The Cyprus bail-out: Unfair, short-sighted and self-defeating | Hacker News Reader

The Cyprus bail-out: Unfair, short-sighted and self-defeating

economist.com

113 pointsaero142107 comments

Funny thing is - this is likely just a test run.

BCG wrote the scenario up back in September 2011: Back to Mesopotamia? The Looming Threat of Debt Restructuring http://www.scribd.com/doc/130778664/BCG-Back-to-Mesopotamia

It describes exactly the case for one-time haircuts across all citizens, neatly laid out per country. The money needed to turn those deficits around needs to come from somewhere, just printing it does not work. Certain finance bloggers are already going apeshit about this.

And for those of you in the US, snickering at the European victims - it lists the US as well, with the need for a 26% haircut to balance its books.

Sleep well.

Holy God. I'm Irish and I knew we were in a deep hole, but... wow we are really [insert dispairing profanity]

This is exactly what I thought. They must know it's going to end in bank run. And they want to see if they can somehow manage it.

Fascinating read, thanks for that. For those that like scribd as much as I do, here's a direct link to the report (PDF):

http://www.bcg.com/documents/file87307.pdf

The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.” -Rudiger Dornbusch

If I was Greek, I wouldn't have money on deposit at a Greek bank. It surprises me that at a minimum the Greece financial system hasn't ice-nined already. We're witnessing history.

Can you shed any light on the practicalities of moving one's money beyond local government's reach? This is something I've wondered about for a long time.

Not too hard. Just go to a country that is known to not depend on your country (say, if you're from the States, choose China). Go there, open a bank account, mission accomplished.

We still have to report our worldwide accounts every year to the treasury department, and not doing do is considered very bad.

I probably would have picked a different country in that regard.

That being said, it's not all that simple to open up shop in a Chinese banking office. Though I guess if you have the kind of money you would want to do this with, it becomes easy enough.

Anyone who has that kind of money already has it offshore in the Cayman Islands. Why pay Chinese taxes on it?

Since Greece is still in the Euro, you simply turn all that money into Euros and keep it under your bed (or preferably in a safe). The upside is that the government can pretty much do nothing about this as long as you don't tell anyone about it. The downsides are many and various:

1. You lose whatever the inflation rate is per year (eg. 3%-5% of your savings annually).

2. Keeping cash or equivalents around is a security problem.

3. If everyone does it, there are bank runs which collapse all banks.

It's downside #3 which everyone is worried about here, since people in Greece, Spain, Latvia (according to the article), etc, are looking at Cyprus, and are going to be concerned that the same haircut might happen in their own country.

To counter the inflation effects you could just buy Gold instead of Euros. Gold offers also a higher value/volume ratio than paper money. ;)

I don't have any special insight. I'm just articulating my surprise that all the turmoil hasn't triggered a bank run sufficient to cause a crisis. When you can lose 7% of your savings overnight, even money in the mattress starts to look more attractive than a bank.

I'm Cypriot, and today I've seen 6.75% of my family's savings disappear.

It's theft from your family, plain and simple.

You still have a chance to stop this outrage, as it must pass your parliament, and then other Eurozone parliaments too.

Good luck.

>You still have a chance to stop this outrage, as it must pass your parliament, and then other Eurozone parliaments too.

Citation needed? My understanding was that this was already in motion, and is going into effect before the banks open on Tuesday.

Cyprus makes the key decision.

"Cyprus's parliament will decide on Sunday whether savers must pay a levy on bank deposits under terms for an international bailout to avert bankruptcy - with approval far from certain... Cyprus's parliament was due to convene at 4 p.m. (1400 GMT) in an emergency session"

http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus...

Only then will other Eurozone parliaments rubber-stamp the bail-out funds. If for some unlikely reason the bail-out is not approved, I imagine the Cypriot government would have to swiftly return the money or face a very angry mob.

