Cyprus is a fascinating island. In the centuries when the island was occupied by the Ottoman Empire the Sultans mostly left the Greek majority population to a semi-autonomous existence under the rule of an ethnarch - the acknowledged leader of an ethnic group - who in this case was the Archbishop of the Orthodox Church. By a complex pattern of historical accidents the Archbishopric had developed strong links with the Orthodox people of the Russian Empire, particularly as a significant landowner in the Ukraine. The Archbishop's land was seized by the Communists and fell under the appalling mismanagement of the collective farm system: but the lost wealth was lamented and remembered through subsequent generations of Cypriots.
Britain grabbed the sovereignty of Cyprus at the Congress of Berlin in 1878, when the weakened Ottoman Empire was compelled to surrender some territories in order to be allowed to keep the rest. Disraeli's government saw Cyprus as a useful base in the 'near east', close to the main Suez Canal route to India. Come the nineteen sixties, and despite the abandonment of the Empire, Britain was under pressure from the USA to maintain a presence in Cyprus because its location gave the island a unique advantage as a listening-post into communications throughout the Middle East and the Soviet Union. RAF bases on the island also provided a staging-post for transport into the region, not least to get emergency supplies from the US to Israel in times of war. Thus when Cyprus was granted independence in 1960 [a situation deeply compromised by the resistance of the Turkish minority to the majority wish for union with Greece] Britain retained the sovereignty over the key bases, which included the listening-posts: this remains the situation now, of huge value to the USA in relation to Iraq, Afghanistan and Iran.
Both before and after independence the strategic situation of Cyprus was of great interest to the USSR, which led to the KGB encouraging the development of a tourist trade from the communist Warsaw Pact countries; some of which was a cover for espionage. Among the 'tourists' and alongside the spies were the gangsters who were tolerated as 'fixers' in the dysfunctional planned economy, who began to make deposits in and investments through Cypriot. banks. The collapse of communism and the disgusting economic free-for-all that the Yeltsin regime could not control led to a massive expansion of the flow of funds into the familiar and highly accommodating Cypriot banks. Cyprus was a member of the EU, and this made the island an even more attractive money-moving location for the nouveau riche from the former USSR. Tiny Cyprus has become one of the largest investors in the Ukraine and in Russia: returning funds deposited by large and small oligarchs from those countries. The tradition of the Greek-speaking Cypriots in regarding Greece as their natural partner led to Cypriot Banks investing very heavily in Greek state bonds and bank deposits: which has given them a massive 'haircut' as the Greek assets have become worth much less.
It is of huge interest to the Russian, Ukrainian and Belorussian depositors in Cyprus that the negative impact of the Greek collapse should not wholly be exported to Cyprus, diminishing the value of bank deposits on the island. Many of the richest Russians are very keen indeed that Cyprus should remain in the eurozone, and large loans [at least three billion euros] have already been made to Cypriot institutions. There is at least a probability that official Russia will become the saviour of the Cypriot banking system, by providing a bail-out that will preserve the valuations in euros of immense private investments that represent a significant proportion of the plundered national income from the past two decades. This potential twist in the eurozone crisis is well worth watching.
Showing posts with label Cyprus. Show all posts
Showing posts with label Cyprus. Show all posts
Thursday, 21 June 2012
Monday, 11 June 2012
Dubloons for the Dons
Today's German press is highly critical of the fudge by which the eurozone is to bail out the Spanish banking system with a fund of up to 100 billion euros, by means to be clarified at an indeterminate cost to the currency union in general and to Germany in particular. In some editorials the term 'blackmail' is used frankly; in others the same analysis is more delicately expressed. While Greece and Ireland were implicitly deemed to be 'small enough to fail' Spain [like Goldman or Morgan] has been treated as 'too big to allow it to fail'. The eurozone could survive without Greece and Cyprus; provided there was no domino effect on Spain or Italy: but the impression over the past week became a conviction that if Spain was allowed to collapse financially the eurozone would be under terminal threat and the whole European project would massively be enfeebled.
