Manipulation, mendacity and and madness as German, Madrid & Brussels sources admit Schäuble ‘must’ve known what would happen’
Despite German Finance Minister Wolfgang Schäuble’s earnest TV attempts yesterday to distance both himself and Berlin from the decision to include small Cyprus bank depositors in the bailout haircut, across the eurozone his protests were dismissed as completely untrue.
“Bullshit,” said the Slog’s Brussels mole this morning of Schäuble’s account, “He was the leading hawk in the meeting, demanding a 40% levy on larger depositors. In order to get that level down to 10%, the other Finmins were left with no choice but to include the smaller bank customers. Herr Schäuble could’ve opposed the shift to haircuts for smaller savers, but he sat there saying nothing. It’s a bare-facd lie”.
Schäuble said on German television that both Berlin and the IMF had sought to respect the EU’s deposit insurance program, which secures the savings of accounts with up to €100,000, but it had been the decision of the Cypriot government, the European Commission and the ECB to hit small-scale savers with the levy.
Says a well-placed Berlin source, “It is completely ridiculous for [Schäuble] to suggest that his was a dissenting vote on the question of small customers in Cyprus. In fact, he was from the start enthusiastic when Brussels came up with this ‘tax levy’ scheme as a way round the EU’s deposit guarantee. Every German MP will recognise this as classic Wolfgang Schäuble behaviour. The high esteem in which he is held by the German people is in no way reflected inside the Bundestag.”
Meanwhile, people on Cyprus – and in Greece – are reacting to the deal with anger and disgust, many of them preparing to queue for 36 hours if necessary to withdraw as much of their savings as possible from ATMs before the confiscation legislation is passed. Others are waiting to see if the bailout terms will be approved by the Cypriot parliament, and what happens when the country’s banks reopen after a national holiday. But as every hour passes, confused postponement seems increasingly to be in play. There is no way round this for innocent depositors without a drastic change in the proposal.
President Nicos Anastasiades had planned to hold the vote on Sunday, but postponed it by one day out of fear of it would be highly negative. But speaking to the media this morning, Cyprus Parliament speaker Yiannakis Omirou said the debate and vote would now be pushed back to Tuesday. He confirmed the intention by saying, “The parliament will convene at 6pm [4pm GMT] tomorrow, because there now exist amendments to the government legislation that is to be submitted. Consequently, it requires the necessary time in parliament, in the finance committee, to examine these new proposals.” Cypriot Officials were soon saying banks on the island might have to remain closed through Wednesday as well, and I understand that a Thrusday reopening has now been confirmed.
But there is far more on the go here than Cypriot politics: the German media are already having a field-day with dissension in the Merkel Coalition’s Bundestag ranks. And this isn’t just backbenchers making trouble: Foreign Minister Guido Westerwelle of the FDP has been openly criticising the deal among colleagues. Spiegel today reports that Westerwelle said at a party meeting on Sunday that “It would have been smarter to exempt small-scale savers” from the bank deposit tax. Scepticism in relation to Schäuble’s self-exoneration is running high within the CDU itself. Approval of the bailout in the Bundestag is now a long way from being a sure thing.
Chancellor Merkel has defended the bank deposit tax, but there is general agreement in German political circles that she pushed for the levy for domestic political reasons: she is determined to show the German electorate that foreigners getting bailouts “at Germany’s expense” must not be a feature of the future. “It’s a good step that certainly made our agreement to aid for Cyprus easier,” Merkel said of the tax. But this is hypocrisy of the highest order: Germany’s gains from a cheap euro vastly exceed anything she has been asked to contribute to ezone bailouts thus far.
Meanwhile, an a much broader canvas still, investors, traders and legislators remain in shock at the ‘solution’ chosen for Cyprus. “A further escalation of the crisis in tiny Cyprus may have global implications well beyond the immediate market reactions today” wrote Julian Jessop, chief global economist at Capital Economics, “the return of fears that one or more countries may actually leave the euro-zone altogether could lead to a sustained correction in the prices of riskier assets generally.” I rather fancy this is something of an understatement: any loss of faith in southern Europe at this point would sink both Italy and Spain in short order.
The euro is trading at 1.167 to the Pound (a loss of 1.22 cents) and, as widely predicted, fears of a bank run in Cyprus and elsewhere in the Eurozone sparked a mass sell-off on European stock markets so far today. But gold seems remarkably unfazed by events in the Mediterranean, and so far as I write the Dow Jones Industrials are at -0.41%, the Nasdaq Composite -0.68% and the S&P 500 -0.61%.
What we don’t know of course (and won’t for some time) is what’s happening on bank withdrawals. But unofficially, my Madrid source – who is rarely wrong – tells me “There is little sign in Spain of anything unusual in that regard….yet. Far more significant is a growing sense here that Germany is up to something big, perhaps even a decision to get the hell out of the euro. It simply isn’t credible to suggest that Schäuble didn’t know what effect this Cyprus deal would have. After the briefing against Draghi last week, I think the smart money is on a selfish move by Berlin, but Merkel won’t want to do that before the elections there – unless she wants to spike the anti-eurozone guns by getting out before it all goes tits up. You have to see this Cyprus haircut as an attempt by the Finance men in Berlin and Frankfurt to test the water. There’s no other logical explanation. But Merkel isn’t a risk-taker. To be frank, almost none of it makes sense right now”.
Notable today is that the German media led by FAZ (quelle surprise) are making hay with the fact that Greece has collected only $19 million of $13 billion owed by the country’s elite tax debtors – a redemption rate of under 0.002% percent. My view remains that, when Berlin starts looking in all directions of the compass for people to blame, we should all be concerned. Or – if we support UKip – highly delighted. Or – if we’re called Nigel Farage – very worried indeed that events are rapidly removing his raison d’etre in British politics.
But I will close by posing this question: is Mario Draghi on holiday?