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It smacks of financial delinquency by the state and runs just short of blackmailing depositors in giving in to a ludicrously unreasonable demand. If Cyprus goes ahead with the proposed bailout terms it set before bank customers, the move would make history— and not a memorable one at that. Cypriots are up in arms, and nobody is faulting them. Under the stewardship of President Nicos Anasatasiades, the island state announced a unique rescue term: all bank deposits will contribute at least 6.75 per cent to a $13bn bailout negotiated with the European Union and the International Monetary Fund. As Cypriots watched in dismay, Anasatasiades appeared on television to tout the move as the least painful one in saving the nation from bankruptcy.
The Cyprus bailout terms violate two basic principles. While negotiating the crash of 2007-08 it was agreed that the savings of ordinary people should be protected upto 100,000 Euros. Another principle said that while bailing out a bank, financial institutions which are bondholders should bear the brunt, instead of individual customers funding the rescue. In case of Cyprus, both these principles have been violated. The Parliament was supposed to meet yesterday to okay the bailout term, but the vote was postponed to today amid widespread protests the echo of which could be heard as far afield as the Kremlin. Russian president Vladimir Putin and Prime Minister Dmitry Medvedev denounced the move. Putin called it ‘unfair, unprofessional and dangerous.’ A number of Russians — oligarchs and otherwise— have their funds parked in banks in Cyprus. The step is unfair as it places the onus of rescuing a crisis-hit government on the private individual. It would be unprofessional to implement the move as it can lead to a dangerous precedent. Bigger and battered economies are bearing the brunt of the financial crisis in the eurozone. Cyprus accounts for only 0.2 percent of the output of the European Union. Spain and Italy contribute much more. If Italians and Spaniards are asked to fund the bailout of their much-larger economies, it would lead to a severe run on banks many of which would go down much earlier than expected. Who knows, citizens of the two troubled eurozone economies would have started thinking of withdrawing their savings from banks.
Protests in the Mediterranean nation mirror the the weakness of leaders — financial and political — to handle crisis which may be relatively short-lived but can cause unprecedented damage. Capitalist economies always run the risk of bankruptcy. There was some talk in the international press late yesterday about Nicosia rethinking the bailout conditions. In a globalised world, the deftness with which one is bailed out is more crucial. What is a bailout if it leaves the people of a nation with an uneasy sense of the self•