Let me tell you a story:
In ancient Greece, in line with the primary goal
of one knowing himself and finding harmony and balance, Hubris (Ύβρις) was considered a major unethical act.
One committed Hubris when he arrogantly overestimated his abilities or strength, defied his
mortal nature and other weaknesses, and used his power to humiliate his
victim(s) for personal gratification.
Germany has been preaching their superior
business model for quite some time now to the point that German politicians,
and the German public at large, think by now that Cyprus’ business model is
inferior and should be dismantled. They
think that every country should have a high corporate tax rate and that a large
international banking and financial services sector, like Cyprus’ is
“unsustainable”. They conveniently forget that their own industrial sector is
many times multiple of their own domestic demand which means that it is
dependent on exports to other countries. In general, they conveniently forget
that if Germany is to be making a trade surplus some other countries, like
Cyprus, must be making a trade deficit and that if they insist to keeping that
surplus to themselves they will be aggravating world (and Eurozone) trade imbalances.
If you feel you need to understand what I am talking about a bit better check
this or this. Any way, they feel so much superior that they derive pleasure at
any opportunity to humiliate weaker countries like Cyprus. They would not care
if by giving a haircut to the Greek sovereign debt, in the way they wanted the
private sector to participate, they would cause the Cypriot banks a huge loss
of €4.5 billion. They would not care if by blackmailing the government of Cyprus to accept their proposals they would damage the reputation of the Cypriot banking sector or set the stage for a bank run, multiplying the original liquidity problem. which was caused by their own previous bad decisions. In this sense they have
been committing Hubris.
The Gods would send to the one committing
Hubris the Hatei (Άτη) which
meant the blinding of the mind. Hatei looks surprisingly similar and fits the modern day concept of
“hate”. Hatei would make the one committing Hubris to
indulge into more of such acts until he would make a major foolishness or
mistake.
The Eurogroup’s bail out plan for Cyprus
was a major foolish mistake. In their indifferent and malevolent attitude towards the damage inflicted to Cyprus, they forgot they were damaging the trust of depositors necessary for the functioning of the modern banking system, whereby deposits are lent to long term debtors. If you do not believe me you may read this or this
(and watch the related video).
Such a mistake would cause Nemesis, the
rage and revenge of the Gods.
The reaction of the worldwide markets and
press expresses the rage and revenge of the Gods. Again, if you do not believe
me, then watch this or read this.
The Nemesis would then result in the Tisis
(Τίσις), the punishment and the destruction of the one committing Hubris.
That remains to be revealed!
So, our German and brethren satellite
partners. Beware how far you want to push this. You may manage to humiliate
Cyprus and its people to your gratification, in the same way you have been humiliating Ireland, Portugal and Greece. But your turn will not be far
away. We have come a long way since ancient Greece, but the nature of neither human
beings nor Gods has really changed!
I will fill in the missing links later today.
Update 22.3.2013: Most Cypriot politicians are in complete confusion and disarray. I have to focus on how I can be of some help. I will not be filling the missing links but this is a general assortment: http://economcy.blogspot.com/2013/03/in-cyprus-europe-sets-new-standard-for.html
Update 23.3.2013: Cypriot politicians have finally realized that Cypriots have to cut our losses and carry on. Just in case in all this noise you missed the signal here it is what happened:
Update 22.3.2013: Most Cypriot politicians are in complete confusion and disarray. I have to focus on how I can be of some help. I will not be filling the missing links but this is a general assortment: http://economcy.blogspot.com/2013/03/in-cyprus-europe-sets-new-standard-for.html
Update 23.3.2013: Cypriot politicians have finally realized that Cypriots have to cut our losses and carry on. Just in case in all this noise you missed the signal here it is what happened:
- German politicians continue to be making a big fuss about the "inferior" Cyprus business model and in their "superior" logic consider it a big sacrifice for the German people to contribute to the bail out package for Cyprus.
- The EU decided to contribute to the bail out package for Cyprus €10 billion and blackmailed the government of Cyprus into inflicting a €6 billion deposit haircut on Cyprus. This caused a bank run in Cyprus and continues to be a threat for bank runs across the whole of the euro-area periphery.
- The contribution of Germany to this package is 30% of the €10 billion, i.e. €3 billion. Germany has a population of more than 80 million. The contribution of Germany amounts to less than €40 / citizen. Morons like this German politician (?) think that the German citizen was asked to pay €2000 each: http://www.youtube.com/watch?v=aETfqi9OREA
- In the EU bailout for Greece, Cyprus Banks were inflicted a haircut on their assets of Greek sovereign debt amounting €4.5 billion. Cyprus has a population of one million. That came to a contribution of €4500 per Cypriot citizen, which they paid without a breath about their loss. That is in addition to the Cyprus' government contribution which I assume was a minor two digit contribution per citizen.
- In the bailout package for Cyprus, Cyprus' blackmailed contribution of €6 billion amounts to €6000 per Cypriot citizen!
- Here is what is wrong with this world: http://economcy.blogspot.com/2012/12/the-solution-to-euro-zone-troubles-just.html
- What is next Germany? Rebuilding the crematoriums to burn all Cypriots because they can make money as well as you can???
