Monday, March 18, 2013

Cyprus

"Under a promise which still appears on the website of the Central Bank of Cyprus, deposits in its banks are insured up to 100,000 euros. Cyprus has about 30 billion euros in insured deposits, a large amount for a country of just 1 million people.


But because of its status as an offshore financial hub for foreigners - including large numbers of rich Russians - it also has 38 billion euros in uninsured deposits in bigger accounts.

Cyprus could have offered full protection to those with insured deposits up to 100,000 euros and still reached the 5.8 billion euro target by taxing uninsured deposits at a rate above 15 percent."


Apparently, based on this report, Trioka (ECB, EU and IMF) offered exactly that - no deposit cuts for below 100,000 Euro while un-insured taking all the hit. For any politician attuned to public sentiment, that would have been easy to accept. But that is not what the conservative President of Cyprus did. Considering his fresh election just last month, he being so out-of-tune with his common people is jaw dropping.

Few reasons one can imagine are:

- Conservatives in many cases think that 'protecting rich' is their primary job in governance, under the false view of rich are the job creators (Mitt Romney line of thinking) or rich are simply more able component of the society which need to be nurtured further (discredited Randian philosophy of Paul Ryan). Such conservatives insist on 'shared sacrifices' so as poor contribute more from their low income.

- Or Cyprus President realizes that - what Krugman calls RMML - money of rich Russians is very crucial for the business and economy of Cyprus and hence there is no point in 'troubling' your biggest 'customer'.

- Or he thought even among 'insured' deposits; most of the money is of Russians and hence there is no point in leaving them free. (But then this President could have said, deposits of Cyprus nationals under 100,000 are safe and then rest pay the price; one can devise many ways to protect your own people who have voted you.)

I do not know which of these is true. All that one sees here is, politically deaf responses of this politician resemble lot with the state of affairs with GOP in USA. But by now, we need to accept that Politicians regularly 'screw' their own weaker section people for some perceived benefit in future or as 'profile in courage'. That is what 'wrongly applied austerity' is bringing all this misery in Europe.

Update - Unwritten rule of good blogging is, you offer a 'solution' to the problem. When you do not have expertise to do that, next best thing is highlight some other qualified solution which is sold around on Web. Here is my favorite blogger -  Felix Salmon - advocating Buchheit and Gulati solution to the Cyprus Problem. Seems credible, especially considering that Cyprus Parliament does not have enough votes to pass the misguided plan of its President. If I were to bet, 'no, politicians' do not pick wiser solutions and hence I would not be surprised to see that Cyprus Parliament does not pick up Buchheit and Gulati Plan. That is the wont of politicians. What all this shows, how casually politicians at times inflict lasting damage to their own people - case in point is President of Cyprus in this crisis.

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