Tuesday September 2, 2014 Search
Weather | Athens
29o C
23o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Cyprus: It's not about the numbers

By Nick Malkoutzis

The Eurogroup agreed on Monday night to allow Cyprus to change the make up of its controversial deposit tax. Instead of imposing a levy of 6.75 percent on savings under 100,000 and 9.9 percent on those above 100,000 Ė as agreed in Brussels in the early hours of Saturday Ė Nicosia can play around with the numbers, just as long as it raises the arranged amount of 5.8 billion euros.

Cyprusís new but already beleaguered President Nicos Anastasiades is proposing that bank customers with deposits under 20,000 euros should not be taxed at all, while keeping the levy the same for the remaining depositors. Cypriot MPs have already shown a reluctance to approve the tax, mindful of the impact on depositors but also the long-term damage it could do to the islandís banking system and economy.

However, whatís happened over the past few days and whatís likely to happen in the days and weeks to come has little to do with numbers. It is much more about perceptions. Even if a financial meltdown is averted in Cyprus this week, the decision to tax depositors there in order to reduce the eurozone and International Monetary Fund contribution to the islandís bailout has sown the seeds for a future eruption.

The Eurogroupís decision on Monday was a clear attempt to correct a mistake, while steadfastly refusing to admit one had been made. There are different interpretations about what happened in Brussels late Friday and early Saturday but ultimately they matter little compared to the end result, which was that Anastasiades flew home to implement the first depositor haircut in the euroís history with the blessing of fellow eurozone finance ministers and the IMFís Christine Lagarde.

There is nothing the Eurogroup had to say to the Cypriot government on Monday night that it could not have said in Brussels a few days earlier. The only difference was that by Monday the reaction in Cyprus and other parts of the eurozone to the idea of a deposit tax, including on guaranteed savings, had underlined what a perilous idea it was to start off with. From Sunday, eurozone governments and finance ministers who had been at the Eurogroup meeting, started to distance themselves from the idea of taxing small-time depositors with such frequency that it seemed hardly any of them participated in the Brussels talks and the few that did were strong-armed by Anastasiades into accepting a tax for deposits under 100,000 euros.

The back-pedalling and hand-wringing has been an embarrassing spectacle but it has also laid bare the unedifying eurozone decision-making process and the lack of stature amongst its decision makers. The only two plausible interpretations for the Eurogroup approving such a self-destructive decision as taxing all bank deposits is a complete disregard for the consequences (doubtful) or an utter underestimation for the effect it would have (more plausible).

The latter suggests that one part of the eurozone is now completely out of step with the other, unable to understand its challenges, its concerns and, ultimately, its reality. Only a core group of decision makers with no sense of the fragile state of societies in the periphery, which have been battered by deepening economic crisis and uncertainty for months on end, would favour a policy that creates a precedent for governments to grab peopleís savings without second thought.

Even if capital flight from Cyprus as a result of this decision is less severe than many fear, even if Cypriot banks survive this real stress test, even if the islandís economy is not set back many years, even if savers in Greece, Spain, Portugal and Italy donít panic, the idea of a deposit tax and the way it was adopted has released something poisonous in the air. It is difficult to see how these citizens will be able to trust the system - be it their governments, banks or eurozone partners - in the weeks to come. Belief in countries where the economy is contracting and unemployment growing is already vitreous and planting fears about a possible deposits grab in the future could shatter it completely.

Some will argue that the numbers involved in Cyprus are not that big, that small depositors will not lose a lot. This misses the point. Again, itís not about the numbers, itís about perceptions. Cypriot savers will not be so concerned about losing a few hundred euros here or there. After all, they know whatís going on in Greece and are aware that if they donít pay a deposit levy, theyíll pay through higher taxes, lower wages and reduced spending. No, their worry will be about whatís going to come next. They have witnessed supposed partners back their country and its new president into a corner with almost underworld-style ruthlessness. The European Central Bank, essentially their central bank, threatened to cut off funding to Cypriot lenders, to cause their collapse, which would bring economic disaster. In these unprecedented circumstances, what basis is there for a relationship of trust between Cypriots and the eurozone? Whatís to prevent them thinking that if theyíve been squeezed over this, they wonít be cornered over the islandís natural gas reserves or the terms for reunification with the Turkish-occupied north?

Others will argue that it is unfair to expect Germany or other eurozone taxpayers to keep footing the bill for bailing out member states. This also speaks of different perceptions of reality in the euro area. It ignores the fact that taxpayers in countries that have been bailed out are also paying a price. In fact, if one looks at the eurozone today and chooses any of its main economic indictors, it is abundantly clear who is footing the much higher cost for these rescue packages.

This emergence of parallel lives is the illness spreading to the heart of the single currency. How can the eurozoneís two parts understand each other when their realities are growing further apart? How can one side decide for the other when itís not experiencing the depression, polarization and incertitude of its counterpart? In this two-tier construct, how can those on the upper deck assimilate the warnings from those below that the vessel is sinking, when their feet arenít even wet?

Thatís why Cyprus is about so much more than just numbers.

[Kathimerini English Edition]

ekathimerini.com , Tuesday March 19, 2013 (11:38)  
EUís three big problems all linked
A great president
Donít feed the zombies
Keeping an eye on international developments
Education minister calls for probe into predecessorīs reform plan
Following reports that a plan to reform the tertiary education sector launched in the spring of 2013 failed to lead to millions of euros in savings, Education Minister Andreas Loverdos on Mo...
Anti-racism bill goes back to Parliament
An anti-racism bill, foreseeing stiffer penalties for individuals and political parties that engage in racism or incite racist violence, is to be debated in Parliament on Tuesday following m...
Inside News
Tourism targets rise ever higher
The latest data have allowed the Hellenic Association of Tourism Enterprises (SETE) to raise its target for tourism arrivals and revenues this year higher still. During a meeting with main o...
Horse race betting hurdle removed for OPAP
The new tender for the concession of the right to organize and operate wagering on horse races in Greece for the next 20 years will include a number of changes in its terms, despite assuranc...
Inside Business
BASKETBALL
Greek hoopsters go top of their group in World Cup
Greece has qualified to the second round of the FIBA World Cup after going top of its group of six through a third win in as many group games in Spain. On Monday it beat Puerto Rico 90-79 in...
SOCCER
Fulham striker Mitroglou set to re-join Olympiakos
Greek champions Olympiakos Piraeus are set to re-sign Kostas Mitroglou on loan from English second tier club Fulham after the striker arrived in Athens for talks on Sunday. An Olympiakos spo...
Inside Sports
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
†RECENT NEWS
1. Greek hoopsters go top of their group in World Cup
2. Tourism targets rise ever higher
3. Horse race betting hurdle removed for OPAP
4. Revised GDP data confirm that Greek growth is near
5. Measures to reduce unemployment
6. Peachy export data despite Russian embargo
more news
Today
This Week
1. Excavation work at Amphipolis reveals section of marble mosaic floor
2. A great president
3. Erdogan visits Turkish-occupied Cyprus
4. Greek economy shrinks at slowest pace since late 2008
5. Donít feed the zombies
6. Greek officials meet to fine tune strategy for Paris talks with troika
Today
This Week
1. Attack on gay couple in Athens leaves one man needing surgery
2. The battle against progress
3. Thessaloniki mayor Boutaris sworn in wearing yellow star amid Golden Dawn protests
4. Strong undersea quake occurs off island of Milos, felt in Athens
5. Greek quest for debt relief faces hurdles in Paris
6. Hardouvelis, ECB executive discuss bank program, stress tests
†††Find us ...
††... on
Twitter
†† ††... on Facebook ††
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.