What The Hell Just Happened In Cyprus? Ctd

CYPRUS-ECONOMY-FINANCE-EU

The Cypriot legislature has rejected the EU’s bailout deal, which would have levied a tax on savings accounts to prevent bank insolvency. The crisis has taken a Hollywood twist:

It’ll be days before banks open back up, and even then, it’s unclear if Cypriots will be able to make withdrawls. Money is so tight that the British government airlifted 1 million euros, about $1.3 million, to the tiny Mediterranean nation. That’s a lot of cash, so much that the Royal Air Force used its biggest plane, the Voyager, for the task. But this is no charity mission, and that money is not Mother England’s way of giving its one-time protectorate some milk money. (Cyprus is still a member of the Commonwealth.) It’s actually for the British soldiers stationed there, who might otherwise miss a paycheck due to the clusterfuck that is Cypriot financial system right now.

Felix Salmon runs down the options available now. He thinks Cyprus leaving the EU would be the worst result:

If you think that taxing deposits is a bad precedent, just wait until you see what happens when the world learns that a country can leave the eurozone after all.

So a lot of people are going to spend a lot of effort trying to avoid it. And judging by recent European history, some last-minute deal will manage to get cobbled together somehow. But this whole situation is horribly messy — it reminds me of the Argentine political chaos in March 2001, a few months before the country finally defaulted.

The big problem here is that there’s no overarching strategy on the part of the EU. An interviewer from Greek TV asked me yesterday whether the agreement with Cyprus represented an important change in the Eurogroup’s attitude towards peripheral countries. I had to say that it didn’t, just because that would imply that the Eurogroup has an attitude towards peripheral countries, which can change. Instead, it’s all tactic and no strategy, and the tactic is a dreadful one: wait until the last possible minute, and then do whatever’s most politically expedient at the time. It’ll probably work, somehow, in Cyprus. But it won’t work forever.

(Photo: Cypriots show their palms reading ‘No’ during a protest against an EU bailout deal outside the parliament in Nicosia on March 18, 2013. By Patrick Baz/AFP/Getty Images)