"Hours after euro zone ministers approved 10 billion euros ($13 billion) for Cyprus to stave off bankruptcy, Wolfgang Schaeuble briefed parliament's budget committee and said he would ask the lower house - which has a say on all euro zone rescues - to support the deal.

The Bundestag will likely have to vote on the outline of the deal this week, which is the last before the Easter break. German Chancellor Angela Merkel has a majority in the lower parliamentary house.

Schaeuble said the house would then likely debate the full Cyprus program in the second half of April before giving its final go-ahead."

http://www.reuters.com/article/2013/03/16/us-eurozone-cyprus...

"If the finance ministers reach a deal at Friday's meeting, it's likely to be a broad political decision, with technical details left for next week. The bailout would still have to be approved by parliaments in several eurozone nations, though EU officials say everything should be done by the end of the month."

http://timesofindia.indiatimes.com/business/international-bu...

Technically the money has not been taken yet, bank accounts have just been frozen to keep at least that amount in them (or more). The vote has been postponed until Monday, and it may well not pass, presumably which is why there is a delay. Given that the politicians were just elected a few weeks ago saying this would not happen I imagine some are reluctant to vote in favour.

It's not 'plain and simple', it's a complex situation involving complicated relationships between different parties and knock-on effects. If you want actual 'plain and simple' banking, keep your money under your mattress.

Convert your money to gold and store it under a mattress. Libertarians are funny that way :)

It's theft from your family, plain and simple.

I feel very sorry for the parent poster. But, no, it's not that simple. We as Europeans have been spending too much, we have added countries to the Eurozone that were not healthy enough financially so that France's finances would seem relatively ok. For years we the ignored tax evasion and corruption. We as voters and citizens were all part of the problem, and now everyone is going to pay.

If the EU didn't bail out Cyprus, his/her savings would be worthless, since their economy would've collapsed. If Cyprus' population is not going to pay heavily, the next bail-out may not be possible, because the populations of the countries lending the money might revolt. I live in The Netherlands, and there's not much solidarity left (which I think is stupid, but anyway).

Obviously, it is not a very good manner to seize funds, because the citizens of the next country that needs to be bailed out, will withdraw their savings beforehand.

But for some who dearly counted on those savings to pay rent or medicine, to be taken without their consent or knowledge, it is theft, plain and simple. No matter what opinionated armchair economists like you have to say.

It's not really the first time this has happened, it's just the scale that's different. Pension funds in Ireland have been reduced in a similar fashion. http://www.finance.gov.ie/viewdoc.asp?DocID=6830

It's also probably worth noting that in these bailout situations the smaller countries typically do what they are told since the option of not being bailed out are thought to be worse. Where it stings is when the interests of large international financial institutions seem to be placed above those of the citizens of the country involved http://www.notourdebt.ie/ But when you join the EU this is what can happen when things go wrong.

And of course you are neither opinionated nor an armchair economist?

Do you consider taxation to be theft?

There's a vast difference between a "we'll be taking 25% of your income each year" tax and a "we're taking 6% of your already taxed savings with immediate effect" tax. Taxes you know about in advance are more just than those enacted over a weekend with no time to prepare your household budget.

I'm not big into the "taxation is theft" rhetoric but I empathise with those who see certain forms of taxation that way.

But for some who dearly counted on those savings to pay rent or medicine, to be taken without their consent or knowledge, it is theft, plain and simple.

Again, what's the alternative? Without the bail-out, government employees will lose their jobs, foreign assets are frozen, they'll be removed from the Eurozone, the economy will collapse, and they cannot buy medicines either. Sure they could increase taxes, freeze or decrease wages, etc. But the net effect will be the same - people will lose money.

No matter what opinionated armchair economists like you have to say.

This has little to do with armchair criticism. My pension fund has been downgrading as well, there is a lot of uncertainty on what will be left when my generation retires. The thing is, we have to blame ourselves as well: in electing populist leaders rather than visionaries, for our unbounded consumerism, and for participating in corruption. E.g. in my country:

- People are obsessed with this populist right-wing politician (Geert Wilders) who dominates every discussion, always shifting the attention to muslims, Eastern Europeans, and how we are wasting money on Greece. In the meanwhile we have a mortgage bubble that is almost bursting and a healthcare system that becomes unaffordable. Moderate politicians, that get relatively little attention, have been warning the electorate for years.

