Anthony Peters, SwissInvest Strategist
AFTER HALF A century of the lauding of everybody’s “rights”, the situation in Cyprus has finally thrown up the yang to the ying – and called upon a people to reflect on its “responsibilities”.
The state, the nation, is a collective. It is owned by its people. The people – collective singular – holds, through the one-man-one-vote system of elective democracy, joint and several responsibility for the behaviour and wellbeing of the overarching edifice
For more than half a century governments across the West have behaved as though they were above the laws of economics, have believed that they had a right to make promises to the people and to spend whatever it took to make these promises come true. National citizenships were swapped for passports to cloud cuckoo land.
More to the point, citizenship appeared to encompass more rights than it did responsibilities. This imbalance has led, quite inevitably, to fiscal imbalances of equal proportion.
Since the beginning of the financial crisis in 2007, I have been crying that it is “game over” but I have been a voice in the wilderness. There appears to have been a feeling abroad that we would be dealing with another temporary blip in the cycle of growth and consumption – perhaps a slightly larger blip than usual, but a blip nevertheless.
In all of this, the most basic rule of nature, namely the survival of the fittest, has been forgotten. Lehman Brothers went under not because it was that much worse than the other houses but because it failed to acknowledge and adapt, to admit that it was in mortal trouble, and to make vital decisions commensurate to its position. Lehman fell to hubris.
The haircut on deposits is possibly the simplest and most democratic way of sharing the burden
Cyprus has also fallen to hubris, to the firm but mistaken belief that its eurozone partners would take care of whatever needed taking care of. But base jumping doesn’t become safer simply because one is well insured.
Don’t get me wrong. I feel deeply for the people of Cyprus. But in a world where peoples have for generations sacrificed the blood of their sons in the defence of the nation, why do they find it so difficult to part with 10% of their bank deposits to achieve the same?
WATCHING CYPRIOT GRANDEES running around with the begging bowl has not been an edifying experience but it should serve to remind us that there, but for the grace of God, go we. The initial fears – since somewhat subsided – that Italians, Spaniards and Portuguese would begin to withdraw funds from their weakest banks should not be dismissed out of hand.
Enormous sums of money – our money – have been poured into failing organisations in order to counteract Darwin. Like Lehman, Cyprus has found that it is too small not to fail. Monte dei Paschi looks to have made the cut but might we be moving to an environment where rescue at any cost is deemed to be a cost too great?
It is easy but facile to lay the blame for Cyprus’ problems at the door of Chancellor Merkel. The blame is to be found not in Berlin but in the corridors of power in Nicosia. It’s not the insurance company’s fault if a base jumper’s parachute fails to open.
Cyprus belongs to all Cypriots, rich and poor. All are stakeholders and, as the rules of modern democracy insist that all citizens are equal, irrespective of how much they contribute by way of taxes, it therefore cannot be wrong that all are called upon to contribute their share to the rescue. In fact, the haircut on deposits is possibly the simplest and most democratic way of sharing the burden.
What else did Cypriots expect? “Ladies and gentlemen, please pop round this afternoon and withdraw your deposits because we’re insolvent and are going to go bust next week!”
WE ARE APPROACHING the sixth anniversary of BNP Paribas’ notorious announcement that it could no longer apply proper valuations to some of its funds containing structured products, the first indication that not all was well with an economic model based on borrowing to spend.
Many trillions of dollars, pounds and euros of rescue funds later, it appears to me as though underlying attitudes to what one can take out of the system relative to what one has put in have not really changed. One might be able to temporarily suspend Darwin but one cannot make him go away.