Why Anastasiades was
Right to Put Controversial Levy Before Parliament
anamericanincyprus
As expected the Cypriot parliament
this evening rejected the levy on bank accounts, Troika’s requirement to receive
financial assistance for its failing economy, as agreed in the early hours of last
Saturday morning. Proving to be offensive to the Cypriot people, foreign investors,
protested against in Spanish streets as well as in Cyprus and widely criticized
by financial analysts, with Forbes Magazine stating “By comparison [to the
Lehman Brothers crisis of 2009] the German-led group of EU officials who engineered this weekend’s Cyprus bank bailout
don’t have a leg to stand on. Although they had years to consider their options
(Cyprus’s problems are closely related to those of Greece and have long been
almost as obvious), they have opted for a “solution” that amounts to probably
the single most inexplicably irresponsible decision in banking supervision in
the advanced world since the 1930s.” (1)
Anastasiades, who took office last
month following a disastrous term in office by the opposition party, maintained
during his presidential campaign that he adamantly opposed a levy on bank
deposits. The opposition party now accuses Anastasiades of betraying the
Cypriot people. In his weekend address to the nation Anastasiades stated that
he is still against the levy but chose to support the levy imposed by Troika
because since Troika insisted on the levy as a prerequisite for financial
assistance, to refuse the levy would be to choose disorganized bankruptcy.
Therefore he chose to make a decision that he knew he would be criticized for
in an effort to gain financial assistance to Cyprus.
It is well known that Troika was
annoyed with the way that the former president, Christofias, handled bailout
negotiations, dragging negotiations out, failing to meet a deadline and his
general apparent disrespect for the process and what was arguably his inability
to grasp the seriousness of the situation. Coming into power at the end of drawn
out negotiations, Anastasiades argued against the levy, claiming that the levy
is unprecedented, will harm the Cypriot people, foreign investors, the
corporate services industry (the major source of income in Cyprus) and would
undermine confidence in the Eurozone. However, when Troika insisted, he had to
choose between stalling further a process that had taken far too long and
generated a backlash against Cyprus or moving forward by bringing the levy to
the parliament.
It has been said the Anastasiades
underestimated the negative reaction of the Cypriot people. But I don’t think
so. The levy has been widely and strongly criticized in Cyprus since it first
came up. I think the move was tactical. Anastasiades was well aware that the opposition
party would absolutely refuse to support the levy and since the ruling party does
not have a majority it was highly unlikely to pass. Troika put pressure on
Anastasiades to hold the parliament vote on Sunday, but he postponed it until Monday,
not necessarily solely because he did knew it would not pass on Sunday, but
because he wanted the market response and the world reaction. Markets fell and
the levy has been supported by a minority though highly criticized as irresponsible
and a blow to Eurozone confidence with negative future implications to the entire
banking industry.
Anastasiades also knew that the
Russians would be angry. Will the Russians offer a loan to Cyprus to cover the
amount that would have been raised by the levy? If so, this would be the last
thing Troika wanted (see my article dated earlier today). Cyprus and Russia
would be even more closely tied. Troika has been accused of being irresponsible
and vindictive, therefore Troika would have to extend financial assistance to
Cyprus if it raises the funds that would have been collected by the levy, or
risk appearing objectively vindictive and irresponsible, causing a complete loss of
confidence in the Eurozone and discord and distrust among its members.
Whether or not Cyprus attains new
financial assistance from Russia sufficient to meet its current need, Troika
will be forced to renegotiate with Cyprus. To reject Cyprus’ bailout based upon
Cyprus’ refusal to apply a levy called by Forbes magazine as “probably the
single most inexplicably irresponsible decision in banking supervision in the
advanced world since the 1930s” (1) would appear Draconian. It would seem that
Troika has no reasonable choice other than to back track. Suddenly, Cyprus, the
tiny island nation with seemingly no negotiating power has Troika backed into a
corner. Well played, Anastasiades.
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