Eurozone Act 6

Mark Sandford - March 2013
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Over recent weeks and months, we all believed that we had witnessed the worst of the Eurozone debt crisis and everything was on the mend. This proved not to be the case with recent events in Italy and Cyprus. Italy's borrowing costs have risen yet again after a General Election result which has ended in a stalemate. No party has won an overall majority of the vote so another round of manoeuvring will occur before any new government takes office. Pier Luigi Bersani's centre left bloc won the lower house of Parliament but did not secure the Senate. This will the job harder of implementing necessary economic reforms and cutting public debt that now stands at 127% of Italian GDP.

In Athens, thousands of ordinary people took part in a general strike against austerity measures being imposed by the new government under Antonis Samaras. Schools were shut and hospitals were left with only emergency staffing. Demonstrations were also held peacefully in the country's second largest city Thessaloniki. The government has been forced to impose spending cuts and tax rises, hitting both pay and pensions. Unemployment now stands at over 26% of the workforce. A general strike will not solve these issues but proves that the bubble has long since burst. No country can afford to live beyond its means and the Greek people need to learn this painful lesson. The government has also passed emergency legislation ordering striking seamen and metro staff back to work.

Cyprus has become the latest country within the Eurozone to request a bailout but not on the same scale as Greece or Italy. The loan is liable to be in the order of 17 billion Euros. The Cypriot banking system has been affected by the turmoil in Greece as many banks gave loans to Greek banks and institutions, many of which are destined to become toxic. The EU and IMF have begun negotiating the terms of a bailout and agreed terms on a 10 billion Euro tranche under which Cyprus would agree to a review of how its banks implement money laundering as many depositors with savings are Russian. The deal would also levy a one-off tax on savings of 6.75% for those with under 100,000 Euros in their accounts. Those over 100,000 Euros would incur a tax of 9.9%.

This deal had to be ratified by Parliament and it is no surprise that MPs of all parties voted it down. It is iniquitous that the ordinary man or woman in the street should have to pay for the mistakes made by politicians or bankers. After the result, the banks have remained shut to avoid everyone withdrawing money and a general flight of capital out of the country. The stock exchange has also remained closed. The country's Cabinet has also gone into emergency talks to discuss an alternative. Cyprus is not necessarily an impoverished society but the country has a banking sector out of all proportion to the size of its economy.

This is at the root of the current problem and has to be addressed. The country has the potential to become a net energy exporter after huge natural gas discoveries to the south and west of the island. It still has to solve the dispute over re-unification of the island with Turkey that has rumbled on over decades.


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