Cyprus – Is the European Union opening Pandora’s Box?

By Harris A. Samaras (*)

Are we witnessing the slow death of the European Union? Have the repeatedly failing EU policymakers finally opened Pandora’s Box with their recent proposal for Cyprus?

Why are some European member states taking actions that are catastrophic for the European sentiment?

Aren’t all citizens of the EU equal under the European law?

What a blunder! What a gaffe! Because it is a serious blunder and a gaffe when the EU is blackmailing the government of one of its member states, Cyprus – to confiscate the deposits that rightfully belong to EU ordinary citizens and others alike! Depositors that trusted the written and unwritten laws that the European Union inspired or used to inspire…

Could such action ever affect the European Financial Crisis positively?

Cyprus never had a problem with earlier “blunders” caused by EU policy… The Cyprus banking sector is indeed quite large but it was in solid state up until the one-sided decisions of some European governments caused many billions of losses to banks through the haircut imposed on Greek sovereign debt and elsewhere within the EU…

All EU member states must in concert find a solution for the EU as a whole instead of shifting the damage to one member state or another… The crisis of the Euro area is systemic! Decisions taken by the strongest countries in the EU have spread misery sequentially to citizens in Ireland, Greece, Portugal, Spain, Italy and now Cyprus. This is not going to end if they, the strongest countries, keep on handling the crisis in such manner. The EU has to enforce a decision making process where the European governments are asked to care for all their citizens. The inability of the EU to take care of its citizens wholly led to the failure of the EU… clearly seen these days by the way the EU has handled the Cyprus financial issue…

Is a Cyprus-like incursion on people’s savings unlikely to happen anywhere else in the EU?

This inconceivable way of blackmailing the government of Cyprus to confiscate the deposits is sending a clear message: Nobody with deposits in smaller countries, such is Luxembourg for instance, should feel safe with her or his deposits; nobody with deposits in a weaker financially country, such is Spain, should feel safe about her or his deposits either…

Whatever happens, the Cyprus story teaches important lessons for every European and not only economy: Austerity has failed!

A most valid question which if we answer yes to transforms into an oxymoron: Are the people that led Europe into this mess the right ones to lead Europe out of it?

Praying that there will be no bank runs across Europe…

It just does not make any sense…

You would expect that finance Ministers across Europe to have known better…

How could countries like, Cyprus, Greece, Portugal, Spain, Italy and Slovenia ever boost growth with no money? With lending rates continuously dropping how can any country even have growth?

One thing is for sure: Decisions like this one about Cyprus or about the haircut of the Greek debt benefit in essence some countries… it can be very easily observed from the markets that such decisions reduce the financing cost of the German government… the German government can now borrow at negative rates… while it inflicts pain and misery on other countries… not everyone is equal under the European law!

Moreover, Germany is quick to scold the citizens of other countries for the actions of its own government officials and bankers; actions which Germany tolerated and even encouraged for years… enjoying a large market for its manufacturing products, while exerting enormous financial leverage over other EU member states… its economic missteps have gone unnoticed and so has its profit-taking from its EU partners…

Only an ignorant should not worry that the total failure of the European Union is around the corner…

The European Central Bank has also been quite unclear on its position… and it was the vehicle to blackmailing the Cyprus government… thus contributing to say the least to the mess that the EU is now into…

In order for the EU to “work”, the EU needs to form a banking union (as per the European Council’s decision of June 2012) which primarily means that all member states should have a common credible deposit insurance guarantee; a guarantee that shall apply to everybody in the Euro Area! Now the EU or better the strongest states, members of the EU, made a mockery of it, sending clearly the message that that they do not want to be part of such a decision, a decision that they so much preached about and advocated for less than a year ago…

Those in the EU that use blackmail as a mean to their own benefit should think again… Is it the right way towards a better EU to demand confiscation of somebody’s deposits? It is not! And notions of recalibrating the amounts to be seized or better stolen from depositors are not a solution either! The EU as a whole should take responsibility! And remember this is more about Europe than about Cyprus!

Think!