- People buy expensive gadgets and phone subscriptions, without really having the money.

- Although there is relatively little government corruption, lots of people try to evade taxes at every possible occasion (e.g. through unreported employment of painters, construction workers, etc.).

- We dislike the banks and bonuses, but refuse to transfer our money to more ethical banks.

Again, what's the alternative?

Take it from the >100k bank accounts. Only from the >100k bank accounts.

No, and the reason is very simple. The whole discussion shows, that you can have zero trust in national governments. It is therefore save to assume, that you can not count the slightest bit on any retirement plans that have some form of government involvement. Even if you only get some modest apartment in a European metro area as you personal retirement plan, you are way beyond the 100k. Do you really want to steal the money from people who saved money all life just to have some decent retirement? (The "bank account" argument doesn't really count, as the BCG report outlines how they are gunning for real estate owners next).

Do you really want to steal the money from people who saved money all life

You seem to be arguing they should not have taken any money at all, which I of course agree with.

My point was that if they take money (which they did) then they should at least have spared the <100k accounts. I was trying to give the simple answer to the rhetorical question "what's the alternative?".

They overstepped two red lines here. Applying a sudden-tax to their citizens is the first, and taking it from the people who can least spare it is the second. My response was only concerned with the second line, because that is the really explosive one (civil unrest, bank run).

I personally find it great that they didn't spare the <100k accounts. It would have been much easier to do otherwise, as the "let's just take it from the rich" perspective is easy to sell nowadays in Europe. But taking it from those with under 100k accounts takes the fight to the streets and let politicians "feel" the backslash.

I don't know why you were downvoted, because it is an idea that should at least be considered (and I suppose that they did).

Are you one of those folks who thinks that all taxation is theft?

Not at all.

With personal taxes, you can disagree over the amount to be paid, you have time to prepare your accounts and get your finances in order, you can even refuse to pay and negotiate a settlement with the taxman.

In contrast, Cypriot deposit holders are going to wake up on Tuesday and simply find their money gone.

A lot of the taxes I pay aren't like that. They get taken out of my paycheck whether I like it or not. I think some of that is strictly-speaking optional and can be paid separately, but not all.

Are you on the Greek or Turkey side? A good friend of mine is from the north and I am waiting for him to wake up and get his take on things.

I guess the guy must be Greek since I think this only applies to the Greek side.

On the non-occupied (Greek) side. I believe this does not affect the occupied (still Greek) side.

A bit more direct but not so different from what savers in the US and UK have suffered from quantitive easing in recent years.

Come on, quantitative easing didn't lead to that much extra inflation, at least in the states.

Start a riot. That is the only way this will ever get fixed.

Riot control is very efficient these days.

As was clear in London, Toronto, Athens...

Obviously insufficiently large riots, events like this could generate numbers that even make the police wilt.

It won't help if they are victims of this loss as well.

CYPRUS. That is the name of the country. What you typed is a completely different thing. I thought the semiconductor company was getting bailed out.

In case anyone is confused, the original title was "Schumpeter on the Cypress Bailout."

Incidentally, to those who complain about mods changing titles: we fix stuff like this constantly. All day long we quietly fix breakage, and every month or so we revert a title that someone was attached to, and we get an indignant mob bitching at us.

> indignant mob bitching at us

Any chance that every month or so a moderator makes a bad decision and the mob calls it out correctly? When did HN become about mods -vs- unwashed masses? Surely this could be solved in some way making all sides happy... (old title in parens, majority voting on title, etc.)

I agree that in this case a change was called for. I usually do not complain about misspellings, but sometimes a misspelling completely changes the meaning. Personally, I have no problem with mods changing titles as long as they do it in order to avoid confusion.

