Cyprus is criticised for having an overly large banking sector and, at seven times its GDP, it is too large. Part of the reason it is too large is that Cyprus, like another small island we can think of, operates as an offshore financial centre. And here we see a rancid whiff of racism and xenophobia.
The meme is "Cyprus is stuffed with hot money from Russia," and so any hit to the banking sector will show Ivan whos boss Angela, in case anyone wondered. That this is improbable, and that the data suggest that perhaps 7bn of the total 70bn deposit base of the Cypriot banks is held by Russians from Russia, some of which may be hot, is irrelevant. Anyhow 7bn would hardly get you into oligarch circles nowadays. But the meme persists.
Cypriot banks were seen as safe, and so were attracting large flows from Greek and other depositors. The largest growth in non-EU money came from other financial institutions, not households or corporations. And so, faced with 90% debt GDP ratios and fast out of money fast, the Cypriots have been asking for a bailout since last June. Despite this, it took another 3am meeting, chaired lest we forget by Michael Noonan, to decide on an extraordinary course of action.
A bailout of 17bn would have caused a massive spike in the debt/gdp ratio, and there seems still, five years after Bear Sterns, to be no willingness in the chancelleries of Europe to realise that a union means solidarity. Faced with the requirement to restructure Cypriot sovereign debt to make the total sustainable, Cyprus European partners, ourselves included, forced them to raid the savings of the Cypriot people. Although the Cypriot banks have little senior debt this was, and here we are into Alice in Wonderland territory, not burned.
And this was accompanied by the by now familiar hectoring and bullying, with the threats of the ATMs running out and the ECB cutting off liquidity and who knows what. All reports suggest, frankly, a hegemonic Germany run amok and declaring fiscal war on another small state. That should make everyone worried. This is dangerous territory, setting a bad precedent. Its unjust and incoherent.
Personally, I got way better interest rates for local credit unions that were exclusive in some regards, especially for car rates, but the measure between the two isn't objective.