Is it just about the Russian money deposited in Cyprus? Funny, the EU did not feel that way two decades ago, even a few years ago…

Is it just a Germany-led propaganda which argues that the Cyprus depositor is aimed at Russian oligarchs who evade taxes? But it targets ordinary Cypriots nearly as much as it targets high depositors and somehow it doesn’t matter if it’s the life savings of a middle-class family…

Is it just about the deposits of non-residents? Only very recently the IMF and the EU stated in their reports about Cyprus that supervision of international and local commercial banks in Cyprus are more than competent, progressed over the years to the highest of standards…

Is it just about the recently confirmed and scientifically estimated huge hydrocarbon reserves of Cyprus? A fact by the way that has so strangely been ignored or diminished by the EU and international media…

Could it be that the EU in its effort to save a mere €5.8 billion (the Cyprus “bail-out” money)… is upsetting European confidence and trust… facing possible bank runs… and in essence risking trillions?

Frightening! Scary!

One is for sure: Mattresses are looking a lot more attractive than European banks nowadays…

 

(*) About the Author – Harris A. Samaras

An Economist and presently the Chairman & Group CEO of Pytheas, an international investment banking organization, Harris has also worked with the Bank of America Group, Thomson Financial BankWatch, and Moody’s Investors Service. His expertise lies primarily in the areas of investment and corporate banking, private equity and finance, risk management, corporate restructuring and business development. His research and extensive publications in these areas range across practice rather than theory, economic and business thought, entrepreneurship and geopolitics.

Read the full article at http://www.pytheas.net/docs/20130318%20Cyprus%20-%20Is%20the%20European%20Union%20opening%20Pandora’s%20Box.pdf

See also other related publications by Pytheas (Chronologically)

The failure of the Greek State engendered a disillusioned society (May 2012)

Southeastern Mediterranean Hydrocarbons – A new energy corridor for the EU? (April 2012)

Cretan Gas Fields – A new perspective for Greece’s hydrocarbon resources (March 2012)

The Economic and Geopolitical importance of Eastern Mediterranean gas fields for Greece and the EU (January 2012)

Cyprus Hydrocarbons – A Presentation (January 2012)

Cyprus – A country “ruled” by benighted labor union leaders? (December 2011)

Cyprus – A country in denial and a scandalous political leadership (December 2011)

Cyprus – Finally, energy security for the EU in the pipeline? (November 2011)

Turkey unveiled and the dawn of a new energy opportunity for the EU (October 2011)

The U.S. debt crisis, the U.S. and EU leaders and their power games (August 2011)

Could the Greek Financial Crisis lead to the end of the EU as we know it? (June 2011)

Cyprus – Why the C.O.L.A. must be abolished immediately! (March 2011)

Cyprus must change or suffer! (February 2011)

Investing in Cyprus, an EU bridge to the world of business (February 2011)

Cyprus – The economy calls for immediate action! (December 2010)

Cyprus – Real estate and construction industries optimistic despite the slowdown (October 2010)

The long overdue emergency loan for Greece is announced. Is it enough? (April 2010)

Greece must change or sink! (December 2009)

Twenty years after the collapse of “communism”, the global financial crisis pushes emerging European markets to the brink of collapse! (November 2009)

The Cyprus real property market contracted… (October 2009)

What about the Sterling? Is it in crisis? Is Britain bankrupt? (October 2009)

Laissez-faire, the “Freer Market Global Economy”, the investment banks and the policymakers… (August 2009)

Greece unlikely to escape its worst financial crisis of modern times! (July 2009)

The US economy is in trouble! (February 2008)

See more at www.pytheas.net

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  • Kasomoulis

    Well balanced article with valid questions on the EU and its
    future existence. I will go out on a limb here and say that the EU is here to
    stay. I believe what is currently happening are opportunities for the EU to
    correct the problems for the inevitably upcoming real integration in politics,
    economics and yes defense. An optimisticview about EU? I am ok with that.

