Monday, 25 March 2013

Olli Rehn and Elena Panaritis on Cyprus economic crash



The above video is of European Commission Vice President Olli Rehn speaking in the immediate aftermath of last night’s Cyprus bailout deal. I was struck by his ominous tone, promising tough times ahead for Cypriots and comparing the likely fallout to the impact on the island of the Turkish invasion in 1974. ‘Cyprus and the Cypriots,’ he said, ‘have gone through very difficult times before – and you know what I mean – and the Cypriots have overcome these difficult times. There will tough times ahead as well; but I’m sure that by working hard together, we shall overcome these difficulties.’

Below is Greek economist and former Pasok MP Elena Panaritis speaking on BBC Radio 5 just after news of the Cyprus bailout deal came through last night. She too expects the Cypriot economy to be devastated by the troika ‘rescue’ and draws particular attention to the fate of pension funds that will be hit by the levy on €100,000 plus deposits and the winding up of Laiki bank. Panaritis also blames Greece’s economic meltdown for precipitating the crisis in Cyprus. ‘Don’t forget,’ she said, ‘that Cyprus is being punished for something not originated by themselves. Thirty percent of their GDP – in other words, the capital that has been lost from the banking sector – is because of the PSI and the Greek crisis. We, the Greeks, exported this terrible tragedy to Cyprus. I feel very awkward about Cyprus right now, being Greek myself.’



4 comments:

Hermes said...

Oh gees, we Greeks are like small children. When a crisis hits, we lash out at anyone but ourselves. I suppose this is what happens in societies where few people are allowed to speak the truth to the overwhelming tide of populism. Like the Elladites, the Cypriots will kick and scream initially and blame everyone except themselves. Eventually, they will realise they were largely to blame. Then, that is when the recovery will start to occur. In Greece, they are a little further down that road only because the bubble burst earlier.

Anonymous said...

I don't agree this is a lot different than what happened to Greece. I called this when cyprus entered the Euro, I have no idea what they were thinking to give up their currency which was strong.

I guess they can blame their banks for taking on so much Greek debt. But this was handled in a clumsy manner and I don't understand how destroying their banking system will help their economy. Seriously screw the so called bailout there will be no banks to save anyways. They should have pulled out of the Euro, issue their own currency and guarantee deposits that are local. Out of country deposits should be dealt with the same way Iceland has.

Ted

Hermes said...

Ted, they are not destroying the banking system to help the economy. They are downsizing the banking system because it was unsustainable – remember they were looking for bail out money from the Troika because they were shut out of markets. The economy was well on its way to being destroyed.

If they pulled out of the euro and reverted to the Cypriot pound, more than likely the currency would decline by over 50%. I am assuming CGB are issued under English law. Therefore, any Cypriot government debt would balloon out of all proportions and they would declare a disorderly bankruptcy.

Anonymous said...

I still think a cut through devaluation is better. Right now there are businesses that will owe debt to one bank and have their money seized from another. A cut through devaluation is much more fair as everything should fall relative to each other. Sure imports go up but domestic goods and service costs should drop too. What they proposed benefits people who are in debt and punishes those who are savers.

Ted