The Cyprus takeaway: More phony crises to come
Now that the crisis in Cyprus has passed, we can finally admit the obvious: The âcrisisâ it provoked did not deserve the attention it received. Cyprus makes up a fraction of one percent of the European Unionâs GDP and itâs 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 âand markets take a nosedive. A few hours later he reneges on his remarks, saying: âCyprus 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.â
Cyprus was not Greece (or Italy, or Spain) Redux. Nor have the bailout terms set a precedent for future crises in the Eurozoneâs 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 thatâs playing out in the open, and another underlying one that gets less attention but is far more concerning. The Eurozoneâs existential crisis is over â whenever you hear or read or see a story claiming the Euro might collapse, know that itâs 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 â likely, for the next few years. Europe, meanwhile, is suffering. Not only is every faux-crisis a distraction that derails policy leaders, itâs preventing Europe from asserting itself as a collective whole.
What, for example, is the European Unionâs foreign policy at the moment? The French are intervening in Mali, but more or less unilaterally. The Germans are friendly to the Chinese âÂ some estimates peg Germanyâs share of China-EU trade at nearly 50 percent â but other key EU players are wary of that budding relationship. Of the 27 EU states, 25Â 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 EUâs designâand distracting debt crisesâoften 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, Iâd tell you that the Eurozone is in existential peril, even if that wasnât the case. That approach allows a debt crisis in the European Unionâs smallest member to flare into the global spotlight. When another European âcrisisâ pops up â I hear Slovenia will be next (seriously!) â weâll 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 âmanufactured crisisâ 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:Â 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