

The euro-zone crisis

Just when you thought it was safe…

Bailing out Cyprus was always going to be tricky. But it didn’t have to be like this

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Readers' comments



Europe needs realize that it only has 2 choices. Merge or split. Either it becomes one country with one economy & one government policy or it reverts back into independent states which can inflate, default, or devalue w/o recking the whole system.

la.výritý in reply to slotowner

No, they should let those countries fail whose voters were continuously voting politicians into office who mismanaged their countries. Papandreou, Berlusconi & co comes in mind.
Why should countries which are well managed and live within their means be held accountable for those that didn't?


what is going to happen in cyprus is just sick. People worked for their money and nobody has the right to take their deposits. This is the first time in history that we watch simple people pay for bankers and politicians mistakes...

la.výritý in reply to guest-lmswnea

Who do you think is guaranteeing -and ultimately paying- for all these bail-outs that took place in the Eurozone so far?

- Yes, you got it! The taxpayers in all those countries that are currently guaranteeing the mismanaged finances of other countries without being democratically asked if they want to do this!

Are these people 'simple' enough for you?

At least the Cypriot people voted for those governments that allowed their country to get into this mess!


I do not believe that this is a political power game on Germany's part aimed at Russia. The involved creditors could have left it totally to Cyprus to rescue its mismanaged banks or let them drown.

That they agreed to allocate two thirds of the needed rescue amount is more than generous. That it is expected a country with a GDP per capita of $28,500 comes up with some of the needed cash on its own is only normal.

Why doesn't the island issue sovereign bonds for the difference or liquidize some its national wealth (e.g. selling natural gas concessions).

To expect that the northern taxpayers will endlessly foot the bill for the southern laggards is beyond any reason.

The governments in Austria, Holland, Germany and Finland are aware that growing anti-euro parties in their countries are lurking just around the corner.

More debt and cross-generational liabilities in favor of Europe's negligent sun-belt nations is simply not politically enforceable any longer. Angela Merkel and Mark Rutte are very well aware of this.

enlisted in reply to la.výritý


I also don't think that this was specificly designed to annoy Russia.
I heard that already a few months back the EU told Russia that Cyprus was their problem and they should bail them out (and Russia indeed gave a loan), but Russia said it's the EU's problem and they wouldn't deal with it.
So with this back-story the "taxing" of Russian deposits makes a little bit more sense.

The Cypriots of course thought they could play their own game between the two parties as seen in the past days. Maybe they misunderstood the situation as a dispute between Russia and the EU over who was allowed to bail Cyprus out, who knows.

The natural gas thing seems not as certain as some like to say. Apparently it is not that easy to estimate how large these reserves really are. I heard one conservative estimate saying it might be as big as a one-year production of Gazprom. Large for a small country like Cyprus, but not hughe. And even if there is more gas than that, some of it is in disputet territory.

Yura2009 in reply to la.výritý

Its not aimed at Russia as a country that like every other one protects its banking stability. It is aimed at the Russian oligarhs who avoid taxes in Russia seeking 'heavens' in Cyprus, Luxemburg, etc. If Putin were honest about it he would cooperate with the EU to reverse annual capital outflow from Russia that is needed to upgrade its infrastructure, provide risk investment capital, etc. But Putin's friends and allies are the beneficiaries of the present capital manpulation system and Putin cannot openly condemn their practices.
As to the Cyprus government, if they let any major banks go down this would spell the end of the status as a safe heaven. That risk is already very high as it stands now.


''the government let the banks get too big''..that's rich coming from The Economist, which year after year preached light tough regulation and slammed any state controls on the financial sector. How can The Economist be so hypocritical and keep a straight face?

la.výritý in reply to pbould

I partly agree; however, The Economy is probably talking about the banks' size comparative to the size of Cyprus' economy . . . in combination with very lax regulation and supervision regime.

Unqualified Critic

This is clearly the tail wagging the dog; and its the result of these countries having the EU priviledges and none of the responsiblities. The little guys (i.e. Greece, Cyprus, etc..) need to fall in line with Germany, otherwise their economy is bust. They can complain all they want, but in the end, why did they stick their stubby little hands in the EU's cookie jar if they weren't able to pay the piper (sorry, that's a schizophrenic colage of sayings and analagies). If this whole Euro debacle is to ever conclude it starts with every member buying in once and for all. Though I readily admit its like telling everybody heading to or already on the lifeboats from a sinking ship, that the only way to stop the ship from sinking is for everybody to get back on and burn the life boats. Good luck Europe.

