Jeroen Dijsselbloem, president of the Euro Group, 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 bank deposits would have to be considered…
The question is, how much damage will be done before things start working again?
Jeroen Dijsselbloem, president of the Euro Group (an assembly of 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 tiny 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 by the government to cover part of the bailout.
It didn’t go down well. People left, right and center 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, Dijsselbloem made a rookie mistake. His declaration was crude, crass, and tone-deaf. The fear alone, and the shock waves he sent down the markets, threatened the fragile stability of the Eurozone, if not the entire EU. The last thing Europe can afford right now is a bank run.
Dijsselbloem was not backed by his peers. Olli Rehn, European Commissioner for Economic and Monetary Affairs, was quick to reassure everyone that lessons had been learned from the Greek bailout. The press talked of Dijsselbloem’s lack of ‘emotional intelligence,’ trying to make sense of his actions.
Yet one cannot but wonder whether his harsh stance is exactly what was needed to get some results. The stick to get the unruly parties to pay attention.
Here’s why. As things stand, the broken economy is subject to micro-politics not only across numerous states, but also within them. Political parties, unions and lobbies argue over the state of the economy from positions of self interest. Some do it more reasonably than others, acting realistic and facing facts, while others do it at the peril of all, pursuing unsustainable positions that neglect the numbers altogether.
The Cyprus left, for example, seeks to maintain an ever-growing Leviathan known as 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.
People want change, but they also want to be taken care of. To have their bread and eat it, too…
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 hardship and missed opportunities, not losses, are the primary concern.
And then there’s the Indignants: forces fed up with the way politics are handled, their folders full of legitimate grievances, yet totally incapable of playing the game at the level of organization the economy has reached. Their justified spite can only be matched by their absolute inadequacy to be effective on any level other than the quaint, if not the pedantic.
It’s an absurd situation, whatever side one looks at it from. No measure can be taken without a major part of the system getting aggravated.
Tied Up In Knots
Some of the actions taken make no sense at all.
Take Italy, for example. Its former (and you’d think disgraced) Premier, Silvio Berlusconi, is making a fourth run at government. Forget the fact that he was in charge when the country was wrecked. Berlusconi giving it another go, and he has the voters’ backing yet again. Italians want to be redeemed from their current woes, and a majority of them will do anything to achieve it, even if it means bringing back the master of fallout ceremonies. They want change, but they also want to be taken care of. They want to have their bread and eat it too.
In Cyprus, things are looking a little better. 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.
Also, 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, giving the Cyprus Republic important leverage.
But the advantages have distracted the parties from doing what needs to be done. Comforted by the natural gas reserves, not to mention potential oil findings, those involved have steered the debate away from the raw numbers, back into micro-politics and vested interest, kicking the can down the road.
Enter Dijsselbloem and Co., who’ve had enough of this kind of this endless 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, fear mongering patches things up. For a while.
I’m 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 that stalls everyone. Those who can’t play the game can piss off, letting the able forge ahead.
Easier said than done. Everyone is entangled in such a way that any rearrangement will be lengthy, complicated, excruciatingly painful. To get things working again, great effort will have to be made, and fear is no shortcut.
But force is. It expedites procedure and make headway.
It also causes more uproar than benefit, which is where the excruciating pain comes in.
This is not going to be easy. The state of the economy is caught in a game of Twister, looking to land on the right spots, stretching and bending and tying itself up in knots, until something gives.