2017 Editorial Board

Editor-in-Chief

Matthew Zipf

Publisher

Anamaria lopez

 

Design editor

Theresa yang 

Marketing Director

Huhe yaN

arts editors

michelle huang

charly voelkel

lead web editor

poorvi bellur

Managing Editors

amanda kam

dimitrius keeler

shambhavi Tiwari 

karen yuan

Copy Chief

Maggie Toner

Senior Editors

vivian casillas

audrey deGuerrera

brian gao

belle harris

melissa ho

jahan nanji

sheena qiao

bani sapra

nina zweig

Copy Editors

sahana narayanan

song rhee

Between a Rock and the Abyss

VLUU L110  / Samsung L110

from Wikimedia Commons

After a lull in economic upheaval, the latest Eurozone nation to face a banking crisis seems now to be Cyprus. The small, Mediterranean island, better known for being divided into a Turkish North and a Grecian South than for its profligate ways, now has had its banks experience a loss of confidence from investors and consumers alike. Pressured by the European Central Bank to find a solution, the newly elected Cypriot government has turned to a bailout proposed by the EC-ECB-IMF troika, which requires a bank levy that would essentially expropriate money from savers. As of earlier today, the Cypriot parliament unanimously rejected the proposal, with 36 members of parliament voting against and 19 abstaining.

Part of the reason for the scheme’s harshness is Cyprus’s reputation as a haven for money-laundering. Nearly 40% of all bank deposits in Cyprus are held by foreigners, and the vast majority of that are Russians. With a GDP of only $18 billion, Cyprus was Russia’s largest single source of Foreign Direct Investment (FDI) in 2011, contributing around $14 billion, or just a quarter of FDI. Thus the scheme, which would exempt those with savings under 20,000€, and then progressively tax those with savings between 20,000€ and 100,000€ at 6.75% and those with deposits above 100,000€ at 9.90% percent, is aimed at large, foreign depositors, as opposed to the small holding, domestic savers.

On its own, Cyprus is a small country even by European standards. Its $18 billion GDP accounts for only 0.2% of the EU’s total GDP. What is recognized as “Cyprus” by the international community is only half the country, the north having being occupied by Turkey under the guise of a “Turkish Republic of Northern Cyprus”. Yet the fear of contagion, that a Cypriot collapse may destabilise the banking systems of other nations, remains very serious.

It may be tempting for many in Cyprus to “stick it to the man” and reject calls for a bailout, but the stark reality is that its banks will all but certainly collapse without a capital injection, causing all deposits over 100,000€ ($130,000), as per Cyprus’ deposit insurance scheme, to be lost (and for the non-EU depositors, not even that). Thus letting the banks fail is not an option. But the Cypriots have, and are considering other options. Russian natural gas giant Gazprom has actually offered to privately bail-out Cyprus, to the tune of 10€ billion, in return for the entirety nation’s natural gas rights.

Meanwhile, members of the Cypriot parliament have suggested that they turn to China as an alternative source of funds. While such scenarios may seem like something from a turn of the century banana republic or a futuristic Phillip K. Dick novel, such loans are reality in Africa. And it was in Nigeria, the continent’s largest country, where the governor of the central bank, Sanusi Lamido, cautioned those who see China as a friend, a saviour, in a recent Financial Times editorial. It would do well for the Cypriots to heed his words before “looking east” for help.  Additionally, policymakers in Brussels, Berlin, and Paris, would balk at the intrusion of the east into the EU, furthering the impression that Brussels is weak when faced from rising powers.

The choice Cyprus faces is not pleasant, and the prospect of a bank levy represents a significant erosion of the rights of savers. However the alternatives are either complete default or the intrusion of foreign powers into the financial affairs of a European nation—a prospect that should sincerely frighten governments and markets across the West, that of Cyprus included. Perhaps the IMF should consider less stringent terms, as it is already, and leave out the bank levy. But this seems unlikely. So, then, it seems that Cyprus has to swallow a very bitter pill, but, unlike the other options, it does not cause its hair to fall out or fail to address one symptom or another.

The Irish Curtain

First Nations, Last Hope