Struggling Cyprus could look to Iceland as example for recovery

The EU's smaller members aren’t getting a fair shake in the eurozone, Robert Oulds, chairman of the Bruges Group, told RT. With a ballooning public debt, Cyprus may need to look to Iceland - the EU's tiny non-euro country - for a path to recovery.

RT:The EU was quick to bail out Greece, Ireland and other struggling countries. But why are they more reluctant when it comes to Cyprus?

Robert Oulds: There seems to be a lot of bullying of smaller countries. Spain had arrangement with the EU where they would have to take on the debt of the banks. Since that wasn’t actually a direct bailout of the banks, the debt was taken on by other countries. It seems that certain countries – such as Germany- are really pushing their own agenda.

At the same time, smaller countries that can’t really stand up to the larger financial interests of French and German banks are bullied and do not get a good deal. This was really daft of the EU to try and take percentage of the savings in Cyprus banks which could actually be argued as breaching the EU rules on protecting deposits.

It was also counterproductive because it is now threatening the whole banking system in Southern Europe as people see that the EU is no friend of savers and bank accounts are not as safe as they should be.  

RT:  Concerns have been raised recently over illicit money transfers in Cyprus. Why was this issue not tackled back when Cyprus joined the European Union?

RO: There was a great deal of taking their eye off the ball and not recognizing that the banking sector was overly leveraged and there wasn’t enough capital of acquirements.  

But at the very heart of this problem is, of course, the euro - the EU single currency - that has created a situation where there was next to no economic growth in large parts of Southern Europe for over a decade. That related particularly to countries such as Italy and Greece. The only way to keep their economies going was to have an overly-leveraged banking sector and excessive public debt. In fact, the euro harmed the economic growth. It actually harmed economic activity as well as made economies uncompetitive. So now we are in a situation where they are desperately trying to shore up the euro and protect financial interests based mainly around French and German banks.  

RT:  If Cyprus does go bankrupt, what might the consequences be for Europe?

RO: We must look towards recent examples where countries had too much dependence upon the banking sector. One example is Iceland – also an island with a small population. It had a very active banking sector that got into big troubles when the economic crisis hit in 2008. Where are they now? They are outside of the eurozone. They’ve managed to re-float their economy and now they are getting of a direct investment than eurozone states. They are actually well on the road to recovery and they are doing relatively well, whereas countries that have remained in the euro are suffering. So the answer for Cyprus is really to follow the Icelandic example, say “let’s get out of the euro.” It would not be the end of the world for Cyprus.

And despite the possibility of an EU bailout of Cyprus, says Marta Andreasen, British MEP, the country should be given the option to drop the unified currency. The proposed solution, she says, is “wrong, as it affects people who have small deposits and who are saving for the future, when they retire.”

In Andreasen's view, the economic problems similar to the one that hit the Mediterranean island nation will continue, since the “EU and eurozone leaders do not understand what the real problem is.”

There are countries that cannot cope with euro as their currency,” the MEP told RT. “And as long as leaders do not understood this problem and do not allow countries like Cyprus or Greece to leave the euro, we will continue to have problems.”

So far the EU together with the Cyprus parliament have unfortunately acted like a bull in a china shop. I think all possible mistakes which could’ve been made in this situation have been made.”