By the end of Monday this week, The UK FTSE 100 had closed down 0.2%, the German Dax down 0.5% & France’s Cac dropped 1.1%. later in the day New York, the Dow Jones closed 0.5% lower.
The agreement between Cyprus and EU Finance Ministers, that’s why!
Under the agreement finally made in the early hours of Monday morning, people who have more than €100,000 in Cypriot banks will have to contribute directly to the €10bn rescue package. The Dutch Finance Minister Jeroen Dijsselbloem said later that the approach could form the basis of a new model for stopping the collapse of European banks, rather than asking taxpayers to bail them out.
The reality of what Mr. Dijsselbloem is saying is that there is apparently no conceivable reason why anybody would want to have more than €100,000 in savings in a European bank. Not a single reason as far as I can see. This wont be a problem for the vast majority of European Citizens and especially those in Cyprus because they soon wont have any money anyway if the EU carries out this plan (threat).
Naturally Germany (Ms Merkel) is happy with the deal in the Cyprus case. They were less than impressed by Cypriot reliance on Tax Haven status, an over-reliance on the banking sector (I wonder what other EU country relies heavily on banking? The UK perhaps?).
Its not that I disagree that EU countries should have balanced economies, not overly reliant on any one sector but, like all things Austerity speed is of the essence it would seem. The Cypriot economy may only take 2 or 3 years to bounce back but living standards are likely to be affected for more than 10 years, and that’s a long time to be unhappy at treatment by those who you don’t know.
Balanced economies are a good thing and are a step (probably bigger than we realize) towards integration. If all economies are acting in the same way then why not integrate? No reason at all, in fact economies of scale will come into play and off we go. Balanced economies with a centralized homogenized government will in all likelihood put the EU back into the game on the world stage, maybe.
So, do I think this will happen? No, of course not.
What I think will happen is that local, national priorities will take precedence. 10 years to recover, not improve, just recover living standards is not a winning pitch in my view. Its a recipe for silo thinking, self pity (I have some sympathy here) and maybe even separatism so defeating what the EU is supposed to be all about.
The Germans are a bit like the Incredible Hulk, you wont like them if they get angry, but they really need to work on some chill-out therapies. It seems for the time being they are getting their own way but I have fear that they’ll get used to it. The Greeks and Italians are very unhappy bunnies and only just missed the boiling pot. Who next I wonder?
Well it doesn’t take a village idiot to work out that at some point the UK is going to come in for a bit of close financial inspection and when it does who knows how badly they will react. After all the Brits can hardly be described as fully paid up members of the European project, skeptics at best! No, I think that the EU should draw back a bit and see if there are any more localized workable alternatives. They may take a bit longer to work through but will probably get much better buy-in from those directly affected.
Net result: local solutions to local problems and no tears in the European JV.