One simple question that Cypriots are asking


The Eurogroup decision for a depositor bail-in, was ostensibly aiming at securing that Cypriot banks would sail into calmer waters. It was supposedly going to calm down depositors, secure that a winding up process for the insolvent Laiki would take place under orderly conditions and allow Cyprus to continue the reform process that had already been underway.

Hell? Or High water?

Hell? Or High water?

Instead, rather than buying time so the entire process would take place in an orderly fashion, the Eurogroup decision sped up the process to warp speed. The shallow but steady deposit flight from Laiki Bank and Bank of Cyprus (which for the most part shifted deposits from these troubled banks to the robust banks in the Cypriot banking system) suddenly became a profuse hemorrhage.

This suddenly took off the table every possibility of an orderly solution to the problem and, faced with a violent correction of the problem, created an all-out bank run in Cyprus.

All of this was predictable, of course. I never thought the depositor bail-in would have gone forth, mainly because it’s such a horribly unwise option. Most observers were also commenting that such a decision would lead to a rapid disintegration of the banking system of Cyprus. In fact, the 17 billion grand sum of the bailout for the country is no longer a realistic sum, while the projection that the recession would move around 3.5% for 2013 –already unrealistically optimistic- no longer stands. The entire program, the expectations on primary surpluses, the estimates on government revenues, even spending (for example on unemployment benefits) are also already off.

This was far from surprising for anyone even vaguely following Cyprus or even the Euro-crisis.

So the deeper question is rather simple: Was the elite of the Eurogroup completely unwise? Is the depth of their perception so skin-deep? Was this monumental incompetence at an astronomic scale?

Or was it all done in bad faith?

If the purpose was to ruin Cyprus, an EU member state, this would be speaking volumes about the distance between what we want the EU to be, and what it has become.

One the other hand, if this was pure incompetence, that raises a whole other host of questions.

In any case, the answer would speak volumes about the future of the Eurozone and, indeed, the EU itself.


4 thoughts on “One simple question that Cypriots are asking

  1. A third possibility is that the EU simply didn’t realise the Cypriot delegation in front of them and back home was, to say the least, amateur.

  2. Ο γέγονε , γέγονε εξ ου και Γαία πυρί μειχθήτω. Ουκ εκ τω πολλώ το ευ μεν, παν μέτρον άριστον δε. Χρόνου φείδου και τα εν οίκω μη εν δήμω, ει τους κύκλους ατάραχους θέλεις. Ει δ’ άλλως, συν Αθηνά και χείρα κίνει.

  3. Παράθεμα: PIGS beware: Another ECB lesson from Cyprus | Η πελλάρα εν ΠΟΛΛΩΝ λογιών


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