The sky is going to fall on our heads – or is it?

It is ironic, is it not, that with billions at stake everyone feels the need to add their two-penny worth of out-rage, indignation and opinion. Collect all those two-penny’s and Cyrus would have paid off its debt within a matter of days.

The media, as always, is doing a very good job at running around like a hapless “Chicken Little” trying to convince each and every one of us the sky is about to fall on our heads. The euro-zone is about to crash, capital is going to flee, there’ll be a run on the banks, Cyprus will leave the euro-zone, Russia’s going to take-over, contagion…calamity!

But who exactly are the neer-do-wells behind this madcap scheme?  Is it the Euro Group? The IMF? The EU? The European Commission, the German tax-payer or possibly the Cypriot President himself?

As far as the Daily Mail is concerned there is one person and one person only responsible for all of this day-light robbery: Angela Merkel.

A banker, quoted in The Times, stated: “If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job.” And that coming from a banker? Blatant hypocrisy is, indeed, a thing to behold.

An MEP noted, “If this were a bank, they would be in court for miss-selling.”  Quite. Shame MEPs are not more forthright about banks being in court for ripping us all off – but therein lies another set of problems.

The shady side of the sun

Cyprus, apparently, enjoys 320 days of sunshine a year. Perhaps there is just too much sun in Cyprus, for at some point the Cypriot authorities decided it was time to introduce a bit of shade to the beaches by attracting some shady characters. They did this by liberalising the banking sector, offering low-tax bank deposits and asking few questions as to where all the money came from.

It worked a treat – with the Russians in particular. They are short on sun and short on a stable currency. So, when Cyprus offered a low-tax, few questions asked, banking option, with the Euro thrown-in for good measure, it is hardly a surprise that the offer was accepted.

In January of this year The Economist reported that, 29% of Cypriot bank deposits came from the non-euro area.

The net result is that Cyprus now has very large bank deposits, EUR 69.3 billion, of which 29% comes from non-EU countries but a relatively small GDP of only EUR 18 billion.

On top of this Cyprus has managed to amass large debts.

The long and short of it is that Cyprus needs cash. Rather than facing bankruptcy it has decided to tread the well worn path to Brussels and ask for a EUR 17.8 million bail-out – equivalent to 90% of their GDP.

The Euro-Group, the European Central Bank and the IMF have agreed to bail Cyprus out to the tune of EUR 10 billion. However, they demand that EUR 5.7 billion be found by Cyprus itself. A not unreasonable demand all things  considered. Offering Cyprus the full EUR 17.8 billion would increase the Cypriot government’s debt to around 140% of its GDP, which wise economists insist is unsustainable.

Put simply, the Euro-group countries, the ECB and the IMF are asking Cyprus to face up to some of its bad mistakes and bear some responsibility for the mess it finds itself in.

The first: trying to re-invent itself as a cross between the Bahamas and Switzerland, whilst remaining in the EU.  This was never going to work.

The second: buying Greek bonds. Cypriot banks hold around EUR 5 billion in worthless Greek government bonds. Need more be said?

Third: devising a financial scheme in which they were never going to benefit. Other than the “prestige factor” the only people ever going to benefit from a low-tax, private bank deposit are the filthy rich. Never the country.

Whose to blame?

Good question.

The newly elected Cypriot President Nicos Anastasiades has done a very fine job at convincing everyone at home – and abroad – it was the big bad bully Angela Merkel and her Finance Minister from the under-world Wolfgang Schaeuble, who forced him into this terrible situation. When Cypriot fury with Merkel has been spent there is always the second-tier bully “European policy makers”.

In short, everyone is to blame but the Cypriots themselves.

Blaming Germany and Brussels is as simple as child’s play. Every-one falls for it time and again. The pity is that much of the British media have fallen for this clap-trap hook, line and sinker.

Even The Guardian was frothing at the mouth and agreeing for once with The Daily Mail that what “European policy makers” had done was “day-light” robbery and describing Cyprus as, “a small, weak country”. The President walked, apparently, straight into a “German sucker punch”.

Small Cyprus may be but let’s not patronize the country by pretending they are innocent babes in the woods. Most Cypriot leaders have Bachelor Degrees, Masters or PhD’s from British Universities – (hence perhaps the penchant for hanging onto the coat-tails of hedge fund managers?)

If journalists had bothered to do even a tiny bit of research on the Euro-group, they would have found that no “one” person dictates the terms or conditions of how to raise a national tax.  Even the piece in The Guardian suggesting that it was a German “sucker” punch go on to state that Anastasiades “balked at anything over 10% for the wealthy … and settled on 9.9% “tax” on depositors with more that EUR 100 000.” He is, apparently, “fearful of scaring off the wealthy Russians with too punitive measures”.

So there you have it. Rather than upsetting the rich (who can afford a tax) Anastasiades opts to include savers below the EUR 100 000 base which includes every lowly investor – from taxi drivers to school teachers. Why? One can only assume because it would shift blame and attention from Cyprus’ own short-comings and onto Germany and Brussels.

It worked a treat.

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