Skip to main content

Cypriot disastrous decision: How to turn a drama into a crisis

By Richard Quest, CNN
March 18, 2013 -- Updated 1608 GMT (0008 HKT)
  • The money of German housewives should not bail out Russian oligarchs, writes Quest
  • Quest: Taxing deposits under €100,000 at over 6% is effectively punishing the Cypriot people
  • Quest: The Eurozone has shown it is better at creating crises than confronting them

Editor's note: Richard Quest is CNN's foremost international business correspondent and presenter of Quest Means Business

(CNN) -- Never underestimate the capacity of the Eurozone to shoot itself in both feet.

"Breath-taking," "Staggering," "Bewildering." Just some of the adjectives we could use to describe the latest Eurozone fiasco where the troika -- made up of the European Commission, the European Central Bank and the International Monetary Fund -- has managed to snatch defeat from the jaws of victory.

The decision to "bail-in" depositors in Cyprus -- to make ordinary people pay for the mistakes of the banks -- is extraordinary. Nothing like this was done in Greece, Portugal or Ireland.

Why, oh why, it should be up to the Cypriots to test drive this dangerous and maverick policy remains unknown.

Cypriots bear the brunt of a bailout

To be sure, the presence of large Russian and offshore funds in Cypriot banks is cause for a different format than those used in other peripheral countries. For example, you could not realistically have the money of German housewives bailing out Russian oligarchs.

There were more sophisticated and rapier like ways to achieve the same goal, taxing deposits under €100,000 at over 6% is effectively punishing the Cypriot people.

Cypriots are already going to feel the ferocity from the effects of a recession caused by lower wages and high unemployment, they do not need the additional confiscatory measures of their deposits being taken.

Once again the Eurozone has shown it is better at creating crises than confronting them.

In the past few hours, I've spoken to bank CEOs and top economists. Words like "great mistake" and "disastrous" are being used. So far I have not spoken to anyone who thinks this is a good idea. At all levels, for depositors, future foreign investors and Eurozone policy, the decision on tiny Cyprus is going to have huge ramifications.

Part of complete coverage on
August 27, 2013 -- Updated 1943 GMT (0343 HKT)
German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
September 4, 2013 -- Updated 1528 GMT (2328 HKT)
The G20 is held in Russia but, amid disagreements over Syria, can anything be done? John Defterios investigates.
July 10, 2013 -- Updated 1502 GMT (2302 HKT)
Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
June 7, 2013 -- Updated 1750 GMT (0150 HKT)
The euro club has suffered major shockwaves but its newest member has emerged as an economic star. What;s behind Estonia's success?
May 29, 2013 -- Updated 1323 GMT (2123 HKT)
The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
May 14, 2013 -- Updated 1326 GMT (2126 HKT)
The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.
The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
May 27, 2013 -- Updated 0256 GMT (1056 HKT)
Europe's competitiveness is threatened as manufacturing companies scrambling to find enough skilled engineers.
July 10, 2013 -- Updated 1502 GMT (2302 HKT)
Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
May 2, 2013 -- Updated 1044 GMT (1844 HKT)
As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
April 26, 2013 -- Updated 1210 GMT (2010 HKT)
As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
April 25, 2013 -- Updated 1656 GMT (0056 HKT)
Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
March 25, 2013 -- Updated 1355 GMT (2155 HKT)
The financial uncertainty in Cyprus is generating images of long lines at ATM machines and anti-European Union protests.
March 25, 2013 -- Updated 1815 GMT (0215 HKT)
Cyprus will "step up efforts in areas of fiscal consolidation." Where have we heard that before? Oh yes. Greece.
March 23, 2013 -- Updated 0139 GMT (0939 HKT)
The Cyprus debt crisis is being felt by the banks but also by the people who work at them. Nick Paton Walsh reports.
March 22, 2013 -- Updated 0010 GMT (0810 HKT)
CNN's Nick Paton Walsh reports on a Russian hotel maid caught up in Cyprus' financial crisis.
March 18, 2013 -- Updated 1608 GMT (0008 HKT)
Never underestimate the capacity of the Eurozone to shoot itself in both feet, says CNN's Richard Quest.
February 21, 2013 -- Updated 1603 GMT (0003 HKT)
Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.