Protests by the 860,000-strong population of the island nation of Cyprus have rattled the world’s economic leaders. This is further evidence the eurozone sovereign debt crisis, though much better than it was in the past, has yet to run its course. The protests by the Cypriots over a one-off tax on bank savings were a rerun of the civil protests that racked countries from Greece to Iceland. They also served to remind that the Achilles heel of the eurozone is the ability of various European political systems to absorb even symbolic acts of austerity.
Cyprus needs a 10 billion euro bailout to save its banks from collapse. Cypriot banks were holed below their financial waterlines by the original Greek debt crisis. The eurozone finance ministers imposed the same template they have imposed on other indebted countries: regulatory reforms and lots of belt-tightening. But the group overstepped by forcing the Cyprus government to seize nearly 10% from everyone’s bank account. This was aimed at the huge numbers of overseas wealthy, disproportionately Russian, who use Cyprus as a tax haven. As the law could not distinguish between locals and foreigners the bank deposit tax was applied across the board. Now, with Cypriots up in arms and Nicosia struggling to find support for the needed legislation, what was a local debt negotiation has resurrected fears of a eurozone crisis replay.
It seems unlikely Cyprus will reverse the slow but steady easing of the eurozone crisis. The amounts are too small and the European Central Bank’s sweeping guarantees still apply here. A political fix that soaks the overseas rich but avoids the relatively poorer locals should not be impossible. But the fact remains that Europe is slipping into recession, the debt of some of its governments will take a decade to whittle down and the overall competitiveness of the continent remains in question. Europe’s crisis is almost over, but its decline is yet to see signs of reversal.