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Eurogroup’s treatment of Cyprus is ‘eye-opener’ for Malta, Luxembourg - Pissarides

Nobel laureate and Cyprus economic policy head says precedent set by Cyprus' treatment by eurogroup means ‘Malta and Luxembourg should also assess benefits of bloc membership’

Karl Stagno-Navarra
25 March 2013, 12:00am
Nobel laureate and head of Cyprus economic Council Christopher Pissarides


Nobel laureate for economics in 2010 and head of Cyprus economic council Christopher Pissarides has questioned whether his country should reconsider its membership in the euozone.

Speaking on BloombergTV, Pissarides said "we should sit down and think very carefully about the future of this country and whether it's better to be within the euro zone or without."

"We've seen that if you run into trouble you're not necessarily going to be rescued in a way that's most beneficial to your economy," he stressed.

Pissarides said the precedent set by the nation's treatment means other small nations such as Malta and Luxembourg should also assess the benefits of membership in the bloc. "The behavior of the eurogroup wasn't one that would give you the impression, if not convince you, that here was a single unit of 17 partners trying to do the best for their continent and their currency," he said. "It was more like: here is a little guy who has misbehaved, and we'll put him down."

Cyprus dodged a disorderly default and departure from the shared currency by agreeing last night to shrink its banking system in exchange for €10 billion in an emergency bailout.

The rescue package saw Cyprus bowing to creditor demands amid a European Central Bank threat to cut off emergency financing for the nation's banks as soon as today. Cyprus rejected an initial accord when the parliament in Nicosia opposed a key plank to tax all bank accounts.

"An exit isn't something Cyprus should think about now, Pissarides said, adding that "going outside the euro zone means you have a government with no money issuing money - No one will have confidence in it."

Crisis trembles Malta?

Small EU countries are said to be "trembling at the prospect of what might be in store," the Guardian newspaper reports today.

Malta, Luxembourg and Cyprus are the three smallest countries in the EU and the eurozone. It The Guardian says that Cyprus's days as an offshore tax and banking haven are now numbered.

Realtive to its GDP, Malta's banking sector is even bigger.

Finance minister Edward Scicluna sat next to his German and Cypriot counterparts at the first Cyprus bailout meeting in Brussels 10 days ago and expressed himself as being extremely chastened by what he witnessed.

After experiencing Wolfgang Schäuble, the German finance minister, up close, he wrote an article in The Times, saying "God help Malta if it encounters similar problems in the eurozone."

Then there is Luxembourg, which along with Austria, is the eurozone's biggest champion of banking secrecy.

The wealthiest country in the EU and second smallest, Luxembourg's banking sector exceeds its GDP by a whopping factor of 23. The big difference, of course, is that these are not Luxembourg banks, but subsidiaries of the European and US banking giants, with Germany and France to the fore.

For the architects of the Cyprus bailout - the German government and the International Monetary Fund - there was no doubt that the central aim of the shock therapy was to bring down an oversized banking sector that was failing. That applied especially to the Bank of Cyprus, the island's biggest and Laiki, the number two. The latter was essentially insolvent, surviving on a liquidity lifeline from the European Central Bank.

Christine Lagarde of the IMF wanted both banks, representing half of the Cypriot banking sector, closed down. In the end Laiki is being closed down with its bond and shareholders facing huge losses and €4.2bn (£3.6bn) in deposits looking lost. Bank of Cyprus will become a shadow of its former self, deposits frozen pending restructuring and downsizing and wealthy depositors facing losses probably of 30-40%.

A "casino economy", said the French government. "A dysfunctional business model," said the Germans of the Cypriot economy. With a banking sector seven times Cypriot gross domestic product, Lagarde insisted this was unsustainable and that it would be more than halved to around three times GDP by 2018.

In a time of embryonic eurozone bank supervision, with the European Central Bank being made the supervisory authority for all eurozone banks, the statements from Berlin and Lagarde bore the hallmark of a new policy aimed at taming financial services and getting bloated banking sectors under tight control.

 

 

 

