The question is, how much damage will be done before things start working again?
Jeroen Dijsselbloem, president of the Euro Group (the finance ministers of the eurozone) spooked Cyprus and markets all over Europe last week by refusing to rule out the possibility that in order to tackle the debt crisis facing the little island nation, a haircut of deposits would have to be considered. In other words, Cyprus bank accounts amounting up to a certain amount and above would have parts of their contents seized to cover part of the bailout.
A radical declaration by any standard! In plain terms, people screamed bloody theft, and rightfully so. No one wants to see their funds appropriated by any government or supra-governmental organization, whatever the reason.
In economic terms, it was a rookie mistake. The fear alone this declaration instilled, and the shock waves it sent down the markets, threatened the fragile stability of the Eurozone, if not the entire EU. The only thing such statements lead to are panic, and the last thing Europe can afford right now is the possibility of a bank run.
Jeroen Dijsselbloem was criticized heavily by his peers and various institutions for his faux pas. The press talked of his lack of ’emotional intelligence,’ trying to make sense of his actions. Officials stepped in to counteract his statements and calm the waters.
Yet one cannot but wonder whether Dijsselbloem’s harsh stance is exactly what was needed to get some results. The stick to get the unruly parties to pay attention.
People want change, but they also want to be taken care of. To have their bread and eat it too.
Here’s why. As things stand, the broken economy is subject to micropolitics not only across numerous states, but also within them. Political parties, unions, lobbies, and every group imaginable, are arguing over the state of the economy through a position of self interest. Some do it more reasonably than others, being realistic and facing facts, while others do it at the peril of all, supporting unsustainable positions that neglect the numbers altogether.
The Cyprus left, for example, wants to maintain a growing Leviathan that is called the Public Service, which, as it stands, rests on solicited pensions, dubious benefits, and other doctored-over-the-years handouts that have rendered the state broke.
The right, on the other hand, prefers to tend to the numbers on the spreadsheets, all the while forgetting the reality on the ground, where hunger, not losses, are the primary effect.
And then there’s the Indignants, forces fed up with the way politics are handled, their files full of legitimate grievances, yet totally incapable in themselves of playing the game at the level of organization the economy has reached. Their spite can only be matched by their gross inadequacy to be effective on any level other than the quaint, if not the pedantic.
It is an absurd situation, whatever side one looks at it from. Take Italy, for example. In the face of the coming elections, Berlusconi is making a fourth run at government. Forget the fact that he helped wreck the entire country. He is giving it another go and people are supporting him again. They want change, but they also want to be taken care of. To have their bread and eat it too.
In Cyprus things are looking a little better. First, the first round of elections on February 17 yielded a strong result for Nikos Anastasiades, a candidate deemed most suitable to negotiate the bailout and get the economy back on track. Second, the Cyprus economy is much smaller than Italy’s. Albeit not easy to fix, its numbers are more manageable. Third, huge gas reserves have been found off the coast of the island, granting the Cyprus Republic important leverage.
But the advantages are distracting the involved parties from what needs to be done in order to fix the problems in a lasting manner. Comforted by the natural gas reserves, not to mention potential oil findings, those involved are steering the debate away from the raw numbers, kicking the can down the road.
Enter Dijsselbloem and personas like him, who have had enough of this kind of mental masturbation. Tired of endless debate and eager to get results, they come up with frightful statements that catch everyone’s attention, shocking people back to reason.
Albeit rash, fearmongering seems to patch things up for a while.
I am sure this is not how Dijsselbloem and Co intend it, of course. They mean what they say and want to get their way, purging the economy of Europe from mindless, never-ending debate in order to get on with things. Those who can’t play can piss off, so that the able can move ahead.
Easier said than done. Everyone is entangled in such a way that any rearrangement will be lengthy, complicated, or excruciatingly painful. To get things working again great effort will have to be made, and fear is no shortcut.
But force is. It may expedite things a little and make headway.
It will also cause more uproar than benefit. That is where the excruciating pain comes in.
In other words, the state of the economy is caught in a vicious circle, spinning away until something gives.
Hopefully what gives will be something we can afford to lose, like present comfort, and not something precious, like future prospects and goodwill.