Ps.I totally don't blame Britain for standing back and watching.

joe22 in reply to Unqualified Critic

Britain have Gordon Brown to thank for standing up to Blair and Mandelson(and the rest of the cabinet!) and vetoing out entry into the Euro. At the time not a popular decision but the right one. And Germany have only themselves to blame for getting involved. I have no sympathy as I saw it as a cynical attempt at a power grab by both Germany and France.


"It feels more like a loveless marriage, in which the cost of breaking up is the only thing keeping the partners together"

They said the same thing about preserving slavery! Generally when people have to resort to these sorts of justification it never ends well.


Well I am very glad that the usually sober Economist magazine is very clearly stating the facts and implications for European banking of the Cyprus financial debacle. I would add that the move was purely political on Germany's part aimed at Russia. If Cyprus is hurt in the process, well poor Cyprus, and if it has become the mouse that roared, again poor Cyprus. The smirk on Wolfgang's face when the finance minister heard of the resounding Cypriot “No” vote may have just been a hysterical grin but I think the smile was genuine. As planned, the result was that the Russians were as mad as hell with the Republic of Cyprus and they will no longer help it. The former president Mr Cristofias said on Cyprus TV today that before the recent elections that Mr Putin promised to assist his country, if in need. His successor - over-anxious to please the Troika- spoiled that. Moreover, the revised German proposal that demanded a haircut on all uninsured Cypriot deposits was completely unacceptable to Moscow, as Germany must have known it would be. The Russians have punished Cyprus by refusing any assistance but Germany and the rest of the EU will not go unscathed.
Indeed, as a result of Moscow’s wrath Berlin may be the loser via the butterfly effect. The ultimate Russian reaction may cost Merkel and Wolfgang the election but worse than that Europe’s main source of gas supplies may be threatened. Besides all that, The ECB is behaving very badly, not as a central bank should. Russian depositors are creditors as well. Most of them only undertook the uninsured risk of the Cypriots banks failing, a possibility that is now becoming virtually certain at a cost to the value of the euro and its continued existence as a world=class currency they did not bargain for a partial but no insignificant confiscation of their assets by the state.

Yura2009 in reply to Bishopson


That is an overblown speculation if you have ever offered one. Relax, both Germany and the EU will survive a bit of Putin's dramatic publicity.


Looks like the Cypriot politicians risible delusions that their little money laundering business model (with all the juicy little opportunities for local graft) will be allowed to continue are foundering. The bluff has been called despite all the scaremongering rhetoric. Looks like they are going to have adopt the EU solution of imposing a steep haircut on deposits over 100k (ie. mainly the funny money) and let the small depositors off the hook. Makes one wonder whether the initial proposal from the president with unspellable name wasn't a ploy to create a crisis with the aim of spooking the EU. If it was, it hasn't worked. BTW the entire Economist piece above is baloney...unfortunately they continue the poor analysis of the last couple of years.

Bishopson in reply to guest-wooomeo

So let's pick on Switzerland and the Cayman Islands too? I suppose Cyprus is the easiest target. I wonder how many Economist readers hold deposits from murky sources in tax havens around the world? If countries like Greece and Cyprus really went after all their major tax dodgers they would not need the Troika's dubious help. The trouble is that the politicians themselves are among that despicable crowd, hence lack of political will prevails.

Yura2009 in reply to Bishopson

"let's pick on Switzerland and the Cayman Islands too?"
You choice of Switzerland as a target misses the point. The Swiss have long experience in dealing with people who want to find a safe heaven for their stolen funds. And the Swiss economy is much more robust than Cyprus. As to the Caymans, I never heard them being part of Europe, have you ?

Bishopson in reply to Yura2009

Like the Nazis loot proceeds eh Yura and the leaked list of super rich Greekand other European tax evaders deposits? The Swiss are hypocrites big time. Funny aren't you but the Caymans must hold a lot of European tax evaders' money so they are connected.

Carlo 1947

It is not the Cyprus problem which surprises me.
It is the blind politics actuated by the so called leaders and Eurocrats, which repeated the same Greek errors, adding on the top more sadistic and short-minded actions.
EU made its time, now it is faraway from its founders desires.
The games are over, is time to dismantle EU and Euro.
We might think again something common only talking of Unites States of Europe, and restarting only if and when the new Federation will be there as a unique real Nation, in all its aspects and functions.
In the meantime, everyone by itself and God with everybody.

