By “20 Minuten”, translated by the European bureau of “Vestnik Kavkaza”
Today in Moscow, Premier Dmitry Medvedev and the head of the European Commission Jose Manuel Barroso will discuss the threat of a default by Cyprus, which needs a new plan for saving its banking system and economy in general. The parliament of Cyprus voted against implementation of a tax on bank deposits, which was a condition for getting 10 billion euros from the European Union. A Cypriot delegation travelled to Moscow to ask for a prolongation of the Russian loan (2.5 billion euros) and for a new credit in exchange for a share in its banks and energy assets.
Vestnik Kavkaza publishes a translation of an interview by the Swiss periodical “20 Minuten” with the head of the Swiss think-tank “Foraus,” Maximilian Stern, who expresses the position of Europeans on the Cyprus problem.
- Many residents of Cyprus are happy that parliament rejected the EU’s anti-crisis initiative, which requires taxation of bank deposits. But the country is on the verge of bankruptcy. Is there a reason for happiness?
- In fact the situation in Cyprus is dramatic because the country is standing on the verge of bankruptcy. But the Cypriot parliament sent a signal by its voting, which was supported by many citizens: they don’t want their bank deposits to be taxed.
- Can the citizens withdraw as much money as they want from their accounts after the parliamentary decision?
- At the moment it is not clear. The possibility of capital outflow from banks is real. If the clients of Cypriot banks clean out their accounts, all the banks in the country will collapse.
- What will consequences of the parliament’s voting for the banks be? Can they retrieve their clients’ trust?
- It will be a difficult process. Cyprus’s citizens are worried about their assets. There is a threat that citizens of other crisis countries of the EU will be scared by the possibility of implementation of “the Cyprus recipe” in their countries and will clean out their accounts.
- Cyprus actually rejected the EU’s package of help. Is the bankruptcy of the country inevitable now?
- I doubt it. The EU will try to find a settlement and continue negotiations. Now the EU and the IMF should increase credits to Cyprus so as not to make the population suffer. Or Cyprus will make its own decision, which will be accepted by the parliament of the country. For example, they can launch taxation of major bank deposits only. Now they should act quickly. Cyprus’s reserves will run out in May. Bankruptcy threatens Cyprus.
- It appears the EU will do its best to prevent Cyprus’s bankruptcy, right?
- The EU has no other choice. Moreover, the price of Cyprus’s rescue is not high in comparison with other European economies. The EU and the IMF have to bite this bitter apple if they want to save the euro.
- How long does the EU have to patch such financial holes?
- I think the southern countries of Europe are on the right path. Producing public bonds at reasonable interest rates in the future. Restructuring programs are difficult, but they have an effect.
- What consequences will Cyprus’s financial collapse have for itself and the EU?
- It would be a disaster which would put at risk the stability of the whole European Union.
