How Germany Conquered Cyprus
It is now well known that the euro, Europe’s common currency, was, from the start, designed to fail. This failure would ultimately force reluctant European nations to relinquish power to a German-controlled central authority. A common currency creates economy-crashing imbalances—unless and until it is administered by a common government. Since 1829, Greece has spent about half the time in default. Giving countries with this type of bankruptcy record access to the eurozone’s cheap credit is inviting disaster. For European imperialists, the trick is not to let the disaster go to waste.
The official beginning: euro coins and notes become legal tender.
Cyprus joins the European Union.
Cyprus adopts the euro as its currency.
The bank Lehman Brothers files for bankruptcy. The cascading financial crisis exposes weaknesses not only in the U.S., but also at the heart of the eurozone.
The Eurozone and the International Monetary Fund agree to Greece’s first bailout.
The EU finances a bailout for Ireland.
The EU finances a bailout for Portugal.
The EU finances a second bailout for Greece. Its terms dictate that anyone who owns Greek debt will get just under half what they are owed. Cyprus’s banks, which are already shaky, have lent a lot of money to Athens. Their balance sheets skew wildly. The nation is all but doomed to become the next to need a bailout.
Cypriot President Demetris Christofias announces that Cyprus has no choice but to accept a bailout. Spiegel Online says Cyprus “will effectively lose its sovereignty.”
Backed by Angela Merkel, Nicos Anastasiades wins Cyprus’s presidential elections by a landslide. “We will be absolutely consistent and meet our promises,” he says. “Cyprus belongs to Europe.”
At an EU summit, Angela Merkel reassures Anastasiades that the bailout terms won’t be too harsh. She gets him to agree to a small tax on bank deposits. This establishes the principle of withdrawing money from people’s personal accounts.
That evening, EU leaders depart, leaving their finance ministers behind to negotiate a bailout for Cyprus. Anastasiades stays behind, but is reportedly not allowed in the meeting.
Friday evening and Saturday morning: German Finance Minister Wolfgang Schäuble tells Anastasiades that if he wants a bailout, he must remove €6 billion (US$7.8 billion) from the bank accounts of account holders. Anastasiades refuses and walks out. “The president said, ‘I can’t do that,’” one member of the Cypriot delegation told the Financial Times. A German board member of the European Central Bank (ecb) gives Anastasiades the ultimatum: It’s this, or the ecb cuts off its emergency lending to Cyprus’s banks and lets its economy collapse, leaving the government with a bill of tens of billions of euros. Anastasiades gives in. The original plan taxes everyone with over €100,000 ($131,260) in the bank. Fearful of how Russian depositors will react, Anastasiades changes the terms so that everyone has to pay.
Cypriots rush to get what money they can out of atms, and take to the streets in protest.
After repeated delays, Cyprus’s parliament votes on the deal. It is defeated: 36 no votes and 19 abstentions; zero yes votes.
The parliament gives the government power to break up banks and impose capital controls. Anastasiades can now go back to Europe to negotiate a new deal without having to get parliamentary approval afterward.
Monday morning, Cyprus finally agrees to a bailout deal. Germany gets its way. The EU doesn’t have to provide any extra money. Instead, those with over €100,000 in Cyprus’s top two banks will lose a huge chunk of their savings. Those with money in the Bank of Cyprus would lose around 40 percent of all savings over €100,000. At Laiki, they could lose up to 80 percent.
Eurogroup head Jeroen Dijsselbloem indicates that the Cyprus bailout could be a template for future bailouts. Others deny his statements, but investors are left worried that the Cyprus model will be copied in other countries.
Cyprus announces capital controls: Those with Cypriot bank accounts are severely limited in what they can take out of the country. This puts Cyprus halfway out of the eurozone, as Cypriot euros can no longer be freely exchanged with euros from another country.
Banks open after being shut for almost two weeks.