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Eurozone crisis

'EU solidarity deficit larger than any public debt'

The Cypriot government has rejected a haircut on bank deposits. Economist Andreas Theophanous said Cyprus can save itself - if the country is permitted to come up with its own solutions to the crisis.

DW: The European Union and the International Monetary Fund have agreed to provide Cyprus with 10 billion euros ($12.9 billion) on the condition that bank depositors take losses as well. They are supposed to come up with 5.8 billion euros. The levy was criticized and then rejected by parliament. What possibilities do you see to prevent the country from going bankrupt?

Andreas Theophanous: We have problems and some of these problems have to do with other decisions from the European Union. It has to do with the haircut of Greek debt in 2011. Cyprus banks at the time lost almost 5 billion euros, which is about 25 percent of Cyprus' gross domestic product. It went unnoticed and it was the beginning of a serious setback for us.

Andreas Theophanous
Copyright: Center for European and International Affairs, University of Nicosia

Theophanous said a haircut was the wrong approach to Cyprus' economic problems

Right now we are looking for alternatives. The alternative as we understand it has to come from domestic sources on a voluntary basis and also from possible agreements with third parties. Voluntary basis means that if I want to buy a bond or buy a share of a bank it would be my decision. Many Cypriots feel that they would be willing to buy or invest in shares to shore up this contingent, but they would do this because they want to help, not because someone has imposed it on them.

But the country needs about 17 billion euros - a large portion of which will go to institutions in the banking sector that cannot pay their loans. Do you think new structures need to be created for the long-term rescue of the Cypriot economy?

I think we need to restructure our model, but that cannot be done in 24 hours. Shock therapy is deadly and that is what was given to Greece - a deadly recipe. Certainly we have problems that we have to fix - nobody denies that. We feel that there should be a roadmap and a timetable. We do not feel that the Troika philosophy is gospel. The policies of the Troika are leading countries of the European south to a fiscal cliff.

A third of Cypriot bank deposits come from Russia. Nicosia is in talks with Russia about the possible extension of loans at a lower interest rate. What reactions do you expect from Berlin, Brussels and Nicosia if Russia acts as Cyprus' creditor?

I would be happy if the agreement involved all the concerned parties. I am not characterized by a Cold War mentality. I feel that for European prosperity, for European integration, for European security it is very important to have good relations between Europe and Russia. I would be very happy to see an agreement with all involved parties. I think this is easy to achieve. The policies of Friday evening have provoked a panic and damages that are much more than the 5.8 billion.

The Cypriot population is taking to the streets. There are signs with anti-European messages aimed at Brussels and individual European finance ministers. Are they making a single person, such as German Finance Minister Wolfgang Schäuble, responsible for the outlook in the entire country?

Cypriots hold placards during a protest against an EU bailout deal outside the parliament in Nicosia on March 18, 2013. 
Photo: PATRICK BAZ/AFP/Getty Images

People in Cyprus have put blame for the situation there on European politicians

Minister Schäuble said he is sorry for the Cypriot people but insulted them. We are a small country but we have dignity. I find it legitimate on the part of the Europeans to suggest 'find this amount of money any way,' with that I agree. But for people to go to sleep and find out there was a haircut? Who is going to give us 5 billion? We didn't lose it, it was taken from us.

The European Union needs solidarity, and I think that the solidarity deficit that exists is bigger than any deficit or public debt of any country in the European Union that exists today. We have to think about what kind of a union we want.

In the past the eurozone's finance ministers put forth last minute solutions. How do you see Cyprus' future?

I hope that we reach an agreement. I want to make sure that we continue business as usual. We want to remain in the eurozone and live up to our responsibilities. We need time. Parts of the problems we have are indigenous and I agree that we have to restructure. I have criticized successive government for this myself. But on the other hand, part of the problems we have are imported - systemic - and we cannot be held responsible for that.

Andreas Theophanous is a professor of political economy at the University of Nicosia and president of the Cyprus Center for European and International Affairs.

DW.DE

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