If Cyprus or Greece or Italy leave the Eurozone, they will be less competitive, and the Eurozone will disappear, former Cyprus President George Vassiliou said in an interview published by PwC.
“Maybe that is to the benefit of some people or some countries but is certainly not to the benefit of the world,” Vassiliou said in comments that appear in the latest issues of ‘Global Economic Watch’.
Explaining the events which led to the financial crisis and the March 15 Eurogroup decisions that brought the Cyprus economy to its knees and spread fear among depositors throughout the EU, Vassiliou said that “there is no doubt that there was a debt issue. However, the whole way it was presented was unfair to Cyprus. Everybody knows that the banking crisis in Cyprus originated in Greece. If the Greek economy had not collapsed, nobody would have complained about Cyprus.”
“When the decision about the PSI (Private Sector Involvement) in Greece was taken, the Greek government did not say, ‘you know, the Cyprus banks in Greece are as Greek as the Greek banks, so they have to be treated in the same way.’ Our President at that time, Mr Christofias, did not realise the repercussions and voted ‘yes’. As you know the losses from one moment to the other for the Cyprus banks were 5 bln euros which was practically all of their capital.”
“In the case of Greece they accepted to put aside the banks and solve the problem differently. In the case of Cyprus they said it should be financed from Cyprus. How would it be possible to be done in Cyprus. Hence, the banking crisis.”
Vassiliou said that within a week, the Eurogroup decided to cut the initially agreed assistance from 16-17 bln euros to 10 bln, without even considering the oil and gas revenues in the near future.
“When they realised that they could not impose a haircut on the Cyprus bonds, because they were mainly Cypriot loans, plus the Russian bonds and the foreign bonds were very small, they said ‘Ah, we shall impose a haircut on depositors’. First time in the history of the European Union.”
THE REPERCUSSIONS
Vassiliou said that when the Eurogroup decided to impose a haircut on deposits under 100,000 euros, “they had to retreat on that immediately and then they said, OK then you impose a haircut on deposits above that. But the message was: do not trust banks in the south, only banks in the north.”
“In England or in France or Germany you may have other forms of savings. But in Cyprus, people do save money. The only way to save was to buy shares in the banks or bonds in the banks. And I have been telling politicians around Europe, that Cyprus is a unique case. I am sure that the shareholders of Credit Agricole or Barclays or Deutsche Bank and so on, do not represent more than half a percent of the population of the country. In the case of Cyprus, the shareholders of the two banks, Bank of Cyprus and Laiki, were nearly 70% of the total population. So you were imposing something that was attacking not the so-called Russian oligarchs but practically every Cypriot household.”
However, the former president said that despite the fact that Cyprus was not treated fairly, there is no question about Cyprus leaving the Eurozone. “Cyprus is and will remain in the Eurozone and Cyprus will prove to its friends and others that it will be a small but valuable member of the European Union.”
So, then, how do you address this catastrophe?
“First of all, by ensuring that the two legs on which the Cyprus economy were based, remain strong and continue to develop even with certain changes: the tourist sector and the business services sector.”
“On the business services sector, we have heard too many voices about that the banking sector is too big, that Cyprus should not be a tax evasion centre or a money laundering centre, and all the fuss about it.”
“But look at the reality. Ever since the second Eurogroup decision, capital restrictions have been imposed on the Cyprus banks which are still there, so in actual fact we are in the Eurozone, but we are not. The basis of the European Union is the freedom of movement of people and of capital. And in the case of Cyprus that freedom doesn’t exist.”
As regards the most valuable asset that Cyprus has, Vassiliou said this is its human capital.
“We have one of the highest degrees of graduates in Europe, if not the highest, and if the business services sector disappears they will have to emigrate or remain unemployed or become waiters instead of being economists or IT technicians. So, I would take specific measures to help things like IT development, generic medical products and so on with the help of EU structural funds.”
SHOULD CYPRUS EXIT THE EUROZONE?
On Cyprus ever leaving the Eurozone, Vassiliou said that hundreds of articles have been written, some by Nobel prize winners, others by economists or so-called economists, who have a very simple answer whenever there is a problem.
“They say, ‘you have a problem, devalue your currency, then you become more competitive’. That recipe has been used in many countries and as a rule has failed. You don’t become more competitive by provisionally having a cheaper currency or a bigger inflation. You become more competitive by increasing your productivity, by being advanced in terms of new technologies.
“If Cyprus or Greece or Italy get out of the Eurozone, they will be less competitive, and the Eurozone will disappear. Maybe that is to the benefit of some people or some countries but is certainly not to the benefit of the world.”
“And today, within a globalised world, you understand that if tomorrow there is no European Union, there would be no Europe. Only if Europe is united, it can have a future.
“We have to move slowly. But there is a limit as to what means slowly. I was reading an article by Oxford economics professor Timothy Gordon Ash, referring to what happened to Italy when Italy was reunited and said that ‘we now have Italy, what we need is to make Italians’. Because everybody was thinking that they were Sicilian, or Napolitan, or Milanese. Now, the same thing can be repeated for Europe. We now have Europe but we have no Europeans.
“If we want to overcome this crisis, we have to move the quickest towards a closer European Union. In other words, if the new European Central Bank becomes a reality, the EMS becomes a reality and so on.
“That is the only way forward. If we don’t have that then we are going backwards. You can stand still for some time, but not forever.”
The full interview is available at www.pwc.co.uk/GEW
