“The Slow Death Of The European Project”



The former governor of the Central Bank of Cyprus and a former member of the Governing Council at the European Central Bank, Athanasios Orphanides, speaking to Tom Keene and Sara Eisen on Bloomberg earlier:

Athanasios Orphanides: “What we’re witnessing is the slow death of the European project. We’re in a situation where some European governments are essentially taking action so that they’re telling citizens of other member states that they’re not equal under the law and being here, in the United States, you can realise how catastrophic this is for the sentiment inside of Europe. What we have seen in the last few days is a very serious blunder by European governments, that essentially blackmailing the government of Cyprus to confiscate the money that belongs rightfully to depositers in the banking sector in Cyprus. It’s not clear how this can affect, in a positive manner, the European project, going forward. And this is really a concern about all of Europe.”

Tom Keene: “Professor, I think you own, within research, the “toolbox”. You’re the one who came up with that and popularised the phrase. What is in the toolbox for Germany? What is in the toolbox for Brussels, to move forward constructively?”

Orphanides: “Frankly, it was totally unnecessary to move on with this particular move. Cyprus did not have a problem, before, earlier blunders that were made by the European governments. Even the banking sector is indeed, quite large. But it’s in a solid state. And the only reason we have an issue in Cyprus right now, or talking about this, is because earlier decisions of the European governments imposed many billions of losses on banks, through the haircut they imposed on Greek sovereign debt. So, frankly, the toolkit is to go back to what earlier European leaders were saying, that European leaders should actually sit down and actually try to work together, to get us out of this problem, that their own decisions have been creating. Instead of trying to shift the damage from one member state, at one time, another member state, the other time. Let me tell you what I mean by that.”

Keene: “Please.”

Orphanides: “This is a crisis that is systemic in the Euro area. We have had decisions taken by the strongest government in Europe, that have been spreading misery sequentially to citizens in Greece, in Ireland, in Portugal, in Spain, in Italy. And this is not going to end the way European governments are handling this. We need to have a decision-making process, wherein governments are asked to care for the citizens of the other states. This is not happening. And what we have seen is Cyprus, is just a clear demonstration of this. The way the strongest governments of Europe have blackmailed the Cypriot government to confiscate deposits, is essentially sending a message that nobody with deposits in a small country, like Luxembourg, should feel safe about their deposits. Nobody with deposits in a weak country like Spain should feel safe about the deposits. And you realise this only makes the economic climate in Europe worse instead of contributing to the solution of the crisis.”

Sara Eisen: “Are you envisioning bank runs across Europe?”

Orphanides: “I do not know if there would be bank runs across Europe and I would hope not. But frankly, this is what I find so amazing about this. We have finance ministers from a number of countries who should have known better and they have taken the decision with encouraging bank runs in the Euro area. But I have to also say that it’s not bank runs everywhere. So in decisions like this, much like in the decisions we hear capping Greek debt in October of 2011, actually benefits some countries. For example, as we’ve seen from the markets yesterday a decision like this reduces the financing costs for the German government, so the German government can now borrow at negative rates as a result, while it inflicts pain on other countries. Not everybody is equal under the law, the way European governments are behaving in these days. This is why I worry about the future of Europe.”

Eisen: “Well, clearly, you disapprove of the method here. You talk about systemic risk and contagion. Is the European Central Bank, and Mario Draghi’s pledge to do whatever it takes, a credible backstop to this problem?”

Orphanides: “Well, frankly, the European Central Bank has been quite unclear in its position on this. According to Press reports, the European Central Bank was used as a vehicle to blackmail the Cypriot government. I hope this is wrong because I cannot envision  my former colleagues at the European Central Bank contributing in this way to the destruction of Europe.”

Keena: “Professor, let me bring in Megan Greene, our guest host this afternoon, from Maverick Intelligence economist. Megan, Professor Orphanides.”

Greene: “Yeah, I’m wondering what you think of what’s happening in Cyprus means for a banking union in Europe. Do you think that we can have a banking union, if we’ve made such a mockery of deposit guarantee schemes?”

Orphanides: “Not under these conditions. And this is one of my biggest concerns for the future of the Euro area. A year ago, after the June 2012 decision of the European Council, I was more optimistic that European governments understood that in order for the Euro area to stay together, they needed to form a banking union which meant that they needed to have a common credible deposit insurance guarantee for everybody in the Euro area. So, indeed, by making a mockery of that right now, the governments who pushed for this measure are sending a message that they want no part of a banking union.”

Keene: “Professor, you are arguably the representative of Cyprus to the business community in America with your research at the Fed. What is the message you would send to the Cyprus Parliament as they vote this evening or into tomorrow in Nicosia. What would you tell the people of Cyprus about what their politicians need to do.”

Orphanides: “Frankly this is an incredibly tough decision. And I do not want to give advice to the members of parliament in Cyprus about what they should do. Let me again, try to explain to you what this is about. You have other governments in the European Union who are asking members of the Cypriot parliament to vote to confiscate people’s money. It’s not clear what those members of parliament should do under these circumstances and frankly, I really I would, I would much rather go back and ask the other European governments that contributed to this blackmail to rethink: Is it really a positive for the future of Europe to be working in this way?It’s not. Is this really in the interests of the German people? Of the French people?And of everybody else?It’s clearly not.”

Watch in full here.



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