Cyprus will pay dearly for its sins. The Mediterranean island has committed many follies over the years – and is still making mistakes.
The Cypriots seem congenitally inclined to overestimate their negotiating position. In recent years, their first big folly was to reject in 2004 the United Nations plan for uniting their island. That irritated their European Union partners, meant that Cyprus still has a weak strategic position vis-à-vis Turkey and leaves a jagged scar across the island.
The last Communist government was also criminal in its failure to act as the crisis in Greece threatened to swamp Cyprus. If it had been willing to restructure the banks, the Cypriot economy would now be in a lot better shape. It was also much easier to do a deal with Germany then than now, when Angela Merkel is only months away from an election.
The new centre-right president, Nicos Anastasiades, has been in office for less than a month. But he has managed to turn a crisis into a disaster by initially backing a plan to impose a 6.75 percent tax on insured depositors.
Of course, the other euro zone governments, the European Central Bank and the International Monetary Fund shouldn’t have said OK to this terrible idea either. And Anastasiades certainly had a gun to his head: he had to rustle up money somehow given that the euro zone was rightly unwilling to lend Cyprus more than 10 billion euros, leaving the country with a 5.8 billion euro funding gap.