News Irish News

Thursday 21 September 2017

A small island faces EU wrath – but this time democracy wins

Q Cyprus? I think I went there on holiday once but it was a long time ago and it's all a bit hazy. Nice place, I seem to remember, but small. How on earth could those friendly ouzo drinkers have managed to get the rest of the eurozone in a flap?

A lot of people were saying exactly the same thing about Ireland a few years ago – but you're right, Cyprus really is small.

In fact, its about 0.2pc of the eurozone's economy.

The reason that everybody is getting excited about Cyprus is two-fold.

The Cypriots became the first country to reject an EU bailout last night while the terms of the bailout are leaving Spaniards and Italians worrying about the safety of their savings.

Q Why on Earth did they reject the bailout? Sure, everybody knows that Cyprus is a busted flush?

The European Union told the Cypriots that they would lend them €10bn if they managed to raise another €5.4bn themselves from citizen's bank accounts.

The government decided to raise that money by skimming money off everybody's savings.

Ordinary Cypriots went nuts, the government lost its nerve, and then voted against its own plan.

Q Crikey, that doesn't sound healthy! I can see why the Cypriots and the Greeks have been doing business for thousands of years.

That's not very charitable. The Cypriot government has to tread a fine line between destroying its reputation as a centre for financial services and protecting small savers. The government was also pushed around in a 10-hour negotiation session over the weekend.

In a sense, this is a triumph of democracy.

Unlike us, the Cypriots closed the markets, gave themselves the chance to think about the issue and decided they did not like what they had initially agreed in the middle of the night. Besides, the Cypriots are fighters.

Anybody who fought on the island in World War Two knows that they gave the occupying powers hell.

Q That makes sense, but to be perfectly honest, I'm not much interested in the politics or history of Cyprus. I'm much more interested in myself. What does it mean for me?

It is too early to say beyond the obvious fact that despite all their experience, Europe's leaders are still unable to organise a bailout without childish theatrics.

That is disappointing, and one of the reasons why the euro fell to a three-month low last night.

It also means more instability just as the markets were warming to Europe again.

Q By this time you would have thought they would have the bailout blueprint down to a tee. What went wrong?

The Germans got queasy about handing over vast amounts of money to prop up a banking system that is also a front for money laundering for the Russian mafia. Chancellor Angela Merkel couldn't see how she could square it with her voters this autumn unless those with savings were also made to take a hit.

Q When you put it like that, it makes a lot of sense. Why can't we just say Cyprus is different and move on?

That's what Europe tried to do on Monday but the markets are like the courts; they hate precedents. Once governments help themselves to people's savings it is difficult to know where it will all end.

The obvious question is, who is next? Skimming money from bank accounts is a form of anarchy after all, and the plan forced the government to stop all bank transfers. There were long lines at ATMs until the cash ran out.

Q So what happens next?

I suspect a compromise. We will probably see some sort of deal either tomorrow morning or next weekend. The rest of Europe will compromise a little, but Cyprus will do most of the compromising. As we know all too well in this country, everybody will take an offer in the end, to try and postpone the inevitable.

Irish Independent

Editor's Choice

Also in Irish News