The Economic Ruin Of The Troika Visits Cyprus
Cyprus is currently experiencing the most dramatic collapse yet in a Euro Zone crisis that is only deepening in its third year. Only a few weeks after center-right leader Nicos Anatasiades decisively won presidential elections, he now governs a country enduring nothing less than economic siege, with banks shuttered and a modern economy reduced to an exchange cash -however much is let into circulation. Any faint hope that European economic policy is no longer set to austerity and depression must surely be shattered after all that has passed.
As in the other bailed out countries like Portugal, Greece and Ireland, what has been done to Cyprus has both culprits abroad and at home. Cypriot President Anatasiades originally agreed to the bail-in of small depositors only for that plan to fail in the Cypriot parliament. He then had his finance minister pursue a deal with Russia that would never materialize, before finally going back to the Troika and agreeing to a deal that leaves small depositors untouched, but that ultimately pulverizes the banking sector with great collateral damage to the “real economy”.
Abroad, creditor states led by Germany ambushed Cyprus in the nation state bargaining arena that is the Eurogroup. It is an unsustainable situation in which domestic German politics imposed itself on Cypriot society. Looking ahead to German elections in the fall, Berlin insisted on Cyprus financing nearly half the bailout by raiding its own bank deposits. The Troika would deliver 10 billion euros, Cyprus had to deliver the other 5.8 billion euros. Dramatic conditions before even discussing any austerity measures like the ones seen in Greece, Portugal, and Ireland.
More than any previous bailouts, even the ones of Greece, the Cyprus bailout has the least chance of succeeding in stabilizing the financial crisis. The other bailouts succeeded in calming markets for a time, until the markets were awaken to the economic, social and political reality. The Cypriot bailout, on the other hand, has caused so much damage up front, failure is inevitable and in very short order.
Bank are already closed into their second week, paralyzing Cypriot commerce. Economic forecasts as a result of the turmoil are dire. Unemployment may doubling from an already high 14% to a socially explosive 30%. Analysts see the economy contracting by more than 10%, higher than even the savage economic contractions witnessed in Greece. All of this will inevitably play havoc with the country’s deficit and national debt, with tax revenue collapsing as taxpayers lose their jobs or see salaries reduced. Out of fear of spending more than 10 billion euros on a bailout, the Troika may have just made sure Cypriot economy is unable to pay back that amount loaned to it.
The Cyprus debacle demonstrates how Europe as an entity still doesn’t function. The continent is trapped between two impossibilities. Politicians in the bailed out countries are terrified of adding an uncontrolled Euro Zone exit on top of the economic depressions they already endure. At the same time, both creditor and debtor states balk at ripping up the sovereignty of European nation states in order to build the common, authentic European institutions necessary for monetary union. Unable to go forward or revert to the old mode of individual currencies, the continent simply sinks, with saw, nation state rivalries intensifying all the way down.
The bitterness toward Germany is only growing deeper and spreading beyond Greece. Just since the flair up in Cyprus; a protester in Cyprus scaled the German embassy and took down the German flag, Spanish newspaper El Pais published and then retracted an article by an economist comparing Merkel to Hitler, and the Luxembourg foreign minister accused Germany of striving for hegemony in Europe. It’s impossible not to feel deep unease for the continent, that it’s continuing to find darker aspects of its history and nature. The crisis has shattered the promise of prosperity in Europe, and with the misery set to continue and deepen, the promise of peace looks increasingly lost as well.