I suppose I'm a member of that indignant mob, though I have no problem with fixing spelling errors or linkbait or inflammatory titles.

But the flip side of the loud indignant mob is the quietly indignant mob; a few days ago I submitted an item that I thought might be worthwhile, except that the best-formatted (easiest-to-read) source, nbcnews, also happened to be the one with the worst title. So, I used the title for the same article from the AP instead, and within a few minutes a moderator had mindlessly changed it to match the crappy, inflammatory title from the article.

I didn't bitch to anyone though, because it's clear that nobody's mind is going to be changed, but I wondered why HN doesn't just automatically pull the title from the submitted article. There's really no point in my putting any effort at all into a title.

obtw, a good rule of thumb in customer service is that for every complaint you get, there were 10 other people that had the same problem but didn't put the effort into telling you about it.

The other weird thing is that until about a year ago, the guidelines said writing better titles was ok. Now, it doesn't. So a policy changed there for some reason.

I agree that changing titles is sometimes necessary and most of the time it is reasonably done, but would it hurt to bring a little more transparency into the process? A small comment by the mod indicating (and possibly explaining) the change would go a long way...

Maybe the submitter's original title should be kept in a small font or a tooltip or something, for both completeness and transparency.

Where does this put the trust in banks? What will the reaction be from people in other countries with money in the bank? They could start fearing that one day their money will be locked away from them and that the bank is going to take percentages off of their savings. This is a decision that might push others over the edge.

My thoughts exactly. How can they justify simply taking deposits?

Fact 1: Deposits are loans from depositor to bank. Fact 2: Deposits are accounted for as liabilities on the banks' balance sheets. Fact 3: Banks write multiple loans against each dollar deposit; it has a fancy name: fractional reserve banking. Fact 4: Most countries are now on zero reserve banking and only manage their loan portfolio size by the amount of capital they have on their balance sheets.

Important part here:

> The second error is one of equity. There is an argument to be made over the principles of bailing in uninsured depositors. And there is a case for hitting everyone in Cypriot banks before any taxpayer in another country. But there is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched.

Typically, as you impose losses for burden sharing, you start with equity as the most highly risky capital, move to debt, and after that move to depositors. The reasoning is that this underlines basic choices about who is taking risk; equity investors have the most risk capital, bondholders are right behind them (based on the structure of the bond) and depositors are the lowest; philosophically this is because as an investor in equity/debt it's your job to evaluate the bank's chances of failure. As a depositor, you just want somewhere to park your savings.

Bad deal.

It is, again, a matter of a point of view.) In theory, no one benefits when, say, Russian criminals or politicians (which is actually just an alias) park stolen money there. Money should work (flow) which means - getting invested. If they just stolen, evacuated from the original country and parked in a bank which cannot even invest them properly - no one benefits, except bankers and criminals.

There is also nothing special in that EU elites want to break the scheme - why should they care about Russians laundering money? They would prefer their own schemes.)

So, nothing to see here. Parking money abroad is a risky enterprise, so, just take some loses and diversify better next time.)))

Wrong. The banks loan out money that is deposited to people seeking loans. These Russians are helping Cyprus. There is no such thing as parking money (with the exception of stuffing your mattress with usd)

The people who save (Russians, Cyprus locals) should not be punished.

It seems like you have never been in Cyprus.) There is nowhere to loan billions. The population is small, businesses are tiny.

And of course there are no "people who save". It is mostly enterprises trying to hide money from taxes and corrupted officials, who cannot show unearned "wealth" at home.

People would benefit when the money would be invested at home (well, in Russia it is a suicide), or perhaps, in an agriculture in a highly populated developing countries where lots of people just need a job to support their families.

Thats not quite true. There was a massive property bubble. But a lot was lent in Greece, or used to buy Greek and Cypriot government debt.

Not everyone who's being hurt here was "parking money abroad". They're stealing 6.75% of ordinary people's savings. That's shockingly unfair and stupid.