    Speaking as individual middle class investors and not like
    bankers or banking experts, it is indeed scary to know that your life’s savings
    can be gone in a moment by the decisions made by a few. We obviously live in an
    era of economic instability when the only safe way to preserve middle class wealth,
    it seems, is the mattresses. The Cyprus financial problem has brought to light
    one more version of the economic failure to those that till now were arguing
    against the solvency of the banks. As a matter of fact the conclusion that can
    be drawn is that the banks are the soul of development for any nation larger
    than a population one hundred.

    That having been established, one would think there would be some kind of regulation to rein in the reach of the banks so that there can be more than a single alternative offered to people who cannot reach safer ways to preserve their wealth. Maybe there should be two
    kinds of banking; the “Investment” banks and the “savings” banks? But then why
    would a savings bank, borrow from savers if it can get their funds from the
    taxpayers for less! The current system encourages savers to take the risk and
    invest in the stock market rather than trusting their money to the bankers, and
    since individual small investors cannot make the market dance their way, one
    can guess who gets the gains and who gets the loss. The absurdity is that the
    market is run by the banks, and that I believe is the heart of the problem.

    As for Cyprus and the rest of the “economically weak” southern EU nations (to my opinion) there is only one alternative to forge ahead and that is fiscal responsibility with honest politicians on the helm, and strict punitive action for crooks. Our southern European cultural shortfall is that our majority is convinced rather selfishly that one can enjoy
    simultaneously all politico-economic systems’ benefits depending on what fits
    our purpose at which time. This has to be corrected and it will take time
    (lol… Herr Schaeuble will see to that!)

    The Cyprus economic problem, which is really a banking
    problem, makes it obvious to even those that have argued against bank
    recapitalization that their arguments are based more on politics than
    economics. On the other hand why would one not expect some kind of loss when
    they trust their wealth to risky banking business for capital security or higher
    yield? But does not this give credence to the conspiracy theorists that the
    system is tailored to forcefully encourage middle class savings total
    participation in the stock market where they are sure to lose since the bank
    losses are guaranteed by recapitalization.

    Crazy thoughts with no logical answers!!!!!!!!!!

  • oxi

    Can we please arrest the banksters and hold them accountable and remove them from government power? Maybe the sleeping public should wake up and hold them accountable by forcedly removing them if they have to but that is not what they seek. The banksters want an environment for when it does it the fan to start to fight and shoot one another where in reality all we have to do is arrest the banksters and corrupt politicians! WAKE UP FOLKS!

  • Giorgos

    German high ranked politicians, secret services and media together with their allies (Netherlands, Finland,Austria etc) are repeatedly accusing Cyprus for permitting money laundering through its banking system. And I say yes they are right! I further elaborate on that by saying that ex KGB officials which consist the majority of the tycoons in present day Russia send their money to Cyprus, money from legal activities and illegal activities as well like illegal arms trade, drugs, bordels etc. My question is did the Germans suddenly found out about it? When they were accepting Cyprus in the euro zone years ago didn’t they search every little detail about the Cypriotic economy with their methodicalness and professionalism they are bragging about? I am an average citizen and I know more about the banking system in Cyprus than what the German officials with their economists and secret services can find out? So why they insist on the money laundering issue now? Is it to blame for the bad situation of the banking system in Cyprus? Well data show that as the article suggests and all economists agree the problem was caused by the haircut of the Greek bonds, a decision supported by Germany that however nobody asked Cyprus its opinion about. So I make the reasonable conclusion that this is all about plain propaganda, a form of communication that the Germans elevated it to almost a science in a dark time of their history that they obviously now try to remind to nations across Europe.

