paying less attention to charisma and more, much more to the candidate’s competence and integrity.
In Cyprus however, the EU should urgently put in place and finance a requalification programme on behalf of the 20,000 ex bank employees to exploit the Island’s employment potential and minimize the GDP decline; it is the minimum considerate assistance expected by the EU to inaugurate a long-pleaded regard for the “social dimension”. The Spinelli Group, reuniting a number of federalist EU-parliament members, has just closed a conference with topic “EU Minimum Social Standards”; easy to address with but difficult to put into practice. The answer must be “there is a way if there is a will”.
It is time that the European Union and the Eurozone distinctly, recognize that community integration is achieved when, and only if, Governance, Finance and Society are conjugated in unison, if one of the three falters then the clock will not work.Elio Pennisi