The Cypriot banking crisis was big news back in March. As the island’s biggest banks teetered on the brink of collapse, an emergency bail-out package was agreed with the EU, the IMF and the ECB – but only at the cost of bailing-in the banks' depositors, including those with savings of up to €100,000 that were supposedly guaranteed by the state.
The breaching of the guarantee caused national and international outrage – such a betrayal of trust of in one member state would have dire consequences across the Eurozone, it was said. Meanwhile, the bank accounts of British servicemen and women stationed in Cyprus were caught up in the crisis, emergency supplies of cash were flown out to British bases and questions were asked in the House.
But then it all went away. The bail-out deal was hastily renegotiated, leaving deposits of less than €100,000 untouched; the world’s media went home and, outside Cyprus, the story dropped out of the headlines.
So, what happened next? Nothing much good, according to an in-depth report by James Meek in the London Review of Books:
- “Laiki [the second biggest bank] was closed down and absorbed into BoC [Bank of Cyprus], its account-holders stripped of anything over €100,000. BoC account-holders don’t yet know exactly how much they will lose, but up to 60 per cent of everything over €100,000 could be forcibly converted into shares in BoC.”
That’s right, Laiki depositors lost everything over over €100,000. Contrary to the impression given in some quarters, the victims weren’t just a bunch of Russian billionaire tax exiles, but many ordinary savers too:
- “Unlike Britain or the United States, where middle-class retirees tend to boost their state pension either with a pension paid for by their employer or a privately invested fund designed, by tax law, to be eked out till death, it became common in Cyprus to retire with a large, tax-free lump sum with which you could do what you liked. For Cypriot workers, it was the norm. Many would stick it in the bank and live off the interest…”
Meek tells the stories of several such pensioners, including one who’d “stashed his €350,000 pension fund in Laiki and lost a quarter of a million euros”:
- “…€350,000 sounds like a lot of cash to most people – not, on the face of it, Ordinary Person money. But even at the kind of interest rates Demetriou was getting from Laiki, you’d need a fund that size in the bank to get the sort of monthly pension a British schoolteacher receives, as a matter of course, when they retire.”
What we have here, therefore, is the effective confiscation of pensions – something that the EU authorities appear to have no problem with. Worth bearing in mind for the future, wouldn’t you say?
But hang on, what responsibility does the EU have for any of this? Isn’t this mess of Cyprus’s own making?
Obviously, there’s no excusing the actions of previous Cypriot governments (and James Meek gives a hair-raising account of just some of the dodgy dealing that went on). But it’s also the case that the European Central Bank lent money to the Cypriot banking system while Laiki and Bank of Cyprus were busily buying-up that well-known copper-bottomed investment, Greek government debt:
- “…at one point in 2011, 95 per cent of Laiki’s core capital, the closest thing a bank has to actual money in a vault, was made up of Greek bonds… It was madness; the Eurozone’s paymasters, Germany and France, had already made it plain that the price of rescuing Greece would be that all those who had already lent it money would have to accept losses, or ‘haircuts’. Across Europe, big banks were selling Greek bonds as fast as they could: Laiki and BoC kept on buying, and the Central Bank of Cyprus, their regulator, did nothing to stop them. Nor did the European Banking Authority, a continent-wide body that stress-tested large banks in 2010 and 2011.”
Surely, while all this was going on, the Eurozone authorities had a duty of care to ordinary people entrusting their life savings to Eurozone banks?