Can the EU last long if it cuts Cyprus out?

European Parliament ECON Committee chair Sharon Bowles (ALDE, UK) (on the left) and Jeroen Dijsselbloem, President of Eurogroup walking to take sits for the Economic Dialogue and exchange of views. 21.3.2013, (European Parliament photographic library).

European Parliament ECON Committee chair Sharon Bowles (ALDE, UK) (on the right) and                                       Jeroen   Dijsselbloem, President of Eurogroup walking to take sits for the Economic                                                              Dialogue and exchange of views. 21.3.2013,                                           (European Parliament photographic library).

The latest and most important rhapsody in the Cyprus tragedy was performed yesterday morning by the twenty-three members of the European Central Bank’s governing council. The text issued by them was very brief and went like this: “The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) (requested by the Central Bank of Cyprus) until Monday, 25 March 2013. Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks”.

In plain English it means that holders of bank accounts in any Cypriot bank may not be able to withdraw their own money after Monday 25 March and probably lose all of it. The vast majority of them have deposited in those banks the savings of a lifetime, minding their own business and not paying much attention to the political and economic developments. They trusted that their wealth is safe with a Eurozone bank, being supervised and controlled by the ‘authorities’, ECB included.

This ECB statement is obviously an ultimatum issued by the key player in this theatre of the absurd, the provider of liquidity to the banking system. Compare this ECB ultimatum to Cyprus, with what any other major central bank could have done in a case like this. It’s unthinkable, say for the American central bank, the Fed, to cut off the liquidity supply to one of its remote constituent central banks, say in North Dakota, because some lenders there went bust. In the 2008 credit melt down in the US the Fed plaid its role to the letter and saved the American economy in its entirety.

Then what is the conclusion after comparing the Fed with the ECB? Obviously that the Fed is a national bank, cooperating closely with the country’s government, while the ECB is a Frankfurt – Brussels ‘imperial’ like organisation with no national affiliations. Or just a few of them?

But in this game it’s not only the ECB that plays the role of an imperial authority, ready to severely punish a small nation, even to through it out to the wolfs. Of course if it’s not ‘systemic’. The same tactic is followed also by the Eurogroup. Incidentally its President, Jeroen Dijsselbloem, had to appear yesterday in a hearing at the Economic and monetary affairs Committee of the European Parliament. Naturally almost all the tough questions addressed to him by the MEPs were about Cyprus, directly denouncing the haircut on banks accounts below €100,000.

Dijsselbloem, not only defended the haircut on all deposits even from the first euro and said he was responsible for that, but he went as far as to tell the MEPs that he doubted if there was a possible ‘Plan B’. He didn’t mind when the Committee chair Sharon Bowles (ALDE, UK), opened the questioning by asking when it had first become clear to Mr Dijsselbloem, that the deal being proposed to Cyprus was a bad one. The President of Eurogroup insisted throughout the hearing that his idea of giving a haircut to all deposits, was the best one.

He kept this ‘I am always right’ attitude to the end. “What is your reaction to the ECB’s ultimatum that, with no deal by Monday, it would stop providing emergency liquidity assistance to Cypriot banks?” asked Sophie Int’Veld (ALDE, NL), referring to the above ECB statement.

“This is not a question of threats. The ECB is doing all it can within its mandate.  It can only provide assistance to banks if there is a programme”, Mr Dijsselbloem replied. Seemingly according to this Dutch ‘political animal’ the threat to cut off a nation, albeit tiny (Or probably because of that?) from its own life savings, is not a threat. Even if he is an offspring of van Gogh’s Potato Eaters, he had no right to treat the Parliament like that. Unfortunately the Parliamentarians could do nothing to question his official position. His mandate cannot be revoked by the Parliament.

Even a Dijsselbloem’s compatriot rose directly against him. Deputy Bas Eickhout (Greens, NL) said that even if a compromise had to be reached, it should have been Mr Dijsselbloem’s responsibility to prevent a levy on deposits below €100,000.

In short Mr Dijsselbloem, in his capacity as President of the Eurogroup, fully endorsed the ultimatum issued by the ECB, threatening Cyprus actually to through the country out from Eurozone. And that despite the fact that practically all the members of the Economic and monetary affairs Committee of the European Parliament were against it. This is exactly the democratic deficit in function.

However it was not only this Parliamentary Committee that didn’t approve of the haircut on bank deposits bellow the benchmark of €100,000. European Parliament President Martin Schulz on behalf of the majority of political group leaders in the European Parliament Conference of Presidents – EPP Joseph Daul, S&D Hannes Swoboda, ALDE Guy Verhofstadt, Greens/EFA Rebecca Harms and Daniel Cohn-Bendit, ECR Martin Callanan, made the following statement:

“On the Cyprus banking issue, the Conference of the Presidents is deeply concerned and takes a position that deposits of less than €100 000 should be exempted from any levy. A fairer and sustainable solution for the Cypriot people must be found. We need a European solution to the Cyprus problem, not an external one. Ordinary people’s savings should not be used to bail out the banking sector”.

Still the European Parliament is practically cut off, from the decision-making procedures around the Cyprus issue. It’s the bodies with no democratic legitimisation, mainly the ECB, that take the crucial decisions concerning the future of an entire nations. Such a Union cannot last for long.

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