Does anyone know why they didn't restrict this to accounts over the insured 100K limit? It makes no sense to me why they would take the political hit of doing something this evil. If it's about taxing Russian criminals' billions as we're hearing, why would they need to raid average citizens' accounts?

They're stealing 6.75% of ordinary people's savings. That's shockingly unfair and shockingly stupid.

Who is stealing? Certainly not EU. It sucks for the people involved but the country has no money. So instead of having an extra tax on real estate or income they added a tax on this and they can collect it in a minute. Others would have complained about an extra tax on their income, electricity, property etc as well. At least here outsiders pay too, otherwise the Cypriots would have paid a larger share.

Isn't that a question of semantics? Sure, when the government does this, it is called a tax. However, this was a surprise tax levied on unaware people, leaving them with no chance to plan or prepare themselves, by people who they didn't vote for (from how I understand it).

To me, it doesn't seem too far off the mark to call it theft.

This tax works because it was a surprise. What do you think would have happened if, say, they gave 48 hours notice?

To me the word "tax" includes some expectation that the funds be used (however imperfectly) for the public good. But the bailout-and-austerity regimen seems to be about protecting financial institutions at common people's expense. For example, it wasn't the Greek people being bailed out, but rather the banks who lent to Greece. Yet we don't hear about that, we hear about irresponsible Greek bus drivers and the like. (As a side point, such fanning of nationalistic flames has served its diversionary purpose well in this case, but is really playing with fire.)

It seems to me the bottom line is clearly: are the bondholders of insolvent institutions expected to take a hit as well? If the answer is no, as it mostly has been throughout this crisis, that's "heads I win tails you lose" — rotten both morally and from a market point of view. The bondholders in this latest case are not touched at all, according to http://yanisvaroufakis.eu/2013/03/17/cyprus-stability-levy-a....

(You make a good point that this surprise tax isn't the worst way they could do it, but that's what makes it so puzzling politically. The way they're doing it is so naked, so brazen, that it's bound to cause a larger backlash. Everyone can understand someone reaching into their bank account and taking a fistful; that's political poison. Why didn't they find a worse way (if need be) to do it, cloak it in complexity, and exempt the poorest citizens to mitigate criticism? Something along those lines would be standard political practice, and it's puzzling why they didn't do it in this case. Is it simply that Cyprus doesn't matter? Edit: I now see that the Economist is asking the same question.)

> The way they're doing it is so naked, so brazen, that it's bound to cause a larger backlash.

Quite right. The more I think about it, the more I believe there's an extreme risk that this could be the first domino in a catastrophic chain reaction. All because of a few lousy billion dollars that surely could have been borrowed and paid back in a more reasonable fashion.

I don't get it. I don't understand how the people involved here could be so enormously stupid. Just as it looked like the Euro crisis was ebbing, they're set to reignite it in a whole new way.

"borrowing to pay back in a 'reasonable fashion' later" is exactly how all this started in the first place.

It is camouflaged stealing. When senior bond holders of banks who are foreign banks are protected at the expense of ordinary people(s) deposits. The money is lent to Cyprus so that the Senior Bond holders of the banks don't lose any money.

We had ~5% inflation for a while (in the UK). Our savings lost a similar amount due to government policies, yet there wasn't such an outcry.

It seems that a tax of (apparently) just under 20% on over EUR 100k was seen as too high, and would destroy Cyprus as an offshore banking centre, while under 10% as "ok". Apparently the rest of the EU was happy with it all going on large amounts but Cyprus was not. But this may all be hearsay.

That the Cypriots preferred levying a tax on small accounts to increasing the rate above 10% for large depositors points to the island still eyeing a future as an offshore banking centre.

German bankers sending a message to people to move their money to Germany because it isn't safe elsewhere

Would the money be safe in Germany? I think I much prefer to have my money (little as it is) in a bank outside of the Eurozone. Perhaps in one of the South-America or BRIC countries if at all possible.

