Cyprus tragedy reveals Eurozone’s arbitrary functioning

From left to right: Mr Wolfgang Schauble, German Federal Minister for Finance; Ms. Christine Lagarde, Managing Director of the IMF; Mr Jeroen Dijsselbloem, President of the Eurogroup; Mr Michael Noonan, Irish Minister for Finance. (European Council photographic library).

Monday’s night statement by the Eurogroup President, Jeroen Dijsselbloem, on Cyprus was the perfect field for a full PhD research, on the way decisions are made in the European Union. The problem is that until some years ago this kind of decision-making when wrong, and it usually was, had negative consequences only on subsidies paid to European farmers. Nowadays however, with the atypical advent of the Eurozone and the Eurogroup, this kind of decision-making has ground-breaking effects on 400 hundred million people, their everyday economic lives and can make or break huge markets.

The sloppiness in the construction of Eurozone it’s flagrant. It suffices to observe that its top decision-making body, the Council of the 17 heads of states or governments started to exist officially last week at the spring EU Summit on 14 March 2013, when the full 27 EU leaders’ council adopted the rules of procedure for the Euro Summits. Concerning the rules governing Euro Summits, the relevant decision stated the following, “Drawing on treaty provisions and existing practices, these rules codify the organisation of these meetings”. In short, the most important decision-making body of Eurozone was created twenty years after the European Union started to ‘prepare’ for the introduction of the common currency and its function is left on the ‘clouds’ of the ‘existing practices’.

Monstrous decision-making

Now if one applies the above fact based knowledge on Eurozone’s construction and functioning, it will find it very easy to understand what is happening with banks and Democracy in Cyprus. What was decided on Saturday, changed on Monday and then disputed upon on Tuesday.

The European Sting wrote this morning that, “All those authoritative bodies (European Commission, the European Central Bank, the International Monetary Fund and of course the German government) over this past long weekend played with the life savings of Cypriots, initially telling them that they have to suffer a haircut of 6.75% on their bank deposits up to €100,000 and then reducing the charge to anything close to zero”. No institutional procedures were followed in taking this decision, because there aren’t any. After some telephone calls between Brussels, Berlin, Paris and Washington, the President of the Eurogroup issued an announcement, the provisions of which were later…revoked.

Returning to the statement issued last night by the President of Eurogroup, Jeroen Dijsselbloem, it could be used as the best joke in a stand-up comedy. However since it concerns and affects the lives of millions of Eurozone bank depositors nobody would laugh. Again the European Sting wrote today the following, “As the European Sting established…by publishing a European Commission’s statement of 12 July 2010, all deposits of up to €100,000 in all Eurozone banks, are guaranteed by the European authorities and will be repaid to their rightful owners within 7 days, in case their bank fails”.

Everything goes in Eurozone?

It is widely known by now, that the decision to tax the bank deposits below the level of €100,000 in Cyprus by 6.75% changed on Monday night. It is very interesting however to read the relevant paragraph on the statement by Dijsselbloem. It says: “The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below EUR 100.000”. Eurogroup President says that, only hours after he had decided to give a good 6.75% haircut on those deposits. If this is not an indication that “there is something wrong in the Kingdom of Denmark” then Shakespeare was illiterate.

It seems then that the whole affair of the Cypriot banks bailout is a badly planned and worse executed exercise. This usually happens in the EU Agricultural sector’s decision-making procedure, where everybody adds its own part to the ‘animal’, which at the end of the operation is so distorted that it doesn’t look like any living thing.  In this respect Wolfgang Schäuble, the German minister of Finance, said today that the decision to tax the small depositors was taken by the Cypriot government itself, in order to avoid a deeper haircut on the larger than €100.000 deposits. It is unacceptable however to see, that a major factor of the Eurogroup decision-making procedure like Schäuble, accepting that he let another part of the equation to develop its own ideas about legality and financial principles, without the other parts being able to stop it. Seemingly the German politician takes everybody else as morons, or it’s ‘everything goes’ in Eurozone.