Via Ambrose Evans-Pritchards, we learn that the whole ‘rescue’ of Cyprus is even more botched than thought – the country is forced to sell off part of its gold reserves as part of the deal to get ‘help’!
It is not easy to keep trust in the European Commission and the Northern Countries driving these policies.
Although the world of finance by itself is quite foreign to me, I find the writings of this Philip Atticus of a high quality, especially his observations of the interaction of politics and press (on Cyprus). Furthermore, I think his assessment of the Eurozone/EU is, unfortunately, quite realistic. The level of mismanagement in the Eurocrisis is just staggering. I think the EU by itself has accomplished a lot of good and important things but the monetary union has not been one of them. This is quite a reversal from my student time, when I was very pro-Euro. I guess I didn’t read Paul de Grauwe’s handbook on monetary union well enough.
The Eurozone has proven to be an emperor without clothes. The political hostility by Germany, France and others; the lack of basic understanding of financial operations and banking confidence; the very real effort to demonise Cyprus and Russia; the stubborn insistence on seizing deposits; the deliberate threats of Eurozone exit: these are not behaviours which will soon be forgotten.
Moreover, they are behaviours which appear ingrained, and which have been fully transmitted to national populations via what can only be described as a yellow press.
It is impossible to see how the Eurozone will deal with its deep-rooted competitive distortions given these political reactions. Rather than addressing an issue calmly and rationally, they stir up the worse nationalistic instincts of a European population already beset by economic crisis. Their “solutions” contain the roots of the next crisis. If the Eurozone is unable to solve a EUR 17.5 billion refinancing scheme, how will it solve the EUR 2 trillion national debt of Italy?
The entire spectacle of European—and particularly German—decision-making in the case of Cyprus is characterised by incompetence, hypocrisy, hysteria, and the loutish behaviour of a schoolyard bully. Rather than solving any issues in Cyprus, it has undermined the trust of international investors in Europe itself, and established the conditions for the next financial crisis in Cyprus, which will almost certainly relate to BOC recapitalisation in the face of deposit flight.
In Cyprus as in Greece, the European leaders have done everything possible through their statements and decisions to destroy international trust in a European Member State. And as with the example of Greece, it appears that these same European leaders have learned nothing.
We look forward to the next European crisis.
http://delong.typepad.com/sdj/2013/03/the-future-of-the-euro-lessons-from-history.html On points 1 to 4 Brad deLong mentions, the eurozone fails to apply the lessons of history. Sad.
Via the Dutch Trouw-newspaper, a short reaction from Dutchfinance minister and Eurozone Chairman Jeroen Dijsselbloem (my translation):
‘The Eurozone has fairly quickly and in great unity submitted a proposal to Cyprus [i.e. the bail-out plan]. Now really the responsibility is theirs to accept the proposal in terms of its requirements. The large capital is in the banks of Cyprus. The banks are now in trouble, so it is clear and unavoidable that their capital is looked at [for the bail-out].
Dijsselbloem said he is ‘disappointed’ about the vote but ‘At the same time we did an offer on behalf of the Eurozone. That offer is still valid and its requirements/conditions as well. The ball is really in Cyprus’ court now.
So in short, the message to Cyprus is to accept this proposal for bail-out or else….
Quite amazing how the Eurozone can’t admit it made a mistake.
Evans-Pritchard has always been quite a critic of the Euro-project, but in this last post he very succinctly points out what are the problems:
1. Contractionary policy is contractionary, especially in a depression fical multipliers are much bigger in a bad way than assumed before – even the IMF admits this.
2. Germany has a large trade surplus
3. There is a very big currency exchange difference between North and South Europe
4. Germany is stuck in some ‘pre-modern form’ of economic thinking
5. Regarding how things are going, there is no rationale anymore for the EMU, because it is dysfunctional and killing societies.
So, what is going to happen? Will countries just wait until they can’t take it anymore? Will Finland leave first? Will Germany? Who knows? The only thing that is clear is that the designers of the Eurozone have failed miserably on many aspects, as well as the people after them who were supposed to be smart enough to deal with a complex system like this. These people, from all over Europe, all political colours (nearly) should not be allowed anymore to engage in any kind of public policy anymore. Responsibility for their works please!