I appreciate the PR nightmare here for the E.C. People are going to be madder at the E.C. for wiping out depositors at this unviable bank than they would have if the E.C. just let the whole Cypriot banking sector collapse and let everyone lose their money.
See: http://online.wsj.com/article/SB1000142412788732350100457838...
Then the world goes around and repeats the same offenses, and the public once again buys the easy, moralistic stories. Bleh.
The fact of the matter is that the Eurozone is a bad idea, a lot of economists said it was a bad idea, and now they're seeing their predictions come true. For each European financial disaster it's easy to blame some convenient cause, but eventually you have to ask: what is it about the Eurozone that is so good at precipitating financial crises? As banks collapsed and massive financial contagion in America was uncovered, did anyone in 2007-08 (besides a small number of monetary-inclined economists) think the very Euro would be threatened again, and again, and again, as America lurched along in limp but definite recovery?
To paraphrase Bill Clinton: it's the money, stupid. The Eurozone is structured to suck the money out of peripheral economies in times of crisis, which then seize up like an engine starved of oil. The best banking system in the world cannot survive if all its money disappears. Cyprus does not have the best banking system in the world, so I guess they're worse off.
It seems like Greece is doing much of the sucking, much to the chagrin of their stern German neighbors.
I don't see the Euro as structurally deficient, I really think this problem is a due to Greek culture in the early 2000s being incompatible with the EU. Remember that Cyprus is a very small country, being half the size of Pittsburgh.
I think many people forget why the Euro exists. It exists to grow trade and foster connections between European countries, and it serves to level them and their societies. This is a social agenda. If Greece stays in the Euro their culture will have changed for the better.
Cyprus is small, but it's not that small.
Pittsburgh, PA: 305,704 people (Pittsburgh metro area is 2.36 million though)
Cyprus: 786,873 people
Pittsburgh, PA: 55.37 mi^2
Cyprus: 3572 mi^2
Courtesy of Wolfram|Alpha: http://www.wolframalpha.com/input/?i=size+pittsburgh%2C+pa+v... http://www.wolframalpha.com/input/?i=population+pittsburgh%2...
Europe is the same as is most of the first world as far as bigger cities go (bigger meaning >=1 million inhabitants). There is "city population" and "metro area population" (outside the well-defined boundaries of the city). In the 3rd world this data granularity often isn't available.
In Australia, I guess it may be available but the distinction simply isn't made (which also helps making you feel bit more "important" when comparing Aussie city sizes to other big cities in the world, I guess). ;)
When I lived in Australia I wondered why Sydney felt so small, smaller even than my home town Hamburg, in Germany. Even though it was supposed to have 4.5 million inhabitants while Hamburg barely has 2 million. After understanding this it all made sense. Hamburg has 1.75 million city + 3.25 metro area = 5 million ... in 3rd world/Aussie city population math. :)
Check Wolftram Alpha; you'll find there is no metro population area data for most 3rd world/Australian cities, but it is there is for most big cities in the rest of the first world.
At 1.75 million, Hamburg would be solidly the 5th largest city in the U.S. However at 5 million it would only be the 10th largest metro area.
Generally it's more the people in the US metro areas who make that distinction, the persons who visit and live in the outlying areas and suburbs do not.
Truth is that these counties should never have been asked to join the Euro in the first place and this problem will never be fixed while they remain. However it's the big cosy idea that counts in the minds of the Eurocrats, never mind the human cost.
http://www.telegraph.co.uk/finance/comment/ambroseevans_prit...
You can picture it as going through therapy or adolescence. And boy what a drama that is...
In the noughties that meant having cheap money because Germany was in the doldrums. Of course fiscal policies could have been used to dampen down demand in the overheated peripheral economies at that time. And to a certain extent there were. In Ireland, in about 2002, there was a very generous tax-free savings scheme if people to put away money for 5 years. Practically everyone who had the money bought into it to the maximum limit allowed. It was completely inadequate though and a lot more should have been done.
However the trend in Europe is also to harmonise fiscal policy. So to me it looks like, if we know what's good for us, we will all have to get into line with the German economy. In the future we will be paying ever closer attention to internal German politics and economic affairs. Maybe that's a good thing, the Germans do seem to know how to run an economy but I don't think 'growing up' is a metaphor I'd use for it.
Euro interest rates have always set to suit Germany and thus been too low for many of the other Euro countries - cheap money is one of the factor behind the crisis across the Euro
When the Greek problems became obvious, they had no easy way to divest themselves of that debt because nobody wanted it. And when the EU decided (without Cyprus having any say about it) that the bailout would involve a 50% haircut for privately held bonds, Cyprus was hosed.
It seems to me that the biggest sin that Cyprus committed was being in the wrong people (Greeks) in the wrong place (right next to Greece) at the wrong time (when Greece was diving off an economic cliff).
Turkish Cypriots must be very happy now that the Greek Cypriots rejected the peace settlement in 2004. Otherwise, they'd likely be bankrupt too.