The problem of a “democratic deficit” that might arise from the process of European integration has always been high on policymakers’ minds. The term even has its own Wikipedia entry.
As Cypriots waited patiently in line for banks to reopen after being shuttered for two weeks, the issue was brought to light with particular clarity, since the country’s bailout is widely seen as being imposed on it by richer, more powerful states, particularly Germany.
Luxembourg has accused the Germans of trying to impose “hegemony” on the euro zone. The country, whose banking system, like Cyprus’, is very large relative to the economy’s tiny size, fears that similarly harsh treatment could be imposed on its depositors.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, says the broader point about the need for popular buy-in of economic policies is a crucial one:
Cyprus 2.0 was constructed in a way that allows an end-run around parliament. This is a shame and ultimately counter-productive. The lack of democratic legitimacy means that it will always taste like foreign imposition. It means that parliament will not take ownership for the program. It also shows that European officials to be still tone deaf, seemingly failing to realize monetary union is an elitist project and without strong public support is vulnerable to various populist movements from both the right and left.