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Cyprus’ bluff has failed

21 March 2013 / 22:03:47  GRReporter
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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.

Tags: PoliticsBanks.CyprusEurogroupAntigone Lyberaki
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