When the island of Melos did not pay its taxes to the government of Athens, a fleet was sent to destroy it as a punishment and to set an example to the other island vassal states. The same punishment is now being meted out to the Greek island of Cyprus.
The German government of Chancellor Angela Markel has used the Troika of financial institutions to punish Cyprus and deter other Eurozone countries from coming to it for a bail-out for their banks. This hardline approach serves the political purposes of Merkel’s Christian Democratic Union party which faces a general election in September. Having participated in bailouts of Portuguese and Irish banks, the crushing of Cyprus disabuses claims that her government is careless with taxpayers money.
Adding insult to injury, the island is reminded that it has given shelter to the money of Russians who, we are told, are invariably money launderers. Cypriots then ask for the evidence. The reports of two sets of investigators, one from the European Commission itself and one commissioned by the Government of Cyprus show relatively well-run and regulated banks. The government does not deny that Russians have put their money into Cyprus to benefit from its double taxation treaties. They say the European banks will be the only beneficiaries of this slur, if Russians remove their money from Cyprus and transfer it to Germany.
Cyprus mean time feel bitter and chided. Its President recently wrote a letter to the Troika of the IMF, The European Central Bank and the European Commission, in plaintiff terms. Nikos Ananstasiades wrote, ‘It is my humble submission that the bail-in was implemented without careful preparation’. He said the bail-in plan was ill thought-through, that the Cypriot economy was contracting dangerously as a result of capital controls and that the closure of the country’s second bank had left the banking system tottering, not strengthened.
The pain is tangible. It is hitting the Cypriots in their pockets. This small country which has a population of just over a million and a GDP of some Euro 17 billion is looking at a contraction in its GDP over the current year of some 10%. The Eurozone partners have little reason to be worried of course; Cyprus accounts for less than half-one-per cent of the GDP of the Eurozone’s GDP.
The small shop-owners, the taxi drivers, the bread and cake makers and other small businessmen that make up this ‘club-med’ economy are reeling. Many have lost money in the bail-in, that requires them to cede bank deposits that exceed Euro 100,000 held in the Bank of Cyprus and Bank Laiki.
They want, almost to a man and woman, to leave the Eurozone. The President’s letter to the Troika indicates that the pressure is beginning to tell. The departure of Cyprus from the Eurozone would not have a direct affect on the wider economy although the risk of contagion remains.
The bigger issue is the moral behaviour of large nations towards smaller ones. The departure of Cyprus from the Eurozone set a lamentable precedent of cross-border bullying we should all resist.