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Friday 12 January 2024

The Cyprus bankruptcy - The "Before" and the "after" (part II)


It was a sunny Saturday morning. I woke up and went on my weekly shopping route. Before that I went to withdraw some money from the ATM but my transaction was declined. It was really awkward, I knew that there were enough funds in my account, so I tried one more time. Transaction was again rejected. People in nearby ATMs faced a similar situation, as I could now observe. 

Suddenly my mobile phone rang. Sylvia Papamakariou, my Cyprus Green Party main liaison, informed me that Cyprus was bankrupt, banks were shut down and I had to go to our headquarters for a brainstorming meeting regarding the next day. It was the moment I could see in real time that “IT” happened once again, as Hyman Minsky wrote a few decades earlier. Unfortunately, in Cyprus nobody wanted to listen and nobody wanted to speak, even after it was too late.. That was the rule then, that is the rule now..

As the rest of the population were celebrating the Carnival period, mostly in Limassol, that first and then during the second weekend a team of experts were trying to develop scenarios of what to do, what to avoid and what to save. We then had no idea of the real corruption levels of Cyprus, we just assumed that something would and should change. Illusions as we realised later..

The corruption levels in Cyprus are huge and unfortunately almost everybody is involved. The huge benefits of the public sector and the politicians that form each administration were always coming from a financial alchemy. The savings of the Cyprus Social Security pot were immediately transferred to serve the Government expenses so every new expenditure and pay rise meant that there will not be any kind of safety pillow in case of any emergency. That means also that in case we needed to cover any kind of emergency like saving our Banks would be achieved only if our European partners were willing to lend us more money. And they had no reason for that since our Banking system ws another alchemy ; giving higher interest rates in order to attract more deposits and create new bonuses for the Bankers..

So, in a simplified analysis, if Cyprus were still having the national currency of the Cyprus pounds and each Cyprus pound was equal to 1 euro, that weekend we could agree to devalue our pound so possibly 1 euro could buy 10 Cyprus pounds or even 50. In such a period that the national economics are just reckless, the evaluation of the national currency is defined by the markets. Luckily, Cyprus was already in the Eurozone. That meant that our government was able to steal as much as they wanted, since the people would pay the debt in a future period. 

That’s a flaw of monetary unions that lead to their collapse sooner or later. Just to make it more relevant to the recent period, both Turkey and Argentina, two countries that have their own currency, observe the continuous devaluation of their national currency against others.

End of part II

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