All the eurozone finance ministers were complicit in the round of conference calls that took place at the end of last week. All their governments have become almost-unconditionally susceptible to being organised by Germany into a superstate. The details of the fusion, and of the way the inner union will articulate with the non-euro EU member states must be settled quickly; and Germany will predominate in all the discussions. The vulnerabilities of Italy and France are so significant that neither will have a veto on the integration process: and the influence of the eurorats in Brussels will be diminished in favour of the smooth suits in Frankfort.
The first few hours of trading in international markets after the announcement of the purported loan-guarantee to the Spanish banks demonstrated that supernational gamblers would only give credibility to the package when they can see the funds actually allocated by the Germans. The package was announced on trust: and it was not trusted. The eurozone expressed an intention to support Spanish banks, in circumstances where no fund had yet been established from which the guarantee could be converted into a series of payouts. 'The markets' on which the prices of Spanish [and Italian] bonds have fallen since the 'rescue' was announced are only in a tiny proportion driven by real-world firms [such as pension funds] that hold such bonds as part of their long-term investment portfolios. The majority of recent purchases and sales of state bonds and of bonds issued by south European banks are speculative gambles: the 'value' of the bonds is utterly irrelevant to the gamblers, who are interested only in making a gain by rightly predicting a rise or a fall in the price of the euro in terms of dollars, sterling, yen or other currencies. The market reaction strengthens the Germans' hand: the Spanish deal - and any subsequent deal for Italy or France - will only have credibility if Germany actually places resources in the appropriate backing funds. Chancellor Merkel faces elections: she and her party will be annihilated if they are perceived to have sold the German taxpayer short. Serious negotiations must now begin, with the collapse of the euro as the imminent threat. The eurorats will posture around the periphery, but the power unconditionally rests between Berlin and Frankfort; the modern and the medieval capitals of the German Reich.
Britain has blundered into the position where most of the electorate want the UK to be separated from this whole mess: so it can't be all bad!
All the eurozone finance ministers were complicit in the round of conference calls that took place at the end of last week. All their governments have become almost-unconditionally susceptible to being organised by Germany into a superstate. The details of the fusion, and of the way the inner union will articulate with the non-euro EU member states must be settled quickly; and Germany will predominate in all the discussions. The vulnerabilities of Italy and France are so significant that neither will have a veto on the integration process: and the influence of the eurorats in Brussels will be diminished in favour of the smooth suits in Frankfort.
The first few hours of trading in international markets after the announcement of the purported loan-guarantee to the Spanish banks demonstrated that supernational gamblers would only give credibility to the package when they can see the funds actually allocated by the Germans. The package was announced on trust: and it was not trusted. The eurozone expressed an intention to support Spanish banks, in circumstances where no fund had yet been established from which the guarantee could be converted into a series of payouts. 'The markets' on which the prices of Spanish [and Italian] bonds have fallen since the 'rescue' was announced are only in a tiny proportion driven by real-world firms [such as pension funds] that hold such bonds as part of their long-term investment portfolios. The majority of recent purchases and sales of state bonds and of bonds issued by south European banks are speculative gambles: the 'value' of the bonds is utterly irrelevant to the gamblers, who are interested only in making a gain by rightly predicting a rise or a fall in the price of the euro in terms of dollars, sterling, yen or other currencies. The market reaction strengthens the Germans' hand: the Spanish deal - and any subsequent deal for Italy or France - will only have credibility if Germany actually places resources in the appropriate backing funds. Chancellor Merkel faces elections: she and her party will be annihilated if they are perceived to have sold the German taxpayer short. Serious negotiations must now begin, with the collapse of the euro as the imminent threat. The eurorats will posture around the periphery, but the power unconditionally rests between Berlin and Frankfort; the modern and the medieval capitals of the German Reich.
Britain has blundered into the position where most of the electorate want the UK to be separated from this whole mess: so it can't be all bad!
