With a short break, when markets were focused on the U.S. Federal Reserve monetary policy meeting, the crisis returned to the spotlight after European Central Bank (ECB) has set Monday as the deadline for a deal to save Cyprus, or the institution will otherwise withdraw liquidity support for Cypriot banks. After the Cypriot Parliament rejected the tax on bank deposits, the government was forced to extend the closure of the credit institutions until next Tuesday.
Whether Cyprus will succeed or not to conclude an agreement with the euro area, the events of this week will continue to have an impact on the EU and euro.
First, Europeans have learned that even security deposits on which the confidence in banks is based are not sacred in the minds of officials in Brussels and any statement regarding the uniqueness of the situation in Cyprus, will not restore confidence in Italian banks , Spanish or Portuguese, when the crisis will deepen again, as inevitably happens, according to Darrel Delamaide, political analyst at MarketWatch.
Secondly, the Cypriot MPs will to defy Brussels and vote against this proposal establishes a precedent that will coagulate anti-austerity forces in southern Europe. The main parties in Greece, Italy and Spain, which have followed the directives from Brussels, will have to become more assertive, or their position will erode further, the analyst said. More important is that South-Europeans have the clearest evidence that some Nordic countries consider them second-class citizens.
People with small deposits and pensioners that the leaders of Germany, the Netherlands, Finland and other countries wanted to penalize for the excesses of Cypriot banks are not more guilty than similar people in any North-European country.
It is impossible to imagine that politicians in Germany, for example, would dare to confiscate nearly 7% of the savings of their citizens for any reason. However, they want to do it with bank deposits in Cyprus.
“What we are witnessing is the slow death of the European Project. We are in a situation that some European governments are essentially taking actions that are telling citizens of other member states that they are not equal under the law,” said Anthanasios Orphanides, former head of the central bank of Cyprus, for Bloomberg Television.
Orphanides worked at the U.S. Federal Reserve, before coming to Cyprus as governor of the central bank from 2007 to 2012, and currently is a professor at MIT. He added that the proposal for Cyprus endangers the European banking union, by undermining confidence in deposit insurance.
Cyprus is a small country that will remain in the eurozone or will become a financial colony of Russia and this will not matter to many people, but the manner in which leaders in Brussels and Berlin have handled this crisis will count for Europeans and financial markets in the next period, writes the MarketWatch political columnist.
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