German's Right About Cyprus

A blog about business and economics.
March 23 2013 11:01 AM

The Germans Are Right About Cyprus And Wrong About Europe

German Chancellor Angela Merkel talks with FDP parliamentary group leader Rainer Bruederle at the beginning of a special parliamentary group meeting of her free democratic FDP coalition partner on March 22, 2013 in Berlin.

Photo by KAY NIETFELD/AFP/Getty Images

John Cassidy says the David and Goliath story of Cyprus versus Germany has just one problem—the Germans are basically right.

I think that's true. The basic German view that the German taxpayer should bear less than 100% of the burden of rescuing the Cypriot banking system, and the creditors of the Cypriot banking system should bear more than 0% of the burden is very sensible. The decision of the Cyprus' president to organize a version of that principle that involved haircutting small depositors in order to protect the interests of Russian tax dodgers was perverse, but that's on him. If the Germans made a mistake here it was by being too deferential to President Anastasiades horribly flawed judgment. The Cypriots have been flailing aorund trying to find a solution that allows them to keep operating as an offshore banking sector, but the German government is correct to but zero (or even negative) weight on this as a policy priority.


The reason it's sometimes difficult to see that the Germans are right about Cyprus is that their political consensus is so wrong about Europe. Having the European Central Bank run an excessively German-focused monetary policy (indeed one that's arguably even too tight for Germany) is greatly exacerbating all these fiscal problems. Then Germany, as the party with the fiscal capacity, needs to pay some of the price at which point German voters lash out at peripheral citizens whose economies have been put in a situation where failure is inevitable. Indeed, contemplating the question of why Germany let a tiny offshore banking hub that had already lost de facto control over 40 percent of its small landmass into the eurozone in the first place underscores the generally low quality of thinking about how this whole operation is supposed to work.

But on Cyprus, they've got it right.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


War Stories

The Right Target

Why Obama’s airstrikes against ISIS may be more effective than people expect.

Why Is This Mother in Prison for Helping Her Daughter Get an Abortion?

The XX Factor
Sept. 23 2014 11:13 AM Why Is This Mother in Prison for Helping Her Daughter Get an Abortion?

Divestment Is Fine but Mostly Symbolic. There’s a Better Way for Universities to Fight Climate Change.

I Stand With Emma Watson on Women’s Rights

Even though I know I’m going to get flak for it.

It Is Very Stupid to Compare Hope Solo to Ray Rice

Building a Better Workplace

In Defense of HR

Startups and small businesses shouldn’t skip over a human resources department.

It’s Legal for Obama to Bomb Syria Because He Says It Is

How Ted Cruz and Scott Brown Misunderstand What It Means to Be an American Citizen

  News & Politics
War Stories
Sept. 23 2014 4:04 PM The Right Target Why Obama’s airstrikes against ISIS may be more effective than people expect.
Sept. 23 2014 2:08 PM Home Depot’s Former Lead Security Engineer Had a Legacy of Sabotage
Sept. 23 2014 1:57 PM Would a Second Sarkozy Presidency End Marriage Equality in France?
  Double X
The XX Factor
Sept. 23 2014 2:32 PM Politico Asks: Why Is Gabby Giffords So “Ruthless” on Gun Control?
  Slate Plus
Political Gabfest
Sept. 23 2014 3:04 PM Chicago Gabfest How to get your tickets before anyone else.
Brow Beat
Sept. 23 2014 4:09 PM Vince Vaughn Will Star in True Detective Season 2
Future Tense
Sept. 23 2014 1:50 PM Oh, the Futility! Frogs Try to Catch Worms off of an iPhone Video.
  Health & Science
Sept. 23 2014 1:38 PM Why Is Fall Red in America but Yellow in Europe? A possible explanation, 35 million years in the making.
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.