Friday, 18 May 2012
Building the Empire
Oliver Cromwell's ruthlessness was well recognised after his intervention in Scotland, but his subsequent activities in Ireland became legendary even in that age of brutal religious warfare; they were to be cited for centuries after the massacres that he unleashed in captured cities. The subsequent settlement of retired republican soldiers on captured farmland in Ulster, especially in County Down, implanted a population that was to be implacably unionist right through to the twenty-first century. This was directed to keeping the second largest of the British Isles under a London-based government, which had been the situation for four centuries. Ireland provided examples that were adopted - when deemed to be appropriate - by those who began to build the landward extensions of the maritime empire. Systematic settlement of Britons beyond Ireland began with both Puritan and Catholic 'plantations' on the east coast of North America and was extended by the capture of Jamaica in 1655. The collapse of the English Republic after Cromwell's death [in September 1658] allowed privateers [licensed pirates] to use Jamaica as their base until the most successful privateer, 'Captain' Henry Morgan, was appointed as Charles II's Governor of the island - duly honoured with a knighthood - and by bribery and by force he established a form of governance which enabled the colony rapidly to became rich on the basis of slave labour producing sugar.
Elizabethan sea captains had traded slaves from Africa to the Spanish and Portugese colonists: this appalling trade continued under the Stuart monarchy and the puritan Republic, and after 1660 the restored monarchy facilitated the traffic in humans to Britain's own plantations in the southern colonies in North America as well as to the the Caribbean islands. Colleges, cathedrals and a huge range of commercial organisations invested in slave farming for sugar and cotton, in particular. Marketing and transporting colonial produce to both UK and European markets became massively profitable activities. The ports of London, Bristol and Liverpool grew massively on the basis of colonial trade, which was primarily with the Americas but was also expanding in Asia. Charles II's Queen, Katherine of Breganza, brought as items of her dowry Tangier and Bombay: while Tangier was soon lost, Bombay was the basis for British expansion in India which created an empire [or Raj] which was surrendered only in 1947. Islands were occupied around the world to provide safe havens where British ships could take on water and fresh meat and repair storm damage, which could be developed as coaling stations when steam power was introduced in the nineteenth century. Portuguese, Dutch and British trading posts were established on the coast of Africa, originally as places where slaves could be acquired from indigenous rulers. Gibraltar [an isolated peninsula of the European mainland, which the British have treated as 'virtually an island']] was ceded by Spain under the Treaty of Utrecht [1713] after having been occupied in 1704; Malta was occupied during the Napoleonic War and ceded officially to Britain under the Treaty of Vienna that settled frontiers after the final defeat of Napoleon, and Cyprus was grabbed by Britain from the declining Ottoman Empire under the Treaty of Berlin in 1878. Britain retained 'sovereign bases' in Cyprus when the former colony was granted its independence and these have had huge importance for the USA as well as the UK as 'listening posts' in the middle east and the former USSR. Britain's scurrilous expulsion of the native people of Diego Garcia in the Indian Ocean in order for it to become an 'unsinkable aircraft carrier' for the United States [nominally under British sovereignty] and a very similar fate has befallen Ascension Island which is central to the Atlantic.
Now that all the large colonies, protectorates and other 'dominions' have been granted independence, the left-over islands alone remain from the great imperial past. Successive governments, before the present one, have largely regarded the remaining 'dependencies' as a costly nuisance. Such blind stupidity is embarrassing.
The islands [and Gibraltar] remain: they can be engaged to make Britain a leading world power yet again.
