The Cyprus takeaway: More phony crises to come

March 27, 2013

Now that the crisis in Cyprus has passed, we can finally admit the obvious: The “crisis” it provoked did not deserve the attention it received. Cyprus makes up a fraction of one percent of the European Union’s GDP and it’s a backwater for sketchy Russian dealings. If Cyprus had drowned in a sea of Mediterranean debt, the Eurozone would not have gone under with it.

But what a story! The news was dominated by theatrics: a plane filled with 1 million Euros, last-minute deals in danger of falling apart, and failed emergency meetings in Moscow. But behind that global drama, all the Cypriot political parties supported staying in the Eurozone, and the German government remains committed to the sanctity of the monetary union. How was Cyprus going to deal the Eurozone an existential blow?

Nor will the painful bailout parameters in Cyprus prove a rule going forward, despite ill-advised warnings to the contrary from the president of the Eurogroup. One moment Jeroen Dijsselbloem is saying that Cyprus could be a model for future European bailouts —and markets take a nosedive. A few hours later he reneges on his remarks, saying: “Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday. Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.”

Cyprus was not Greece (or Italy, or Spain) Redux. Nor have the bailout terms set a precedent for future crises in the Eurozone’s periphery. It was a sideshow.

But that sideshow is still telling. It spoke to the new reality in the Eurozone: For anything to get done, it has to first generate an unnecessary crisis. There are so many moving parts to European Union bureaucracy that the only way to create action is with dire threats and tight deadlines. Most sane people now understand that the Eurozone is not going to fall apart, so Germany has to ring the alarm more loudly than in the past if it hopes to force change. In the absence of imminent crisis, the only way to implement deep, structural change is by harnessing the pain that market forces can inflict.

The Cyprus affair proves that the European Union has parallel crisis narratives, one that’s playing out in the open, and another underlying one that gets less attention but is far more concerning. The Eurozone’s existential crisis is over – whenever you hear or read or see a story claiming the Euro might collapse, know that it’s 100 percent optics. Somebody (usually Germany) is playing somebody to try to get what it wants.

But crisis, manufactured or otherwise, is still the only thing that will bring some change to the continent, and so crisis is what it will get – likely, for the next few years. Europe, meanwhile, is suffering. Not only is every faux-crisis a distraction that derails policy leaders, it’s preventing Europe from asserting itself as a collective whole.

What, for example, is the European Union’s foreign policy at the moment? The French are intervening in Mali, but more or less unilaterally. The Germans are friendly to the Chinese — some estimates peg Germany’s share of China-EU trade at nearly 50 percent — but other key EU players are wary of that budding relationship. Of the 27 EU states, 25 stand in opposition to a French-British push to provide arms to the Syrian rebels. When it comes to foreign policy, flaws inherent in the EU’s design—and distracting debt crises—often leave it unable to operate as a cohesive diplomatic body.

So what does all this mean going forward? What hope can we have for a continent and an economic zone that needs to cry wolf anytime it wants to herd the flock? If I were a European finance minister, I’d tell you that the Eurozone is in existential peril, even if that wasn’t the case. That approach allows a debt crisis in the European Union’s smallest member to flare into the global spotlight. When another European “crisis” pops up — I hear Slovenia will be next (seriously!) — we’ll be thrust back into the same panic we just moved on from. Cyprus may not have been another Greece, or set any precedents for dealing with debt crises going forward. But it did reveal the phenomenon of the “manufactured crisis” of market forces and media frenzy that we are sure to see again.

This essay is based on a transcribed interview with the author.

PHOTO: Protesters take part in an anti-bailout rally outside the Presidential Palace in Nicosia March 27, 2013. Banks in Cyprus will reopen at midday on Thursday, a spokeswoman for the island’s Central Bank said, 10 days after they closed their doors to avert a run on deposits. REUTERS/Yannis Behrakis


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

The crisis is “over”? Euro might collapse is “100% optics”? What planet are you on? Dysfunctional government in Italy, crumbling government in Greece, enormously undercapitalized banks, negative GDP in majority of the Eurozone, collapsing confidence, declining sales, production in most countries in the EU is plummeting, deficits getting worse in every country. If you think those a$$ clowns in charge of the eurozone are so skillfull that they can make the market go down when they feel like it then all of the above problems should be solved. And what do you define as a crisis, the SP going down 1/2 of 1% for an hour? No, the optics are that everything is fine. The reality is that it is crumbling. So every time you hear someone say everything is fine we avoided another “crisis” just remember that no problem is ever solved only delayed and compounded to create a binary outcome where a hot dog vender in Austria defaulting will cause the entire eurozone to collapse.

Posted by deemiddy | Report as abusive

The crisis was, and is, one of confidence in government “guarantees” and in banks, not in the Eurozone.

The actions taken by the government in Cyprus demonstrated that banks, with or without government deposit guarantees, are not to be trusted implicitly. Modern society and the modern economy depends on banking. Between “sanctions” applied through banks by governments, and tax chasing data collection, anyone with a brain must doubt the rectitude of banks. Banking is a service, but is it a service to depositors or to governments? In either case, is it worth the risk?

Posted by usagadfly | Report as abusive

People all over Europe are sick and tired of the EU currency (not the trade part) and it are only the political parties and thus governments that are pro EU, mainly to preserve their jobs and their friends jobs. FACT

Posted by Willvp | Report as abusive

The Crysis here was and still is, not only the potential destruction of the trust in the banking system, but also the potential implications to other, and future aid recipients.

But what I find most curious is: Why didn’t you write this article last week? It felt to me as if you were waiting for the canons to quit and then picked your head out and shouted “I told you we’d win”.

Those convictions and explanations would have been briliant last week in the middle of the crisis but now they look to me to be luke-warm.

Posted by DavidRoz | Report as abusive

We now know that EU economic policy is whatever five unelected people in a room at 3 on a Sunday morning say it is. Let’s at least wait for the Italians to form a government before we declare the crisis over? They just watched another small Southern European economy get annihilated over a weekend…. hopefully that won’t lead to any polarization of the political process there?

Posted by johnhhaskell | Report as abusive