Cyprus crisis: A view from Europe

The IMF today decided to bail out Cyprus, to the tune of around US $ 1 billion, or around 10% of the total bailout package. While this does sound like a better idea to deal with Cypriot debt than shaving of a proportion of bank deposits to pay for it, the latter idea may in fact have done some lasting damage, as our guest columnist Lion König points out.

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The latest climax of the Euro crisis which, at the same time, marks the anticlimax of the economic development of the European Union, have been the occurrences in the Mediterranean state of Cyprus. In view of the drastic need for savings in the crisis-ridden country, which is among the novices to the Euro-club, political actors have decided that the ‘fair share’ of every Cypriot bank account holder should be a close to seven percent deduction of the total savings to help the community goal of rescuing the national economy, fulfilling the Brussels stability criteria and thereby contributing to the protection of the Euro zone and the member economies at large. 

The fierce reactions of the Cypriots to the savings scheme of their government are exemplary for many other member states who think that Brussels increasingly infringes on their national freedom and financial and economic right of self-determination. In view of the massive protests and the move of many account holders to immediately withdraw their money—which would have had unforeseeable consequences for the national and possibly international banking system—no member of the Cypriot parliament dared to vote in favour of the seven percent cut. Reactions in the European Union have ranged from great surprise on the part of policymakers, especially since billions of Euros that the move would have generated were the prerequisite for further EU funding, to great understanding on the part of citizens of equally debt-ridden states such as Portugal, Spain and Italy. It is exactly those countries, however, that would be the next in line of an economic collapse, first nationally, and then affecting the entire Euro zone.

It is difficult to assess the implications that the recent Cypriot decision has for the country, the Euro zone, and the Euro currency. What we do know is that Eastern European countries, like Latvia, that earlier eagerly awaited the introduction of the Euro, are now openly asking with Groucho Marx: do we really want to join a club that allows the likes of us? 

Lion König is currently pursuing a Ph.D. in Political Science at the University of Heidelberg, Germany. He has been a fellow at Institute for Defence Studies and Analyses, New Delhi, India and at the South Asia Democratic Forum, a Brussels based think tank and is also associated with the Institute of Language and Communication Studies at Izmir, Turkey.