When the EU was being formed and the first Euros minted, all these smaller countries in the south of the Eurozone rejoiced at how much stronger their currency was, and what the were able to do. They went about setting up huge schemes of welfare and utopian pipe dreams, because they thought since we have the same currency as Germany, we must be as rich as them. All those political leaders were and still are guilty of being overly rosey and optimistic about their futures. As well as doing business with shady companies.

So while southern europe was throughing a party it couldn't afford and being feckless with its finances, the north was being realistic and cautious with its finances. So push comes to shove the north becomes the haves and the south becomes the have nots. Though in this particular case the haves really didn't steal from the have nots. The real shame is that the EU abil-out package didn't put conditions in the deal that were strong enough to strangle the Cypriot politicians out of a job. Thats what burns me about this mess, southern europeans are so convinced Germany's out to do them in they forget its their own politicians fault (and theirs for electing politicians, who made such grand promises, without the public holding them to account for how they would pay for those promises).

Bishopson in reply to guest-wooomeo

So why not close down Zurich and Geneva,the Cayman Islands,Luxemburg,Channel Isles, etc as well? You think their customers are clean? They are at best just tax evaders, at worst war criminals. German banks have been quite happy to accept deposits of wealthy Russians, no questions asked, and maybe they could not stand competition from Cyprus. If you don't believe the Eurocrats and the top brass at the IMF are models of virtue by nature then think again when one day, perhaps sooner than you think, they cut 40 percent of your own savings. If I went into a bank and forcibly took 40 percent of all the cash there I would go to jail for at least twenty years so how is it that politicians and bureaucrats can now get away with bank theft scot free? The Russians hold 30 percent of Cypriot bank deposits, not all of them are crooks, some have legitimate small businesses in Cyprus.Many Cypriots of modest means also invested their lump sum pensions of 100,000 euros and over but not much more in these banks. OK forget Cyprus, the new Frankfurt-Brussels-IMF-Berlin policy of seizing deposits to compensate German banks for taking the risk of investing in Southern European government bonds at the expense of German taxpayers and ordinary citizens of the debtor countries is amoral if not criminal in intent. Finally the blackmail used by the ECB during this crisis in threatening that the life support machine would be unplugged at midnight Monday if th patient in the intensive neglect unit did nor cough up some the lolly meant that the ECB is no longer a lender of last resort but simply a lender of no resort, so it has dropped its main defining function.



Brilliant choreography. Russia, through masterly inactivity, has effectively checkmated the troika. The odds are that Plan B will be rejected by the parliament.


economist is just gonna go around picking on one Mediterranean country at the time trying its very best to make euro crisis happen.Your dull persistence with which you try to create a storm in a glass of water is boring.No financier with half a brain buys your spin.


Loses should be paid by bad investors. Governments should not be distorting markets and deviating investment by giving bailouts to private investors.

Thomas Georgiou


This line alone shows how much the Economist knows about Cyprus. It makes me disregard the entire article.


You British were right from the start: The whole Eurozone concept was a joke (it turned out a very sick joke, in fact).
Now you should tell us how to get out!

Dr Lou

'Ingeniously loopy.' What a great phrase. I have a few others but we'll stick with this of The Economist.
Yes...the Eurozone's plan for Cyprus was 'ingeniously loopy.' I mean, how could a group of supposedly competent (reasonably so) and knowledgeable (presumably so) European economists and politicians recommend a plan which would arbitrarily lift a percentage of private bank accounts regardless of their total deposits?
That the Eurozone; that Germany would then figure that such absurdity would fly is more '...loopy,' still.
A long time ago in America, Alexander Hamilton had a vision that banking would bring a wide range of investors, those rich and most not, together for the benefit of the banking and global system. And it happened that way, too.
So, attempts to now separate out rich Russian account holders from far less so Cypriot ones fundamentally compromises not only those most vulnerable individuals but the very philosophical and functioning framework of our international banking system.
Unless obviously engaged in financial improprieties, account holders, both rich or otherwise, cannot be expected to 'pay' for the gratuitous and self indulgent errors of the, this time, Cypriot banking system.
Is it the irresponsible structural model, simultaneously to the out of proportion Cypriot banking system and the clueless Eurozone who had never previously said a word about the Cypriot banking system which needs punishment. Perhaps fines comprising up to a years salary from the top 15% of the wealthiest of Cyprus' bankers, themselves, might be place to start.
Then, 2 or 3% of the annual salary of the Eurozone economists who put forth this plan might be added to such a pool explaining that it has been gigged for the astounding stupidity and disconnect.
You know, despite the breathless commentaries, I am much less concerned that such a 'penalty' would be expected by the Eurozone of account holders outside of Cyprus. I mean, who here can imagine imposing such a demand on countries as large and volatile as Spain, Italy or Greece? Man...those riots would coalescence so quickly and be so loud, the sound would likely carry across the Atlantic.
Much less than a direct cause and banking effect, I think the parallel crisis is actually one of still less credibility for the Eurozone ministers. This, since they are now going to have to back down so quick and so far on this '...loopy' plan so as to risk their irrelevance.