Really? BRIC? Perhaps a few of the most corrupt/oppressive/restrictive/authoritative/land grabby/no-due process governments in the history of the world? You'd feel safer there? Not Canada, US, UK, Australia, Japan? I'd take any one of those over BRIC any day of the week.

Well perhaps all of the BRIC countries wouldn't make sense, but if money is stored on a bank in Brazil or China I would expect it to be reasonably safe. The point I tried to make was that I wouldn't like to store money in countries too closely linked to the Euro and (perhaps) US Dollar.

I think he's talking about stowing his money there, not himself. Corrupt, oppressive, authoritative regimes are more likely to screw their own people than valued foreign investors. Theoretically.

What is wrong with Brazil?

Singapore. Germany is the last fucking place I would put my money. Income tax around the 50-55% bracket. Good luck.

One view is that if you have Euros, the safest place for them is Germany, because if the single currency does break up over a weekend, at least your Euros will be converted into Deutsch Marks.

If Germany is not safe enough for your money, nowhere in the Eurozone will be. Recent history shown that German banks are safer than USA or UK ones.

As a small saver, if I was a Cypriot, I would move all my remaining (i.e. not-yet-stolen) money to Germany ASAP.

What makes you think future confiscations won't be by citizenship, regardless of the nationality of the bank?

This is nothing more than a warning for the rest of the countries with "failing economies".

Banks can afford destroying people's lives to simply increase numbers in excel sheets.

Greed is human kind's drive force and it's unstoppable.

This grab from domestic savings is a new item.

Yet will anyone outside Cyprus, EU or small niche communities like HN take notice ? It is hard to say.

Portugal seized money from pensions (2.5%) and hardly anyone noticed. They called it a "Solidarity Tax"

http://www.portugaldailyview.com/whats-new/press-review-gove...

There has been a lot of head-in-sand citizen behaviour. This lack of alarm is aided by shockingly bad press reporting of the issues.

Insured deposits being raided? Bank runs anyone?

The Germans have had enough of this and when they can (couldn't in Greece, even though the population suffered) they let others share in the pain.

Cyprus along with Dubai is known as a place to send your hard stolen billions so you could understand the goodwill towards them.

Edited to add: Cyprus also doesn't make it easy for EU. EU has master plans, namely more or less to get along with Turkey to the extent they can, and to start the remaining Eastern European countries in the EU path. Cyprus were let in EU as a divided country, only after Greece (their sister /mother country) threatened to veto any new other members unless.

Once Cyprus got in they threatened veto against cooperation with Turkey, the other part of the island etc., making work much harder for EU and especially NATO. US would like for EU and NATO to cooperate but Turkey is a member of NATO but not EU and Cyprus is a member of EU but not NATO. Both can veto but Turkey has a million man strong army, and has been a NATO asset for 60 years.

In other words, they were in for some payback. A tiny country played the entire EU for fools for a long time. http://www.bing.com/search?q=Turkey+eu+cyprus+veto&;

I don't know what was the specific reasoning behind what they did, but I believe it might turn out to be the worst decision ever in the history of banking. How are the people in Greece, Spain & Italy going to react when they hear about this? Will they decide to take preemptive measures (take their money out of the bank) before the same thing happens to them? Note: I am not claiming that the same thing will happen in other countries, only that people in other countries might be concerned about the posibility of it happening and decide to do something to protect their money.

not to mention that it only takes a small (almost minimal) proportion of withdrawls to do significant damage to the health of the banking system.

My grandparents were born in Europe throughout the second world war. They always "warned" me not to keep too much money in the bank as when times get tough it is going to be worthless. Always thought that this was kind of a war-generation mindset, but the Cyprus situation makes me actually believe that they are not that much off after all.

Yeah, my great grandfather, who was an adult during the Depression, literally buried money in jars on his land.

Having seen something happen probably changes your perspective on things.

Unfortunately moving money from banks to jars can't stop TPTB from making it worthless by inflating the $hit out of it overnight.