Elizabethan sea captains had traded slaves from Africa to the Spanish and Portugese colonists: this appalling trade continued under the Stuart monarchy and the puritan Republic, and after 1660 the restored monarchy facilitated the traffic in humans to Britain's own plantations in the southern colonies in North America as well as to the the Caribbean islands. Colleges, cathedrals and a huge range of commercial organisations invested in slave farming for sugar and cotton, in particular. Marketing and transporting colonial produce to both UK and European markets became massively profitable activities. The ports of London, Bristol and Liverpool grew massively on the basis of colonial trade, which was primarily with the Americas but was also expanding in Asia. Charles II's Queen, Katherine of Breganza, brought as items of her dowry Tangier and Bombay: while Tangier was soon lost, Bombay was the basis for British expansion in India which created an empire [or Raj] which was surrendered only in 1947. Islands were occupied around the world to provide safe havens where British ships could take on water and fresh meat and repair storm damage, which could be developed as coaling stations when steam power was introduced in the nineteenth century. Portuguese, Dutch and British trading posts were established on the coast of Africa, originally as places where slaves could be acquired from indigenous rulers. Gibraltar [an isolated peninsula of the European mainland, which the British have treated as 'virtually an island']] was ceded by Spain under the Treaty of Utrecht [1713] after having been occupied in 1704; Malta was occupied during the Napoleonic War and ceded officially to Britain under the Treaty of Vienna that settled frontiers after the final defeat of Napoleon, and Cyprus was grabbed by Britain from the declining Ottoman Empire under the Treaty of Berlin in 1878. Britain retained 'sovereign bases' in Cyprus when the former colony was granted its independence and these have had huge importance for the USA as well as the UK as 'listening posts' in the middle east and the former USSR. Britain's scurrilous expulsion of the native people of Diego Garcia in the Indian Ocean in order for it to become an 'unsinkable aircraft carrier' for the United States [nominally under British sovereignty] and a very similar fate has befallen Ascension Island which is central to the Atlantic.
Now that all the large colonies, protectorates and other 'dominions' have been granted independence, the left-over islands alone remain from the great imperial past. Successive governments, before the present one, have largely regarded the remaining 'dependencies' as a costly nuisance. Such blind stupidity is embarrassing.
The islands [and Gibraltar] remain: they can be engaged to make Britain a leading world power yet again.
Saturday, 14 January 2012
Rating the Eurozone - Again!
One of the most depressing items in the British press this past week was a full-page advert from 'the Actuarial profession' announcing the huge number of people who have qualified by examination to join the ranks of those who have ruined private pensions and now threaten the future viability of general insurance. Actuaries can also find employment in Rating Agencies, those widely-despised institutions that did so much harm to the global financial system when they allowed their greed for fees to outrun even vestigial common sense.
Despite the bad publicity that they have received - and largely thanks to actuaries' nostalgic determination to give undue weight to Agency ratings [because there is no alternative to what they used to purport to do] - the Agencies continue to publish ratings; and often this has an impact that is disproportionate to its validity. But in some cases Agencies, desperate to rehabilitate their reputation and to rebuild their revenues, explain a rating change in terms that display insight and good observation of reality. Yesterday's downgrading of nine countries' sovereign debt was a fair commentary on the state of those economies in the context of the eurozone.
Cyprus is in some ways a Greek dependency and though its economic situation, notably the state debt as a percentage of Gross National Product, is less stressed than that of Greece the interdependency of the two economies [and especially of Cypriot banks with Greek banks] makes the smaller country's finances very weak because Greece is chronically weak. So it is appropriate that Cyprus joins Italy, Portugal and Spain in being down-rated by two notches on the Standard and Poor's scale. This downgrade, the most recent of a significant series, reduces Portuguese state bonds to 'junk' status. Italy, Spain and Portugal have recently had new governments which are pledged to enforce whatever packages of restrictive measures are necessary to secure continuing support from the eurozone and from the IMF [the International Monetary Fund]. It is utterly impossible to predict how far the populations of these countries will tolerate the high taxation and the worsening standard of living that will have to continue for an indefinite future period if the deficits are to be eliminated.
Slovakia, Slovenia, Ireland and Austria join France in having their state debt de-rated by one grade. Austria and the two states that were parts of Hungary for centuries before 1919, Slovenia and Slovakia, have deep economic ties with Hungary which is outside the eurozone and has recently conducted policies that are on [and sometimes beyond] the boundaries of democratic acceptability. Austrian Banks, in particular, have lent heavily to Hungarian banks - borrowing that was largely used to fuel a housing bubble - and the chances of repayment in full have become negligible. So downgrading those three countries' state credit ratings is entirely reasonable. Ireland is managing the macroeconomics of crisis very well, but the depression is becoming more intense, emigration is rising and the banks [which are mostly state-owned] are having to accept larger and larger losses on bad loans that were made in the years when Ireland claimed the nickname of The Celtic Tiger.
