A Kiss of Death to Cyprus

Probably, not only to Cyprus. But first, let us go back in time: the year 1953. The then president of Czechoslovakia declares that monetary reform is not even being considered. Not even two days have passed and the exchange rate declines from 5:1 to 50:1. This is the rate for exchanging the old currency of Koruna for a new one. Most of us have family members who have experienced this dramatic event and still remember it. Due to a tremendously reduced purchasing power of money for people and business, the monetary reform has been called the “grand theft”.

Let us come back to the present time: the year 2013. The government of Cyprus closes banks, as parliament considers a law on taxing deposits, so that Cyprus meets one of the conditions for getting a rescue package of financial assistance from Troika. This has caused savings in Cyprus banks to shrink from 9.9 % to 6.75 % just in a day. The number of bank accounts have been reduced from 20 000 to 19 325, and the savings from 100 000 € to 90 100 €. Although the Cypriot Parliament has not passed that bill yet, it caused panic and unease in the population.

There are many differences between 1953 and 2003: a six-decade gap, different actors as well as despair of depositors. Moreover, in Czechoslovakia’s case the plan was implemented, while in Cyprus it has not been even contemplated. However, the essence is quite similar. Depositors lose money: for us it was a tremendous amount, while for Cyprus – not that much.

In Cyprus this is something very serious, though. Consolidation takes the form of a partial confiscation. When things go bad, everyone must be involved in a solution. The problem is that this laudable principle in the EU has been disregarded. Cyprus is the fifth country to get a financial rescue package, but the first one which has to save money from depositors. It is no secret that the motive here is the huge amount of foreign deposits in Cypriot banks. This action against the money of “Russian mafia” also affects the savings of depositors and ultimately has many consequences for Cyprus.

If approved, the law would mean the end of a model of development of the country as a safe financial center, ending up with a “kiss of death” to Cyprus. For accepting the financial aid, the country gets a kick in the head, so to say, which will surely take it straight to the bottom. Moreover, possible destabilization resulting from the “Cyprus case,” threatens the already damaged confidence in the Eurozone. The earthquake and subsequent tsunami could hit us all.

Translation – Giorgi Bobghiashvili