Gold.

Because gold never goes down in value.

I'm just curious, are you Turkish? Not that I disagree with you, but it does seem to be one of those issues that seems to be charged by one side or the other.

I am Turkish, so I might be able to offer some commentary. What is said is essentially correct, but I'm more reluctant to assume this is the reason why. Turkey has a long way to go and many other problems to solve before it can become an EU member, and Europe has its own problems too. Cyprus is too unimportant for both sides to care about right now. When Turkey's time comes for the full membership and agreed by both parties and if the Cyprus remains the only roadblock, the heat from Turkey and EU can sink the entire island in one day so it is likely that they will cede. In the meanwhile, it's a convenient excuse. However the other issues facing EU membership of Turkey are pretty serious, so they'll be able to play this game for a while. The problem facing Turkey is, essentially, when or if the country joins the European Union, it's going to take around 1/4 of the chairs in the European Parliament (it's based on population, Turkey is about the same size as Germany population-wise), effectively becoming an instant major player in EU decisions alongside UK, France and Germany. This upends the power balance in Brussels. While on paper Turkey looks like an another regular Eastern European acquisition for EU, it is in effect a larger process than the entire history of acquisitions combined because of political, cultural and populace implications.

Even then, Turkish population has largely soured by the 30-year-long waiting at the gates game, and they are not as likely to accept then shown the financial implications of an EU membership. Considering Turkey has largely been impervious to financial perils of the EU (chugging along with a fine 5% growth rate through it all) and also considering GDP wise it is now one of the Top 20 economies in the world, with the second largest army of NATO after the United States, an EU membership, once a dream, is starting to look like not that good of a deal.

Turkey is essentially the thing that stands between perpetual war and dictatorships of Middle East and "civilised" Europe.

I am not Turkish, by birth, but I am Turkish by choice (I currently live there)...

This is a really good summary, but I think you're downplaying the importance of Cyprus a bit. Yes, Cyprus is a bit of a pawn, but it's an increasingly dangerous pawn. The other angle to the Cyprus question is the discovery of gas reserves off the coast, the debate over who has rights to exploit those gas reserves (since the Turkish Republic of Northern Cyprus controls the north, but is only formally recognized by Turkey), the deals that the Greeks and Greek Cypriots have struck with Israeli firms for the exploitation of said gas, the recently soured relationship between Turkey and Israel (who have been traditional allies), and the desire of the current Turkish government to become a champion for the middle east and/or (depending on how you spin it) the Muslim world.

Cyprus may just be a tiny island, but it increasingly seems to become the focus of so much of what is going on in the region. That said, I agree that the whole relationship between Turkey and the EU has become...complicated. It is interesting the reversal of fortunes that has led to the situation going from one where the EU was reluctantly working with Turkey on accession in 2005 to one where Turkey is the reluctant partner today. As distasteful as it might be to some in the EU, I think it's become clear that Turkish accession to the EU would be the best outcome for the EU.

I never met a foreigner deciding to live in Turkey before, it's interesting! I'm currently living in the States, so I am also an expat. The question of gas reserves is a serious one, but as the saying by Mao Tsetung goes, "You can get much farther with a kind word and a gun than you can with a kind word alone", and Turkey has many (way too many, in my opinion) guns.

Souring of relationships of Turkey and Israel was only a matter of time, I believe. The populace is overwhelmingly against Israel and the government played that hand for votes. It is also important in the area which Turkey wants to assume leadership, Middle East, in that any action, words or whatever against Israel gets many applauses. I personally believe future of the country lies in the West, not the East, but I am of a dying breed of Turks that identify with the West rather than Middle East.

My wife is Turkish, and over the years of visiting Turkey, I fell in love with the country. Also, given the state of affairs in the US (especially with respect to education), we figure we're no worse off raising our children in Turkey. Of course, we also have a number of contacts in Turkey which make it easier (we plan on sending our kids to private school)...but that's a whole different topic for another time!

