The attempt to rescue Cyprus’ ailing banks has threatened to become a major misadventure for the eurozone. Europeans are worried about the security of their savings, says DW’s Bernd Riegert.
This is not the way to conduct crisis management. After a late night meeting, a thin-lipped chairman of the eurozone states announced a bailout package whose details were picked apart only hours later. The government in Nicosia wants to renegotiate the conditions of the bailout. Nobody wants to take responsibility for fleecing the savings deposits of Cypriots. The European Central Bank (ECB) said that Cyprus must come up with a contribution to the bailout, somehow.
The parliament in Cyprus has postponed its vote on the bailout package. The country's banks are closed, and online transactions have been frozen. In response, the financial markets in Europe have been unsurprisingly hit with losses. The government spokesman in Berlin has said that German savings are secure. But economists are warning against the deposit levy, which could set a precedent in the eurozone.
Russians will be hit hard
Those are just the most important twists and turns in the Cyprus drama, which can simply be called chaos. The measures adopted are the best recipe to make investors insecure and shake eurozone confidence, which was slowly being nursed back to health. The EU finance ministers' decision has alienated Cypriots, is not understood by the experts and has piqued Russia.
DW's Bernd Riegert
The Russian finance minister is complaining that he was not informed of the decision. The second biggest bank in Russia will have to pay out - according to the current tally - 130 million euros ($168 million), because it has invested 13 billion euros in Cyprus.
This is certainly no shining achievement on the part of the new Euro Group chief, Jeroen Dijsselbloem. It makes one wish that Jean-Claude Juncker, Dijsselbloem's predecessor, would return. Juncker had predicted that the Cyprus crisis would hit the confidence not just of the banks, but also of normal citizens.
The negotiations over the Cypriot bailout dragged on for nine months. The financial need of the ailing banks in the EU state, which has a population of just 800,000 people, has been estimated by experts to be 15 billion euros. That amounts to the entire economic output of the divided island in one year.
It has been clear for a long time that Cyprus' bailout would not be financed by the eurozone rescue fund alone. At least one third of the bank deposits in Cyprus are from foreigners. Russians have parked 20 billion euros on the island in order to avoid taxes. Many European finance ministers – not just Germany's hard-line Wolfgang Schäuble – said that it would be unacceptable to protect the savings of Russians and other foreigners with European tax money.
And so Cyprus is being forced to come up with 5.8 billion euros of the total 15.8 billion euros needed to stabilize its banks. Nicosia chose a one-time levy on all bank accounts. Even if small investors will receive restitution later, it doesn't change the total sum. It simply means that the bigger investors will have to pay more in order to come up with the required 5.8 billion euros.
Depositors are no longer safe
It must have been clear to the participating finance ministers that this measure would trigger cries of horror among affected depositors and investors. Now the ministers are stuck in renegotiations. The recently elected conservative president of Cyprus has a flimsy majority of just one vote in parliament and is unsure whether or not he can even pass the necessary laws.
The Cyprus deal unfortunately sends the signal that savings deposits are not safe anywhere in the eurozone. When the state needs money to rescue banks, it is not afraid to serve itself at the expense of depositors and investors. The Cypriot economic model is now gone. There will be massive capital flight once the banks reopen.
Who can guarantee Spaniards, Italians and at the end of the day Germans, that their savings will not be fleeced? Nobody anymore. The German government spokesman has claimed that Chancellor Merkel's word from 2008 still applies. But that now rings hollow. At the height of the financial crisis in 2008, Merkel and her then-Finance Minister Peer Steinbrück - now her opponent in the 2013 elections – issued a guarantee for all German savings deposits. But that guarantee cannot be legally or financially backed up.
And don't forget that German and all other eurozone taxpayers have to finance 10 billion euros of the Cypriot bank bailout. That's also a risk that is being shifted on the whole community. Some 12,500 euros will be paid out per person in Cyprus. Thanks to the chaotic politics of the situation, nobody knows if and when the bailout money will be paid back.