Just wondering. Could this whole mess be the result of communication failure in the modern-day multilingual babel-tower project, the EU? In the Anglo-Saxon sphere of influence one billion means one thousand million. In Germany and continental Europe one billion means one million million! I hope this is an honest ignorant mistake and they now have the courage to admit it and walk it back!
Actually I do find some of the talk amongst otherwise sensible german commentators about Cyprus's "Business Model" being irretrievably broken to be extremely arrogant and, yes, hubristic.
ReplyDeleteThere was the same thing over ireland. Quite a lot of rubbing of hands together, that with the bail-out the EU had leverage to make the irish put up that pesky low corporation tax rate.
It didn't happen. That was the irish government's one red-line, and they held to it, while conceding on everything else. And it's because they held to it, that ireland still has some growth, despite austerity. Because low corporation tax encourages inward investment.
That's the "celtic tiger" business model, in a nutshell. And boy, has it had a stress-test on it, over the past few years! It passes.
Incidentally, on cyprus, despite the really annoying german tendency to sound like moralising bullies during bailouts, it hasn't got much to do with "humiliating cyprus". It has to do with debt sustainability.
The germans sided with the IMF, and against the commission. No more fudges on debt-sustainability! This time, only lend up to what the underlying sovereign can bear. Hence the limit of ESM involvement to only €10bn, and hence the need to find other sources of capital. And since Cypriot Banks caused the problem (the underlying cypriot soveriegn is actually in ok shape), they're the source of that capital.
One can get a little bit too emotional about bank-account holders. They are lending the bank their money, for a return. They are therefore the banks creditors. In cyprus, they got a good (insanely good, actually) return, averaging 4.5% interest.
They really shouldn't have put the levy on the insured deposits, but above that level? If somebody's got over 100,000 earning 4.5% these days, there is a risk involved. And the risk has materialised.
One would perhaps think that a greek economist, bearing the burden of the eurozone's painful learning curve on debt sustainability, would have sympathy for this argument for debt sustainability.
If the Banks in Cyprus were facing problems because of their wrong business decisions no-one would argue they should not pay. But that is not the case. Cyprus Banks were very conservative, keeping their liquidity in sovereign debt of the countries they operated. Plain vanilla, low profit, low risk, retail banking business. Cyprus Banks are facing problems because of political decisions taken in Brussels that made a mess of markets:
ReplyDeletehttp://www.bloomberg.com/news/2013-03-19/cyprus-blackmail-risks-eu-slow-death-orphanides-says.html
Conservative? Cyprus Banks?
ReplyDeleteTry reading this note: http://www.moodys.com/research/Moodys-downgrades-ratings-of-Marfin-and-Bank-of-Cyprus-confirms--PR_221725
And note the date. Nine months before Greek PSI happened.
"Limassol, July 28, 2011 -- Moody's Investors Service has today downgraded the deposit and debt ratings of Marfin Popular Bank Public Co Ltd (MPB) to Ba2/Not Prime, from Baa3/Prime-3, and Bank of Cyprus Public Co Ltd (BoC) to Ba1/Not Prime from Baa2/Prime-2."
And they listed every single factor that is coming out now:
1. Exposure to Greek Sovereign debt restructuring
2. Exposure to Greek non-performing loans
3. Over-reliance on foreign depositors who can withdraw their money.
Most "conservative" banks have a thick tier of bond-holders. In Cyprus, it's almost non-existent, it's virtually all depositors, lured by those tempting (and not at all "conservative") 4.5% interest rates.
That matters. Because the tier of bond-holders is so small, there was little benefit in making them pay for the bail-in. Which only left the depositors.
You are right. Cyprus Banks were facing liquidity difficulties before the PSI. Just like any other bank in this world when the economy was slowing down or in recession and customers were having difficulties servicing their loans. But they never indulged into the high risks of high finance and securitization that brought down banking in 2008. It is exactly because the Banks were facing liquidity problems that the PSI on Cyprus Banks was a real, catastrophic, blow. That blow was inflicted by political decisions taken in Brussels by "experts" who knew of their exposure, as evidenced by your references, and of the dire consequences. And yet, they would not care! They felt superior: http://economcy.blogspot.com/2012/12/the-solution-to-euro-zone-troubles-just.html
ReplyDeleteIoannis, I support your work and the people of Cyprus. I am a neighbor from Israel, The original big mistake of setting up the EURO is with the big and empty headed politicians in Brussels. They set up a system that was unstable to begin with and most other players just followed through. Cyprus got caught in a system badly designed from the beginning. I actually think that if you exit the Euro and take matters in hand, you will recover quicker than what many believe. My best wishes to you and Cyprus.
ReplyDeleteThank you for your supportive comments. I do not think that this is the time for Cyprus to exit the euro, unless it is forced to. Germany messed it up and I preach that they should fix it.
ReplyDeleteI think that Israel and Cyprus could have a great future together under the auspices of the USA if that could happen. We should first sort out our internal problems though.