France is the greatest casualty of the downgrading, and the most appropriate. President Sarkozy has tried hard to persuade Chancellor Merkel to use Germany's accumulated reserves to support the debts of all the governments whose countries are in the eurozone. Aware that German voters deplore the idea of covering feckless southern peoples for their foolish economic management, and for lying abut the liabilities that they have accumulated, Markel has tried to cap the commitment that Germany would make to bail-out funds. At the same time, Germany and France have led the eurozone [as such] in demanding that the most indebted states in the system must adopt strict austerity. Looking at this scene, Standard and Poor's analysts have built forward projections for what might be the economic future for each eurozone country: and the result is that the countries that are being compelled to restrict their state spending while maximising taxation cannot be expected to grow their national economies fast enough to begin to generate earnings that will enable them both to carry on servicing their debts and to invest in new industries, in high technology and in innovative business structures. The more successfully the austerity measures bite into the economic system, the less resilient and dynamic the economies of the chronic debtor states will be.
The only means open to a Rating Agency to issue a practical warning in support of such an observation is to downgrade their rating of the debt issued by the countries concerned. That makes it more expensive for them to borrow money, so it reduces the chances of the government adopting Keynesian methods to revitalise the economy. It makes a self-fulfilling prophesy of the Agency analysis: and the predicted negative outcome has a high probability of eventuation. Lower [or negative] growth in much of Europe will further imperil the collective viability of the eurozone: and it could possibly undermine the European Union as such. The very policies that are being imposed on eurozone countries in the cause of responsibility and stability may well cause greater chaos, despair and socio-economic dissolution than has yet been imagined. In this context, S&P's small adjustment to sovereign debt ratings may well be a harbinger of a very nasty future. In earlier centuries Europeans of all traditions accepted the validity of cautionary tales like the Prodigal Son, of axioms like 'waste not, want not' and of adages such as 'you will reap what you have sown'. In the last third of the twentieth century clever fools thought that they could defy both traditional morality and simple arithmetic. They were wrong, and the price that future generations might have to pay for that folly remains beyond computation.
In short-term practical affairs, what will be the impact of Standard and Poor's downgrading of all those countries' state debts?
For the British, it is a hopeful sign that the Agencies continue to shrug off demands from some downgraded eurozone states for Britain's debt also to be downgraded; but that happy state will not continue unless the maintenance of austerity in state spending by the UK is balanced by economic growth and a marked reduction in the balance of payments deficit. Positive growth of the UK economy has to be seen by the middle of 2013 - at the latest - or downgrading will be inescapable.
Meanwhile, the eviction of Greece from the euro is unavoidable: the key question is, whether France and Germany choose to continue supporting Greek governments until the whole eurozone collapses, or whether Greece will be expelled [or allowed to slink away] soon, enabling the rest of the system to avoid a general implosion. If Greece is put out of the system quickly, the euro can probably survive as the common currency in sixteen enfeebled countries; but even then the subsequent three years will be a precarious period. Standard and Poor's may have the French spitting venom in their direction just now, but they gain brownie points for being of sound judgement on his point, this time round.
Despite the bad publicity that they have received - and largely thanks to actuaries' nostalgic determination to give undue weight to Agency ratings [because there is no alternative to what they used to purport to do] - the Agencies continue to publish ratings; and often this has an impact that is disproportionate to its validity. But in some cases Agencies, desperate to rehabilitate their reputation and to rebuild their revenues, explain a rating change in terms that display insight and good observation of reality. Yesterday's downgrading of nine countries' sovereign debt was a fair commentary on the state of those economies in the context of the eurozone.
Cyprus is in some ways a Greek dependency and though its economic situation, notably the state debt as a percentage of Gross National Product, is less stressed than that of Greece the interdependency of the two economies [and especially of Cypriot banks with Greek banks] makes the smaller country's finances very weak because Greece is chronically weak. So it is appropriate that Cyprus joins Italy, Portugal and Spain in being down-rated by two notches on the Standard and Poor's scale. This downgrade, the most recent of a significant series, reduces Portuguese state bonds to 'junk' status. Italy, Spain and Portugal have recently had new governments which are pledged to enforce whatever packages of restrictive measures are necessary to secure continuing support from the eurozone and from the IMF [the International Monetary Fund]. It is utterly impossible to predict how far the populations of these countries will tolerate the high taxation and the worsening standard of living that will have to continue for an indefinite future period if the deficits are to be eliminated.
