The German Finance Minister Wolfgang Schäuble is, apparently, “a fascist”. He has earned this epithet from a Cypriot newspaper for making the following observation about the bail-out of that country: “Anyone who invests money in a country where taxes are low and supervision is weak should suffer the consequences when the banks and the country itself cease to be viable.”
Tough? Yes. Lacking in even a glimmer of sympathy? Afraid so. But fascist? Come off it. Yet this sort of language – pointedly linking the current government in Berlin to that of the Third Reich – is now pervasive. Thus the President of the Cyprus Chamber of Commerce tells a German newspaper reporter that “financial genocide” is being carried out, with Cypriots as the innocent victims; and newspaper cartoons of Angela Merkel in storm-trooper uniform have become standard.
This was not so much financial genocide as suicide. It was not Germany – or indeed anyone else – who told Cypriot banks to offer much higher interest rates and its government to levy lower taxes on the proceeds than anywhere else, in order to attract hot money; it was not Germany who instructed those banks how to invest that money; and it was not even Germany who had made the suggestion – rejected last week by the Cypriot parliament – that even the smallest depositors in those collapsed banks should suffer a “haircut”.
In fact, under the revised plan hammered out over the weekend, it will be deposits over €100,000 which will take an almighty hit; and it is estimated that more than a third of those accounts, and most of the very largest ones, are held by Russian citizens. Cyprus’s new president, Nicos Anastasiades, was originally determined to avoid such a large part of the pain being inflicted on these individuals. As the Financial Times pointed out: “Like many in Cyprus, he has ties to Russian interests – his family law practice has two Russian billionaires on its books.”
Yes, it is humiliating for the people of Cyprus to see the their prime minister being told: agree to our terms over a single weekend, or you won’t get €10bn of bailout funds. Yet the previous Cypriot government had prevaricated for years, doubtless hoping that a better offer would emerge. In any case, the nature of banking collapses, as Alistair Darling could vouch, is that when they come, any negotiations are necessarily brutal and sudden (RBS’s Fred Goodwin had described it as “a drive-by shooting”).
The previous President of Cyprus, Dimitris Christofias, was the former general secretary of the country’s communist party, and had spent a number of years in the good old USSR. It was under his leadership that Cyprus allowed itself to be used as a transit point for Russian arms shipments to the Assad regime (in violation of an EU arms embargo). It is in this context that we should see the decision of Angela Merkel to treat the Cypriot political establishment with less than complete warmth. Merkel, not only because of her experiences growing up in a satellite state of the USSR, has, to put it mildly, a profound distrust of the Russian way of doing political business; so she will be entirely unmoved by the Kremlin’s protests on behalf of singed Russian depositors – even if the great majority of those depositors are neither billionaire oligarchs nor crooks.
She can also point out to Vladimir Putin that there is nothing to stop the Russian government reimbursing its citizens caught up in the Cypriot banking debacle. After all, this is what the British government did for our own depositors after the Icelandic banks sank with all hands. This was in fact a very similar affair: banks in a tiny island country had offered exceptionally high interest rates to suck in prodigious amounts of international money and then invested those funds with equal improvidence. When the inevitable collapse came, the Icelandic government took the decision to reimburse the deposits only of its own citizens.
Solidarity only so far
Iceland, of course, is not a member of the eurozone and has its own currency. It was able to act autonomously – which involved massive devaluation. It is open to the Cypriot government to abandon the euro – as its spiritual leader, Archbishop Chrysostomos, has urged them to do, rather than endure “the strangling of our economy”. In truth, leaving the euro would not be a soft option for Cyprus – it would just be a different way for its savers to experience expropriation – even if it was crazy for the country to be admitted into the single currency in the first place.
The Archbishop complained that “we believed that by entering the eurozone, there would be a kind of solidarity if there was a need for it”. Apparently such solidarity should have meant the rest of Europe divvying up the full €16bn for the rescue of Cypriot banks, rather than the deal on offer of €10bn from the Troika and €6bn from creditors, whether Russian or not.
It is hardly surprising that Merkel’s notion of solidarity extends principally to her own people in a general election year. And you don’t have to be one of her co-nationals to wonder why even low-paid Germans should, through increased taxes, absolve all Russian and other international depositors in dodgy Cypriot banks.
Besides which it is not just her own taxpayers whom Merkel is attempting to appease. The German share of the European Central Bank equity is little more than 27 per cent: the costs of bailing out Cyprus must be met by all eurozone member states, and if any of them feel that the Germans are being too harsh, they certainly haven’t said so. The government of Slovakia, which joined the euro in 2008, the same year as Cyprus, has already baulked at supplying funds to finance the Greek bailout: it pointed out, with some force, that the average public sector pension in Slovakia is about a third that of the Greek equivalent.
Despite all this, it would be heartless to disregard the pain of depositors in Cyprus’s banks – many of them British citizens whose own offshore savings for retirement might be savagely depleted as a result. Yet all savers in this country have suffered a form of expropriation as a result of our own government’s response to the financial crisis. Negative real interest rates may be a less crude way of clobbering depositors – the financial equivalent of boiling the frog slowly so it doesn’t notice – but it still represents loss.
In the end, it’s just a question of how the pain is shared. No one thanks those whose job it is to take those decisions – especially if they are German.