Friday, 22 March 2013

brinksmanship or no quarter

On the surface of things, the evolving situation in Cyprus’ finances does not seem to make complete sense. There was originally a strange sort stoical solidarity as the idea of levying a deposit tax as collateral against the Euro-Group’s line of credit from the island’s government but public outrage and fears of precipitating such seizures ultimately led to the collapse in negotiations. Presently, the Cypriots look poised to renege on the terms of this rescue package, and the EU looks willing to cut its losses, recognizing the grave realities of a marshal-economy. The transformation was quick, from darling of people seeking out a safe berth for the money to anathema, over-exposed—though fundamentally, the shenanigans were no different than what when on in other crisis lands, or for that matter, what is still tolerable, attractive about other safe harbours, like Luxembourg or the Channel Islands.

Further, that stoicism belied a calmness, which was not entirely unheard over the uproar, with the church offering certain securities and pawning pension funds. The Euro-Group rejected these avenues, which seem to be no longer options for the Cypriot administration either, as untenable and just setting up the country for a deferred failure with an unsustainable burden of debt, as well as intervention by the Russians. Though there may be some interest not brought openly to the bargaining-table, Russia seems to be snubbing Cyprus, even with its untapped natural gas reserves, and will let the banking system fail, despite standing to lose a lot of private money and its chief correspondent bank for clearing its transactions with Europe. To be sure, it’s chaotic and the most robust economist probably could not deftly navigate these waters, but things just stopped making sense. It almost seems like warfare-by-proxy, with vested interests in seeing the EU experiment crumble. I suppose too that as the crises initially began to unravel, for example, with the real-estate bubble in Ireland or Spain or the overvaluing of the Swiss franc, could also be shown in the harsh light of conspiracy. Perhaps, hopefully, Cyprus can emerge from this dilemma, bravely and ultimately stronger, like Iceland has done.