What will the unhappy Cypriots do? Will they mortgage themselves to a dodgy, authoritarian kleptocracy? Or – drumroll – will they spurn the EU and take Russia’s money instead?
Actually, there is a far better option: an option offered by another thinly populated island on the fringes of Europe whose financial sector had outgrown its economy. Cyprus could copy Iceland, let its banks collapse, and leave their shareholders and bondholders to sustain the loss.
There is often a perception lag when it comes to foreign countries. Most people in the EU still have the idea that Iceland is in economic meltdown. In fact, as I have blogged many times before, it has bounced back impressively from the 2008 crash, and public opinion is solidly against EU membership. Icelanders are a canny people. They know that, though they have been through a dip, their standard of living is still higher than 24 of the EU’s 27 members, and is improving more rapidly than anywhere in the euro zone. All this despite the best efforts of their Green-Socialist coalition to penalise business through bizarre eco-regulations.
Why don’t Brussels leaders want Cyprus to follow the Icelandic model? Well, you can’t fault their honesty. The expropriations are necessary, admits the European Central Bank, to prevent ‘worries over the reversibility of the euro resurfacing’. Cypriots, in other words, are being sacrificed to the greater goal of monetary union. They will become a second Greece, vassals to their EU creditors.
Shakespeare, as I never tire of pointing out, has useful observations to make on every subject, including Cyprus, where part of Othello is set. Here is Iago, speaking for the Brussels establishment: ‘Thus do I ever make my fool my purse’. And here is Roderigo for the Cypriots: ‘My money is almost spent; I have been tonight exceedingly well cudgelled.’
After all, think of it from the Eurocrats’ point of view. What if Cyprus were to default, decouple, devalue – and then prosper? What effect would a successful return to the Cyprus Pound have on the rest of the euro zone?