 
malti
The Germans are coming ! This time not with the Stukas, but with a financial hell
Joseph Micallef
To all who are loosing or lost trust in banks. It looks like someone who has his head in 'The Cloud' has thought how to make our wealth secure http://tinyurl.com/cjtjcyr
Joseph Micallef
To all who are loosing or lost trust in banks. It looks like someone who has his head in 'The Cloud' has thought how to make our wealth secure http://tinyurl.com/cjtjcyr
mf
@ Revolutionary . very interesting and realistic (though virtual currency) comment . our economy that is lacking of natural resources is more susceptible to a complete melt down if it doesnt invest in certain metals and attract a diverse spectrum of investments.
francis darmanin
Best comment by Revolutionary. Truly a realistic & visionary perspective
Joseph Micallef
I would have agreed with revolutionary until last week. There is already an electronic currency utilising the cloud with already over 2,000 merchants accepting it and which is already being traded. It's impact is already worrying central banks because it is a beer to peer transaction by-passing banks. Have a look http://tinyurl.com/cjtjcyr
albert leone
The economies and banking sector of Luxembourg and Malta are very different from those of Cyprus. What irked the EU mainly was the influence of the Russian bear over the Cyprus economy especially as this could lead the a weakening of the EU hold on the mediterranean especially if Russia lost its naval base at Tartus in Syria. However this is still an eyeopener if we ever come to depend on the EU big troika. Let us make no bones about it that certain economic activities of the microstates do irk the big EU countries because they allow citizens of these countries to avoid certain strictures and regulations. In our case our financial sector,large ship register and digital gaming do somewhat irk these large economies and yet are pillar of our economy. The moral is one to ensure that in these spheres we stay clearly within the rules and international conventions and to make sure we are always financial self sustaining depending on public finance solely on funds belonging to Maltese citizens. In this context we must take action to ensure that our banks separate deposits of Maltese citizens
Paul Sant
The issue is more complex than it seems...whenever a paper currency unbacked by precious metal undoubtedly collapses after a given time period....the Chinese had discovered this after they had set up the first paper currency thousands of years ago...The Euro was intended as a transition, doomed from inception to fail..Note that, unlike the US dollar, it has no occult markings, it was always intended to be merely a transition currency. The powers-that-be intend that the Euro collapse..only to be replaced by a form of electronic currency that will make total surveillance a reality...the powers that be already have it lined up : action, reaction and ready made solution with the IMF et all forcing us to take up an already preplanned global electronic currency as a solution. All that will need to be done in order for an intelligence agency to know everything about someone will be to input somebody's electronic code into a computer...they will be able to determine that individual's purchasing habits ecetera...Couple that to intelligence psychological profiling software along with input from video cameras, and one will be able to create a nightmare scenario.that even George Orwell would not have been able to dream up.... One of the reasons why Malta is in a better situation than other EU states is that HSBC was rather tight with its credit policies, another point is that most of the government debt is locally held....but there is no doubt with another few years HSBC Malta and the rest would have been tempted to follow the pack and go for easy lending. We still have a problem in terms of the excessive stock of empty housing which nobody really wants, much less can afford. We should note that, wary of the the instability of the global financial situation, the Communist government of China is actually encouraging its citizens to amass gold...the Government of Malta should do the same and stop the export of gold...over 100 million Euros of gold have left the Island in a relatively short period.. if Malta gets its hands on enough gold reserves it could re-float the lira with ease...It is better to act now than later...that is if we want to still get real pensions that is...after all THE EURO IS JUST A GLORIFIED COUPON, WITH NO INTRINSIC VALUE WHATSOEVER.
Paul Sant
The issue is more complex than it seems...whenever a paper currency unbacked by precious metal undoubtedly collapses after a given time period....the Chinese had discovered this after they had set up the first paper currency thousands of years ago...The Euro was intended as a transition, doomed from inception to fail..Note that, unlike the US dollar, it has no occult markings, it was always intended to be merely a transition currency. The powers-that-be intend that the Euro collapse..only to be replaced by a form of electronic currency that will make total surveillance a reality...the powers that be already have it lined up : action, reaction and ready made solution with the IMF et all forcing us to take up an already preplanned global electronic currency as a solution. All that will need to be done in order for an intelligence agency to know everything about someone will be to input somebody's electronic code into a computer...they will be able to determine that individual's purchasing habits ecetera...Couple that to intelligence psychological profiling software along with input from video cameras, and one will be able to create a nightmare scenario.that even George Orwell would not have been able to dream up.... One of the reasons why Malta is in a better situation than other EU states is that HSBC was rather tight with its credit policies, another point is that most of the government debt is locally held....but there is no doubt with another few years HSBC Malta and the rest would have been tempted to follow the pack and go for easy lending. We still have a problem in terms of the excessive stock of empty housing which nobody really wants, much less can afford. We should note that, wary of the the instability of the global financial situation, the Communist government of China is actually encouraging its citizens to amass gold...the Government of Malta should do the same and stop the export of gold...over 100 million Euros of gold have left the Island in a relatively short period.. if Malta gets its hands on enough gold reserves it could re-float the lira with ease...It is better to act now than later...that is if we want to still get real pensions that is...after all THE EURO IS JUST A GLORIFIED COUPON, WITH NO INTRINSIC VALUE WHATSOEVER.
Alex Grech
Banks are fiduciary institions,they rely almost entirely on trust and confidence. If there is a breach of trust-for any reason-the banks are cooked.
Joseph Micallef
Looks like Prof Edward Scicluna is not fit for the job of finance minister so God help us all. He does not know how the banking in Malta is structured. What happened to Cyprus has niothing to do with Malta since our banks are not tied-in so much with any other country like Cyprus was with Greece. Prof Ed. Scicluna should resign for the comment he made.
Joseph Micallef
Looks like Prof Edward Scicluna is not fit for the job of finance minister so God help us all. He does not know how the banking in Malta is structured. What happened to Cyprus has niothing to do with Malta since our banks are not tied-in so much with any other country like Cyprus was with Greece. Prof Ed. Scicluna should resign for the comment he made.
Charroll
These are not the same issues for us in Malta. Stop talking Malta down.