  • Makos

    A simple and important truth in life is that nobody gives any money for free. But in this case this simple statement gets a whole new meaning. If Germany, sorry I meant the EU, is going to give any money to Cyprus is going to transform it to a poor protectorate and take control of all of its economic activities (including the exploitation of its hydrocarbons). Same story with Greece, only difference is that the economy of Cyprus was among the best economies in the eurozone until the incident in Mari and mainly the haircut of the Greek bonds. In the previous elections in Cyprus the main question was how to handle the surpluses of the economy! There is actually nothing to put blame on the politicians in Cyprus. Maybe the bankers had some responsibility (for bad entrepreneurial spirit maybe?) but the main responsibility lies with the Troika. The people of Cyprus is certainly not responsible for anything. Russia could certainly save the day for Cyprus but as it proved it also demanded to transform Cyprus into its own protectorate. The exaggeration of the Russian demands was completely disproportionate to the money asked. A completely bad handling from the Russian side that will soon regret. In my opinion Cyprus should choose the third way and leave the eurozone. Cyprus should immediately return to its own currency and be free to finance its banks through various sources that the Troika is currently inexplicably prohibiting. Of course by leaving the euro, Cyprus will loose many important advantages but it in dire times there are no easy solutions and the less bad solution is the exit from the euro. Then we will discuss what the repercussion of a country leaving the euro would be for the rest of the countries that remain in the eurozone, both those trying to control Europe and those trying to defend and whether such a stance against Cyprus was worth it.

  • oxi

    @Giorgos,
    I really could care less what the Western press is saying about money laundering when they themselves cannot even arrest a single bankster in their own countries yet have the nerve to accuse Cyprus of anything!
    The West needs to look into the mirror before making nations like Cyprus and Greece have to pay the price to keep Western mega-banks meet their profit margins!
    What has happened in Cyprus is nothing short of ROBBERY!
    How dare the West even condone this type of activity?

    • protosphere

      Where will the safe haven for deposits go in this financial lebensraum? Germany?

      Perhaps Germany’s voting public, that is easily riled by their Chancellor’s love of money, should be made aware their deposits are also at risk when, not if, Italy gets fed up with austerity to default on their banks. The patronized nations are not stupid and exponentially more compassionate to stand united than fall in this oxymoron of a union.

  • Eric R.

    Mr. Samaras:
    You have far more financial expertise than I do, but at this point, I think we both can agree that the EU (or at least the Euro) is in free fall, and the bureaucrats in Brussels somehow think that in putting out one fire after another, they will avoid a calamity.
    There is no great plan or pattern to what the EU is doing, except that they are hoping against hope that they can save the Euro – which was an ill-conceived idea from the start.
    While the short term pain would be great, in the long term, it would pay for both Greece and Cyprus to leave the Euro – and soon. The devaluation in their currencies would make them great travel bargains and reduce the cost of their exports, thus boosting both tourism and local agriculture.

    • makos

      I think there is a plan and it was decided here: http://www.nytimes.com/2012/03/16/world/europe/in-meseberg-germany-europe-is-plotting-its-future.html?pagewanted=all&_r=0

      The only problem is that Merkel cannot go out and say to the people of Germany and Europe that I want to take over Europe. This must be done under the right disquise…

    • http://twitter.com/HarrisSamaras Harris Samaras

      Eric:
      You make some valid points.
      Should Cyprus leave the Eurozone and/or the EU? Not an easy question… Very complicated and with disadvantages to Cyprus… However, in view of the recent unfair approach of the EU towards Cyprus, this must remain an option, an option that Cypriots
      should consider seriously… The only statement that I could clearly make at this point, is that, I would not like to be in a partnership where the more powerful members selectively discriminate against other members; in a partnership the law must be applied to all equally…

    • protosphere

      Eric,

      George Soros’ essays suggest the very antithesis, claiming that it is Germany who must leave the euro for Europe to instantaneously recover.

      I do not know why the international community is, so far, reluctant to expose and isolate the ruthless paymaster who has proven to be as dangerous and irresponsible with economic power as they were military. Perhaps because world economies depend on a stable euro to the extent of harlotting principle.

      Italy is already increasingly protesting against austerity (albeit Germany patronizes them, like Spain as their means of firewall ) so perhaps a chaotic default is indeed in order to meet this end.

      Germany can enjoy its short term pain for gain it advocates as its banks will be effected but this would benefit Germany too in the long run too not having to be badgered by loans. They shouldn’t protest this any more than war reparations (now that they spent a trillion to reunify their East with enormous gains) and given they exist lest thrive after Germany was the worst debt transgressor of the 20th century following a dark history of murderous theft.

