When it comes to intelligence there are two types of people – those who learn the easy way, and those who learn the hard way. The first group is considered smart and the other stupid. Or so we thought. Because the events of the past few days have demonstrated that there is another category – those unable to learn even the hard way. And this goes, unfortunately, for Cypriot politicians.
Let us first go back a few years. For years, the government under former President Demetris Christofias rejected any proposal to take meaningful fiscal consolidation measures, not only after it lost market access in May 2011 but even when, 13 months later, it resorted to a bailout on the grounds that the crisis it was facing was a banking crisis and not a fiscal crisis (by the way, it was both). In May 2012 it nationalised Cyprus Popular Bank, also known as Laiki, with €1.8 billion, which amid deteriorating public finances and the subsequent downgrading to non-investment grade, proved another white elephant. With that step, the Christofias government managed to buy time and complete its term without having to sign the onerous terms of the adjustment programme.
The onus was then on the administration of President Nicos Anastasiades who, after taking over in March 2013, thought that without any serious preparation and assessment of the situation he could dissuade euro area leaders to ditch their opposition to bailing out Cypriot banks. He did not even have the decency to defend the proposal the Eurogroup accepted to impose a one-off levy on insured and uninsured deposits so that Laiki could be kept in business. Foolishly enough, opposition politicians thought that by voting down that proposal, they would compel the Eurogroup to come up with another, better proposal, which proved to be a pipedream.
In the years that followed Cypriot politicians also thought that pressuring banks to not even attempt to use those very tools they had given them – insufficient tools – would also have no consequences. And yet what they hoped they would avoid – the Co-op moving into private hands – was exactly the result of their games.
After Hellenic Bank and the Co-op signed the business transfer agreement earlier this week, politicians thought that criticising it would come at no cost. But by giving the message to the Co-op depositors that they would rather see the bank go down than extend guarantees to Hellenic, they once again demonstrated that they have not learned any lessons over the past years. That also goes for Finance Minister Harris Georgiades who should have asked parliament to immediately pass this bill before the Co-op opened again for business to avoid a bank run, especially after the Co-op experienced a €2bn deposit outflow in the first quarter.
Why is it so difficult for politicians to realise that political games with banks, depositors’ money and the economy have serious and costly consequences?