I think it's definitely interesting times in Turkey. I know a lot of people are worried that a turn to the east is a foregone conclusion, but at the same time the growth in places like Istanbul and Izmir is hard to ignore. Just a few weeks ago there was a major meeting of tech startups and VCs in Antalya. There's no guarantees, of course, but I think it's not impossible that Turkey could become a major player in the world economy in the next 15-20 years...

One potential downside: I personally could find no satisfactory career paths in Turkey—that's why I decided to come here to the States to study. Any place that would accept me as a designer were paying below $1500 start-up salary per month, which is ridiculous in a city like Istanbul, which has traditionally been one of the more expensive european cities. The living cost in Istanbul and New York is pretty much the same for me, at least, while in New York, as what I strive to be, I am far more confident in that I can make a living out of it.

Turkish public high school education is far better than the U.S. public education, and the private schools, provided you pick carefully, should be up to par with their european counterparts (which is pretty good). But for the universities, definitely send them abroad.

I didn't even know Turkey had VC's! Interesting. If you do such things, we can meet up for a coffee somewhere in Istanbul this summer, I'll be back for a short break. Meanwhile, enjoy the country!

This is why political articles like this, even though they are interesting, current, and sensible, are probably best avoided on HN.

I subscribe to the Economist, and think it's great, but politics is politics, and tends to spiral downhill pretty quickly.

The debt crisis is a technical issue that is also political. Much of the money in the world, like these Cypriot deposits, does not really exist as the debt on the other side has defaulted, but we have no, er, nice ways of dealing with this. When this happens in the US I am sure it will also be at the top of HN...

I understand the issues involved quite well, and think they are very important. Ultimately, though, it's politics, and does not belong here:

    Off-Topic: Most stories about politics

We could easily fill the site with political stories that are more important than hacking and startups.

No not Turkish but I read news regarding EU. What I said, is almost a known fact: EU wanted the island to be united, promised EU to Cyprus and Greek Cyprus leaders promised to vote Yes on unification. Once EU accession date was given they voted no on unification and now they have no incentive to do so. http://news.bbc.co.uk/2/hi/europe/1021835.stm

EU does not let countries in without having solved their problems. NATO and EU, save for a few countries, overlap, but now on every decision they have to go around and ask Cypriot leaders who will use their veto. The Greek side has gotten all they want from EU, the Turkish side has a blockade and what not and it goes back and forth.

In other words, the tiny and divided /occupied country of Cyprus (Greek side) used EU to fight their battles, irritating the powers that be. Greece did that too. The powers that be took a trip down memory line

Sounds like Cyprus is sort of a cesspool. Whenever I get into the underlying conflict, it get's very confusing to see who is right or wrong. Its sort of scary that such a little island could cause so many problems though.

Yeah, what a bunch of bitter assholes. The nerve of those people, being such a nuissance for EU and Turkey just because a small 36% of their land has been illegally occupied for almost 40 years now. Just suck it up and move on already.

They rejected the UN-supported unification plan. They have no excuses.

regarding Cyprus being let into the EU you got it all wrong. Cyprus is used as an excuse by Germany and France who don't want to allow Turkey in the EU. If Cyprus wasn't there to veto Turkey's accession then Merkel would have to come up with some other creative excuse for not letting a Muslim state into a Christian Club.

regarding Cyprus being let into the EU you got it all wrong.

There is no need for that, France has made it clear that they will veto Turkey's bid, and many other countries will follow (IMO correctly).

As for how Cyprus got in, let's go back to where the Greek side promised a "Yes" vote on unification of the island only to vote "No" when EU voted to let "Cyprus" in, a divided island. http://news.bbc.co.uk/2/hi/europe/3654919.stm

Now of course Turkey isn't going to make it easy for them given that oil and gas is being found.

if you take it that way, Turkey only thing it has to do is follow EU regulations to open its ports to all EU member countries and the barrier of entry will be lifted. essentially its Turkey locking itself out by not doing what every other member state has done in order to be able to join.

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