Cyprus bailout: What does it mean for Europe?

The euro crisis is “developing into a struggle over German hegemony in Europe.”

There was relief in Cyprus when the banks finally reopened last week, said Peter Millar in The Sunday Times (U.K.). But there were “frowns in front of television screens throughout Germany as taxpayers watched a Lufthansa flight from Frankfurt deliver $6.4 billion in euro notes to people who days earlier had been calling them Nazis.” Cypriots had taken to the streets shouting anti-German slogans and carrying pictures of Angela Merkel with a Hitler moustache. Their ingratitude is outrageous, said Hugo Müller-Vogg in Bild (Germany). “Without German guarantees, there would be no bailout.” As in previous bailouts of Greece, Ireland, Italy, Portugal, and Spain, Germans are funding by far the lion’s share. Yet once again, “we Germans are the subject of criticism, even outright hatred,” in a country that has catastrophically mishandled its own affairs.

The euro crisis is no longer about money, said Jakob Augstein in Der Spiegel (Germany). Instead, it’s “developing into a struggle over German hegemony in Europe.” Our country’s power is on display as never before in the postwar era. The Cyprus bailout, the first one in which private depositors were directly hit up for some of the losses, was imposed at Berlin’s insistence. German Finance Minister Wolfgang Schäuble decreed that Cyprus’s banking sector, a magnet for suspect Russian money, must be radically slimmed down. This seems like sound economic management. But the truth is that “Germans haven’t just paid for the crisis, they’ve also profited from it.” The euro has been much weaker than the deutsche mark would have been, making German exports cheap. That has contributed to crippling deficits elsewhere in the euro zone, while allowing Germany to amass a large cash pile. If Germany continues to misuse its economic power to bind its European partners “in the shackles of debt,” the long-term consequences will be dreadful.

The short-term ones already are, said David Officer and Yiouli Taki in the Cyprus Mail. In Cyprus, “the train has hit the buffers.” Germany’s elite, ably served by the European Union and the International Monetary Fund, has now “vaporized the Cypriot-based financial services sector.” Okay, we were a tax haven, and yes, our parties should have recognized earlier the perils of our “parasitic” dependence on the flow of dirty capital, especially from Russia. But this settlement amounts to “a cruel and unusual punishment” on the Cypriot people, who have been set back by decades for no fault of their own. And let’s not forget that the Germans and their allies acted in large part because they “came under pressure from their own citizens to maintain comprehensive welfare systems” that everyone in Europe helped to pay for.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.


Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

No question, the Cyprus deal sets worrying precedents, said Wolfgang Münchau in the Financial Times. The capital controls needed to stop money from flying out of the island’s banks could be a death knell for the whole currency union. Now that they’ve seen the plight of the Cypriots, it’s “logically irrational for any Spanish saver to keep even small amounts of savings in the Spanish banking system.” The Italians and Greeks see that, too. In the long run, “you can’t operate a monetary union in the face of economic logic.” Sooner or later, this one is doomed.

Continue reading for free

We hope you're enjoying The Week's refreshingly open-minded journalism.

Subscribed to The Week? Register your account with the same email as your subscription.