guest-wooomeo in reply to Dr Lou

Apparently you're unaware that this was NOT the EU plan but some stratagem cooked up by the Cypriot govt under the laughable delusion that they would be able to continue their money laundering business model unhindered. As Bloomberg and the Guardian I think has reported the EU plan was to impose the haircut on only deposits of over 100k...ie. mainly the funny money. You may not like this but now the bluff has been called, far from backing down it looks like this is what is likely to happen. Irrelevant? I think not.

Dr Lou in reply to guest-wooomeo

Yes...I am aware of that factoid and I might have been more specific in my above post. And I certainly agree that the Cypriot government, but very much with shared planning by the Eurozone and its allies, may try to move this inane expectation forward. The backchaining of the demand to savings accounts of lesser size was also a cheap way to try to placate the wealthier along with the point that gigging the wealthiest of the account holders would still not have been enough.

We'll now see what ploy comes next...


Cyprus goes bust, the effects will hit Greece as the debts are called in and Greece cannot afford to pay off its creditors. Greece goes bust and it takes German and French banks with them, and the contagion spreads.

Cyprus is just the beginning, there is already talk of Spain taxing deposits, who knows who is next.

"As Tyler Durden observes, it would appear Spain has changed constitutional rules to enable a so-called “moderate” levy on bank deposits, as under previous Spanish law this was prohibited. For now, the helpful De Guindos claims the “levy” will be “not much higher than 0%” and is mainly aimed at regions in Spain that have “made no effort to collect taxes” based on new revenue expectations. Minister of Finance and Public Administration Cristobal Montoro defends the need for such a “levy” in their constitution on the basis of standardizing taxes across regions, and is preparing a proposal on the amounts to be paid.

Although the European Commission could previously argue that such a “tax” would violate the free movement of capital in Europe, Cyprus and Spain have opened the door to eventually effectively taxing bank deposits in Europe.":http://beforeitsnews.com/opinion-conservative/2013/03/cyprus-copycats-nz-and-spain-talk-wealth-tax-on-bank-deposits-2603358.html

The banks should be allowed to fail, instead the governments are stealing from depositors to bail out the banks.

Ioannis Shukuroglou

"...lightly regulated island"... if Cyprus is lightly regulated, then I wonder what Germany is. One has only to see the http://index.baselgovernance.org/Index.html#ranking
in which Germany (ranked 68)is found to be much less regulated than Cyprus (ranked 114). So before throwing stones to one's neighbor, one would better check its own glass windows!

Ioannis I sense sour grapes here!

What others do matter not much, but what can you do to safeguard your system and your future. Cyprus didn't! They let their banks on the lose lending to whoever asked and invested indiscriminately, more or less. Their assets rose to almost 8x GDP!! Accident waiting to happen...allowing economy to be dominated by foreign deposits and banks predominately is a folly to say the least.

What banks did with dashing out money was inexcusable and all decision makers involved should have to be punished, both from within the banks as well as in their supervising body, i.e. the Cyprus Central Bank. Whatever anyone says about this aspect, i multiply by 100. After all, I personally also lose money. However my above comment is not for this aspect of the operations, but that of the inflow of funds. That the rest of our partners in the EU were giving the impression that Cyprus banks were used for money laundering. I am not saying that all inflows were perfect, far from that. But rather that, on a comparison basis, other banking mega-banks/systems such as Germany's seem to be in a worst state.

Olivia Tierbach

The Eurozone, and everything it stands for, is under heavy fire these days. Still, I do believe that the Euro is a great idea that is being put to the test through national crisis such as the latest one in Cyprus. But a crisis is needed for change. "New institutions need to be redesigned and further developed once they become a reality," as Harold James from Princeton University states in a TV interview: http://www.cfo-insight.com/webtv/harold-james-princeton-the-euro-is-a-gr...


Plan B of the cypriots got killed - the troika rejects nationalising the state pension fund and issuing bonds based on future revenues from offshore gas deposits.

Plan C is dead, too - the russian finance minister told the cypriots to take a hike.



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