Slovakia, Slovenia, Ireland and Austria join France in having their state debt de-rated by one grade. Austria and the two states that were parts of Hungary for centuries before 1919, Slovenia and Slovakia, have deep economic ties with Hungary which is outside the eurozone and has recently conducted policies that are on [and sometimes beyond] the boundaries of democratic acceptability. Austrian Banks, in particular, have lent heavily to Hungarian banks - borrowing that was largely used to fuel a housing bubble - and the chances of repayment in full have become negligible. So downgrading those three countries' state credit ratings is entirely reasonable. Ireland is managing the macroeconomics of crisis very well, but the depression is becoming more intense, emigration is rising and the banks [which are mostly state-owned] are having to accept larger and larger losses on bad loans that were made in the years when Ireland claimed the nickname of The Celtic Tiger.
France is the greatest casualty of the downgrading, and the most appropriate. President Sarkozy has tried hard to persuade Chancellor Merkel to use Germany's accumulated reserves to support the debts of all the governments whose countries are in the eurozone. Aware that German voters deplore the idea of covering feckless southern peoples for their foolish economic management, and for lying abut the liabilities that they have accumulated, Markel has tried to cap the commitment that Germany would make to bail-out funds. At the same time, Germany and France have led the eurozone [as such] in demanding that the most indebted states in the system must adopt strict austerity. Looking at this scene, Standard and Poor's analysts have built forward projections for what might be the economic future for each eurozone country: and the result is that the countries that are being compelled to restrict their state spending while maximising taxation cannot be expected to grow their national economies fast enough to begin to generate earnings that will enable them both to carry on servicing their debts and to invest in new industries, in high technology and in innovative business structures. The more successfully the austerity measures bite into the economic system, the less resilient and dynamic the economies of the chronic debtor states will be.
The only means open to a Rating Agency to issue a practical warning in support of such an observation is to downgrade their rating of the debt issued by the countries concerned. That makes it more expensive for them to borrow money, so it reduces the chances of the government adopting Keynesian methods to revitalise the economy. It makes a self-fulfilling prophesy of the Agency analysis: and the predicted negative outcome has a high probability of eventuation. Lower [or negative] growth in much of Europe will further imperil the collective viability of the eurozone: and it could possibly undermine the European Union as such. The very policies that are being imposed on eurozone countries in the cause of responsibility and stability may well cause greater chaos, despair and socio-economic dissolution than has yet been imagined. In this context, S&P's small adjustment to sovereign debt ratings may well be a harbinger of a very nasty future. In earlier centuries Europeans of all traditions accepted the validity of cautionary tales like the Prodigal Son, of axioms like 'waste not, want not' and of adages such as 'you will reap what you have sown'. In the last third of the twentieth century clever fools thought that they could defy both traditional morality and simple arithmetic. They were wrong, and the price that future generations might have to pay for that folly remains beyond computation.
In short-term practical affairs, what will be the impact of Standard and Poor's downgrading of all those countries' state debts?
For the British, it is a hopeful sign that the Agencies continue to shrug off demands from some downgraded eurozone states for Britain's debt also to be downgraded; but that happy state will not continue unless the maintenance of austerity in state spending by the UK is balanced by economic growth and a marked reduction in the balance of payments deficit. Positive growth of the UK economy has to be seen by the middle of 2013 - at the latest - or downgrading will be inescapable.
Meanwhile, the eviction of Greece from the euro is unavoidable: the key question is, whether France and Germany choose to continue supporting Greek governments until the whole eurozone collapses, or whether Greece will be expelled [or allowed to slink away] soon, enabling the rest of the system to avoid a general implosion. If Greece is put out of the system quickly, the euro can probably survive as the common currency in sixteen enfeebled countries; but even then the subsequent three years will be a precarious period. Standard and Poor's may have the French spitting venom in their direction just now, but they gain brownie points for being of sound judgement on his point, this time round.
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