  • http://www.facebook.com/midlife.crashes.9 Midlife Crashes

    It is worth seeing what the Americans say about the Euro crisis, since they are not the protagonists of the crisis and have both clearer view and less reasons to lie. I will only quote from Stratfor that I personally consider the best think tank in the world to the extent that it contributes significantly to the policy making of the superpower.

    “It has been more than four years since the crisis of 2008 and about two years since the problems spawned by 2008 generated a sovereign debt crisis and a banking crisis in Europe. Since that time, the crisis has turned from a financial to an economic crisis, with Europe moving into recession and unemployment across the Continent rising above 10 percent. More important, it has been a period in which the decision-making apparatus created at the founding of the European Union has been unable to create policy solutions that were both widely acceptable and able to be implemented. EU countries have faced each other less as members of a single political entity than as individual nation-states pursuing their own national interests in what has become something of a zero-sum game, where the success of one has to come at the expense of another.

    This can be seen in two ways. The first dimension has centered on which countries should bear the financial burden of stabilizing the eurozone. The financially healthier countries wanted the weaker countries to bear the burden through austerity. The weaker countries wanted the stronger countries to bear the burden through continued lending despite the rising risk that the loans will not be fully repaid. The result has been constant attempts to compromise that have never quite worked out. The second dimension has been class. Should the burden be borne by the middle and lower classes by reducing government expenditures that benefit them? Or by the elites through increased taxation and regulation?

    When you speak with Europeans who support the idea that Europe is in the process of solving its problems, the question becomes: What problem are they solving? Is it the problem of the banks? The problem of unemployment? Or the problem of countries’ inability to find common solutions? More to the point, European officials have been working on this problem for years now, and they are among the best and brightest in the world. Their inability to craft a solution is not rooted in a lack of good ideas or the need to think about the problem more. It is rooted in the fact that there is no political agreement on who will pay the price geographically and socially. The national tensions and the class tensions have prevented the crafting of a solution that can be both agreed upon and honored.

    If the Europeans do not generate that sort of solution in 2013, it is time to seriously doubt whether a solution is possible and therefore to think about the future of Europe without the European Union or with a very weakened one. If, however, Europe does emerge with a plan that has general support and momentum behind it, then we might say that Europe is beginning to emerge from its crisis, and that, in turn, would be the single most important thing that happens in 2013.”

    http://www.stratfor.com/weekly/europe-2013-year-decision

    The point is that the whole structure of the EU was initially conceived shortly after WWII in order to put two of the three powers of Europe (Germany and France, the other being Russia) into a single economic entity and pretty much eliminate the reasons of the previous two wars that devastated Europe. Later on, when gold stopped being linked to national currencies and trade was facing problems with the fluctuation of the volatile exchange market, the idea of a common currency was conceived. But in order to succeed, the new currency should be adopted by Germany. So the euro was made up as a copy of the German currency in order to make it more attractive to Germany. Germany show an opportunity there and managed, by imposing into the context of the EU costly legal and environmental corporate frameworks, to enhance the competitive status of the wealthy German companies, that could absorb the extra costs, and at the same time eliminate all trade barriers to countries that entered the euro zone (devaluation was no longer an option to control trade deficit). Of course some countries that did not had the industrial base of Germany could not compete and resorted to loans, that at the time because of the euro, were cheap to finance their trade deficits. What a trap! Now Germany wants citizens of the troubled countries to carry the burden of the rescue, for generations to come! And not only that but it also promotes the ‘legal’ control of all state budgets inside the euro area. That means that Merkel wants economic (ie total) control of Europe. That means that the economic influence of the US in Europe must also decrease. This is why the US is rather negative at the prospect of a dominant Germany. At the same time Germany promotes a common trade area between the two superpowers because Russia sees that it will no longer be possible to cooperate or ally with this Europe and it turns towards India and China and creating its own trade area(s). A new pipeline from Russia to the Indian market will probably increase the strategic options for Russia. And then what? Germany will probably target Africa? What the next conquest will be?

