‘Cyprus deal split euro into two different currencies’
RT:Just a week ago, Cyprus was on the brink of
bankruptcy, today the Cypriots have got hold of some of their
money, so it’s not all bad is it?
Johan van Overtveldt: Well Armageddon has certainly not happened yet, that’s for sure, but of course what is happening now in Cyprus is a very bad situation for Cyprus, the Cypriot economy and the Cypriot people and it’s also a mile stone for the Eurozone in its totality because what we have today as a matter of fact is two euros, we have the euros locked in Cyprus and the euros outside Cyprus, and due to controls being put in operation in Cyprus, these are now effectively two different currencies.
RT:What about other EU tax havens, also overwhelmingly relying on the banking sector could we see a Cyprus like scenario occurring elsewhere?
JV: What we saw in terms of the decision making, with respect to Cyprus, is that one wants to have a banking sector that is at most 3 times the size of GDP, in Cyrus as we all know it was and it still is about 7 - 8 times GDP, now is you look at Luxemburg for example, that’s more than 20 times GDP, the banking sector over there.
A country like Malta also has a banking sector that is somewhere
between 8-10 times GDP. If we really want the banking sectors in
all those countries to go through a ratio of 3 to 1 in terms of
banking sector verses GDP, there’s a hell of a job to do especially
in these smaller countries like Luxemburg and Malta.
RT:Let’s talk about this tax levy, people losing a
lot of money; because they’ve been doing the right thing in the
past, they’ve been penalized for saving their money. Of course,
that has really spooked investors throughout the whole of Europe,
could we see this as a precedent? People are saying this could
JV: Of course and that is in terms of the structural things that changed, one of the major things to notice about this bail-in of Cyrus because we’ve walked away from the bailout scenario to the bail-in scenario. And there you go first of all to shareholders of the banks, then the bond holders of the banks and then the non-insured deposit holders and that’s totally new. It was first tried out in Cyprus and we are all waiting to see what happens when the next crisis comes along and how at that time the attitude of the Troika will be in terms of how they will stick to this new strategy of bailing-in banks instead of bailing them out through tax payer’s money.
RT:So, when we’re talking about bailing in, we’re talking not just about taking a tax or levy off those deposits but the idea that we are seeing a capital control of people’s assets in Cyprus in effect being held ransom, and it’s odd isn’t it that here’s a union being founded on principles of free trade is actually implementing that, so when you’re talking about a bail in, you’re not just talking about the tax levy but capital can be grabbed by the government as such?
JV: Well, we’re talking about the fact indeed that on top of the bail-in scenario where as I said you go fist to shareholders, then to the bond holders, then to the noninsured deposit holders, you also have installed capital control mechanisms, which are indeed totally new in this situation, they are contradictory to the very principles of monitory union and when they last only for a few weeks, well, we have to wait and see what happens then, if they last longer and really the chances are much larger that they will have to be kept intact over much longer period than a few weeks, then the ball game changes.
Then, we have a situation and we’ll just have to wait how markets, how bond holders, how deposit holders, how the investors react to the fact that one country becomes an isolated country in the Eurozone, in fact creating, as I’ve said earlier two separate Euros.