Cyprus Mail

Cyprus bailout: the test of illegality

By Dr Kypros Chrysostomides

WHAT HAS happened in Cyprus over the last few months as a result of the decisions taken by the Eurogroup, the European Commission and the European Central Bank (ECB) is well known.
In a nutshell, it was decided in Brussels to impose upon this small island economy at the south eastern outpost of the EU, a “bail-in” arrangement which has essentially led to the resolution of the two major banks (the Bank of Cyprus and Laiki Bank). This was achieved by the actual elimination of their respective shareholders and the “haircut” or “confiscation”of bank deposits.
In the case of Laiki Bank, depositors have probably lost all of their deposits in excess of €100,000. In the case of the Bank of Cyprus, 47.5 per cent of the deposits in excess of €100,000 were frozen for almost four months before they were compulsorily converted into shares while the remainder, with the exception of approximately15 per cent, remain frozen and will be gradually released over a period of two years.
At the same time, the branches of the same two banks in Greece were forcibly sold, literally overnight, at a substantial loss in order to avoid systemic consequences in the rest of the eurozone in the form of bank runs there. Furthermore, the Bank of Cyprus was forced to undertake all ELA (Emergency Liquidity Assistance) which had been granted by the ECB to Laiki to the order of 9.5 billion euros.
These sweeping “transformations” were implemented through no corporate or commercial action but through the passing of decrees orchestrated by the troika of lenders – the European Commission, the ECB and the IMF – and issued by either the governor of the Central Bank or the minister of finance. And what makes it even more alarming is that all of these measures were taken even though both banks, according to the Central Bank governor, were solvent just before the Eurogroup’s decision to give €10 billion in financial assistance. Notably, one of the conditions for receiving that sum was that no part of it could be utilised for recapitalising the two major banks.
None of the depositors of other banks were affected including those banking with the co-operative savings banks. In fact, these banks are about to be recapitalised with 1.5 billion euros, out of the 10 billion euro bailout package, with the full consent of the Eurogroup, the ECB and the European Commission.
It is no exaggeration to say that the above “economic” package was “imposed” upon Cyprus. Even the German finance minister in a letter dated April 13, 2013 to the Bundestag admitted it in no uncertain terms.
The measures, generally described above, raise in the minds of lawyers, who are conscious of the importance of the rule of law and the respect of human rights, a crucial question. Can any financial need, as dire as it may be, justify such a sweeping encroachment on the property rights of individuals, and such a gross deviation from the universal principles on which the European Union is founded?
Let us remember that it is repeatedly stated in the EU treaties, that EU members are committed to “their attachment to the principles of liberty, democracy and respect of human rights and fundamental freedoms and of the rule of law” not to mention” their declared “desire” to “deepen the solidarity between their peoples…”. Furthermore, Article 1 of the Charter of Fundamental Rights in the European Union further states that: “Human dignity is inviolable. It must be respected and protected.”
To my mind, the answer to this basic question cannot be anything but “No”. And this is not solely on moral grounds, which would definitely reject such collective violation of human rights, but exclusively on legal grounds.
Undoubtedly, all of these measures are attributable to the EU. The subsequent actions taken by the Cypriot authorities were the implementation of the decisions taken by the Eurogroup and the troika in their meetings of March 16 and 25. The ECB also had played a decisive role in the materialisation of the measures, not only through its participation in the Memorandum of Understanding but also because its threat to suspend ELA to Cyprus left no alternative options which could have been investigated instead.
In the case of Cyprus, one can clearly identify that the following legal principles which are intended to confer rights on individuals have been patently breached:
(a) The right to property as enshrined in the EU Charter of Fundamental Rights, Article 17(1), which is based on Article 1 of Protocol 1 of the European Convention of Human Rights which is also binding on the institutions of the EU;
(b) The principle of non-discrimination, a general principle of EU law. The right to equal treatment is also guaranteed by the Charter, Article 20 (“everyone is equal before the law”) and Article 21(1) which contains a general prohibition of discrimination. There have clearly been incidents of unprecedented discrimination to the detriment of the shareholders and the depositors of the two aforementioned banks. For example, depositors in other local banks but also depositors in the branches of the same two banks, Bank of Cyprus and Laiki, in Greece, were not subjected to any haircut. The shareholders of banks in other eurozone countries (Ireland, Greece, Portugal and Spain) have not suffered any loss whatsoever. Certain categories of depositors with the said banks have been exempted from the haircut, with the consent of the EU institutions while the shareholders or depositors of the co-operative savings banks requiring recapitalisation were not only left unaffected but are also being subsidised, with the clear approval of the EU;
c) The loss of bank deposits has adverse effects on other freedoms, such as the freedom to choose an occupation and the right to engage in work (Article 15 of the Charter), the freedom to conduct a business (Article 16 of the Charter), and the fundamental freedoms of movement (persons, services and capital) enshrined in the TFEU.
All these decisions are, and should be subject to review in terms of their legality. The decisive test in determining whether a breach is sufficiently serious is whether the EU institution concerned manifestly violated the rule of law. In the case of Cyprus, the EU organs, including the Eurogroup, patently did so and while aiming to serve purposes other than the respect of the rule of law, exceeded every limit of proportionality. Cyprus served as a convenient guinea pig, due to its size and its non-systemic presence in the eurozone. In the process they have condemned 75 per cent of the population of Cyprus (that is more than 400,000 European citizens) to unemployment and poverty in the short and long term, despite the pronouncement in the charter that “human dignity should be inviolable and be respected and protected”.
In my view all the above show a gross violation of EU law and should be subject to review by the European Court of Justice.

Dr Kypros Chrysostomides is a lawyer and former minister of justice
( [email protected])

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