    Unless of course German plans do not succeed. Spain stood up to an extent, Italy will probably follow a more reactive policy after the elections. Cyprus can be the best candidate for the first blow. The UK, although not a member of the eurozone, following the successful centuries long tradition according to which whenever a continental country in Europe takes full control is considered a great danger, now tries to withdraw from the EU. By the way where is France? Did it submitted itself to the German economic imperium? Proud de Gaulle would be furious if he was alive!

    • http://www.facebook.com/midlife.crashes.9 Midlife Crashes

      I see trouble coming and perhaps this story here is related to my notion http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/16/why-germany-wants-its-674-tons-of-gold-back/

    • Kasomoulis

      To my estimate you have a good assessment of the EU current events where each country nation selfishly wants to protect its own interestsand neither the well doers nor the less fortunate are willing to meet the other half way. One has to bear in mind that each country is burdened with a different load of spending depending on their size and geopolitical location, their size etc. In some cases the decision to join the European Union was mostly dictated by the power vacuum left after it became obvious that the US would relinquish Europe. It seems everyone is running for cover, however, I believe this will come to pass and the EU will finally get the federal
      authority that is in the works currently. In my opinion the question remains as
      to what kind of federation will that be – certainly the EU current actions will
      make the nations be very cautious in what they sign in for – In my opinion Russia
      would offer a good balance if they too participated into this partnership.
      I am not aware of a past EU economic integration agreement that dictates the richer nations will be obligated to help the less fortunate. Of course there can be no such agreement unless there is also a political integration, which would have to guaranty the freedom of all citizens as well as the protection of each nation’s boarder. This
      would demand a new “European” constitution to be drafted to define the powers
      of the federal authority and the powers of the state-nations in order to guaranty
      both the large as well the smaller nations’ security and the rights of the citizens in a way that the minority’s rights will not be washed away by the majority. Does this sound like the European Union has put the cart before the
      horse? I am convinced this can be still corrected.

      Yes, Mr. Friedman and Mr. Kaplan at Stratfor are the best so far…. In analyzing global affairs. They are currently analyzing the Balkans and the eastern Med one nation at a time – this week being Turkey. Do they see something coming? And if yes will this be short or long term? Good questions!
      It is also true that Russia will have no problem selling their energy to the Asian countries you mentioned. Europe will be in a bind soon as they rely for 40% of their energy on Russia. As for Germany there are plenty of levers to be used to rein the Germans in away from their traditional “master race” paranoia. Remember the Germans may have the money but the rest have the “waffen”.

      Finally the Europeans have to come to realize they cannot
      have it both ways; being against saving the banks on one side and defending depositors loss at the same time. The banks are not faceless things, their owners are the depositors!

  • oxi

    The folks of Cyprus need to revolt! They need to remove the President who told close friends and family to withdraw $$$ before this happened. He is nothing short of a technocrat bowing to the wishes of the banksters against his own citizens. The government of Cyprus should be removed by force if necessary.
    I cannot believe you guys fail to understand this is nothing short of ROBBERY! This goes beyond simple tax collection measures, this is STEALING!
    My gosh, if this is how they want to start the next great global war, they are already on that path just listen to what Russia is saying about this!

  • oxi

    Greeks and Cypriots: when will you wake up and throw them out!!!

    Cyprus’ President-related company transfers €21 mln to London prior to bailout agreement

    A company owned by in-laws of Cypriot President Nicos Anastasiades wired €21 million from Laiki Bank to London days before the Eurogroup’s crisis-triggering levy proposal, claims a Cypriot newspaper. The president demands an investigation.

    During two days, 12 and 13 of March, the company A.Loutsios& Sons Ltd., co-owned by Loutsios John, the husband of Nikos Anastasiadis’ daughter, Elsa, took five promissory notes worth €21 million from Laiki Bank. The money was then transferred to London, reported Cypriot newspaper Haravgi, affiliated to the communist-rooted AKEL party.

    The withdrawal was fulfilled just three days before the Eurogroup meeting when euro finance ministers agreed a 10 billion euro ($13 billion) bailout for Cyprus.