Cyprus: Draghi resorts to monetary blockade

20 mars 2013

Kindly translated by Anne-Marie de Grazia and augmented by myself by comparison to the French text (Jacques Sapir, “Chypre: Draghi use du Blocus monétaire”)

The “monetary blockade” of Cyprus which has just been implemented by the ECB is an act of extraordinary gravity, the consequences of which must be carefully studied. Mario Draghi’s decision relates to two measures: first of all, the ECB no longer supplies the Central Bank of Cyprus in banknotes (a point which is not essential, as the cash reserves seem to be sizeable), second, it suspends transactions between Cypriot banks and the rest of the monetary system of the Eurozone. It is this latter measure which is the most grievous. On the one side, in the short term, it is a letal sentence for Cypriot banks (but also for businesses based in Cyprus) as from now on, they are no longer able to effect transactions with the rest of the Eurozone. On the other hand, it is tantamount to an economic “blockade,” that is, in the terms of international law, an “act of war.” This brings home the gravity of the decision taken by Mario Draghi. It must be added that it could well lend itself to contestation before international courts.

About the interruption of relations between Cypriot banks and the Eurozone, the argument invoked is “doubt” about the solvency of said banks. This is from all evidence a mere pretext, for “doubts” have been existing since last June. Everybody knows that the consequences of the “haircut” imposed on the private creditors of Greece have considerably weakened Cyprus’ banks. Mr. Jörg Asmussen, a European Central Bank executive member, was quoted on Wednesday 20th as saying that banks in Cyprus were not solvent without being quickly recapitalised, and the ECB could only provide liquidity to solvent banks. Indeed, but that would not be the task of the Banking Union so highly acclaimed last November ? The ECB did not react last June when it became clear that Cyprus banks were needing recapitalization and did not consider that the problem of the recapitalization of these banks was urgent. But it choses precisely to do so the day after the rejection by the Cypriot Parliament of the text of the agreement imposed on Cyprus by the Eurogroup and the Troïka. “We did not threaten [to cut off liquidity], but just pointed out as a matter of fact that we can provide emergency liquidity only to solvent banks and that the solvency of Cypriot banks cannot be assumed if an aid programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector,” Mr Asmussen told German weekly Die Zeit. One couldn’t be clearer and also more hypocrite. The message sent by Mario Draghi is the following: either you give in to what WE have decided, or you will suffer the consequences. This is not only a message, it’s an ultimatum. We measure here how much all the declarations about “consensus” and “unanimity” which are supposed to have presided over the decision of the Eurogroup are but masks fronting for what turns out to be a Diktat.

The statement delivered today, Wednesday 20th by the European Commission is also a masterpiece of double thinking and falsehood.


European Commission statement on Cyprus

Since the autumn of 2011, the possibility of assistance to Cyprus under a programme has been under discussion by the Cypriot authorities with the Commission. In July 2012, Cyprus formally asked for assistance under a programme. The need for assistance comes essentially from problems in the Cypriot banking sector which was unsustainably large for the size of the Cypriot economy. However, it was not possible to conclude negotiations on a programme with the previous Cypriot government.

Finally, last Saturday, in the Eurogroup, there was a unanimous agreement between the Member States including Cyprus on a programme that met the conditions fixed by the Member States, the ECB and the IMF, agreeing to lend EUR 10 bn to Cyprus. These conditions included reaching an acceptable level of debt sustainability and the corresponding financing parameters.

Whilst this programme did not in all its elements correspond to the Commission’s proposals and preferences, the Commission felt the duty to support it since the alternatives put forward were both more risky and less supportive to Cyprus’s economy.

This programme was not accepted by the Cypriot parliament.

It is now for the Cypriot authorities to present an alternative scenario respecting the debt sustainability criteria and corresponding financing parameters.

The Commission has done its utmost to assist Cyprus and to work for a Constructive and managed solution. However, decisions are taken by the Member States and no decision can be taken without their cooperation including Cyprus itself. The Commission continues to stand ready to facilitate solutions and is continuing contacts with Cyprus, the other Member States in the Eurogroup, the EU institutions and the IMF.

Regarding the one off levy on deposits BELOW 100.000 €: The Commission made it clear in the Eurogroup BEFORE the vote in the Cypriot parliament, that an alternative solution respecting the financing parameters would be acceptable, preferably without a levy on deposits below 100.000 €. The Cypriot authorities did not accept such an alternative scenario.


There were clearly no « unanimity » last Saturday and Cyprus, a sovereign State, was heavily pressured to accept the infamous bail-out plan. To call “unanimity” a decision forced on with a gun on your head is just but one exemple of Brussels’ novspeak.

But there is a message within the message. Mario Draghi has just now, with one gesture, exploded the fiction of a collective decision taken inside the ECB, for the President of the Central Bank of Cyprus has not given his agreement. Therefore, the rules have not even been respected. He thus revealed to the rest of the world that decisions are not taken by the Eurogroup or the European Union, but by himself, and by him alone, a senior official, appointed and not elected, irresponsible in the strongest political meaning of the term. The profoundly tyrannic nature of the institutions put in place within the European framework reveal themselves fully through this incident. The big discourses about cooperation and expertise give way to cold power struggle and inebriation with might.

The consequences of this decision will be dramatic, whatever happens. It is possible that the Cypriot Parliament will give in under pressure, but in so doing it will enter into an open crisis with its people. The tradition of political violence in Cyprus should not be underestimated. It is also possible that this crisis will be carried through to the bitter end and that Cyprus will find itself de facto expulsed from the Eurozone as a consequence of the decision of Mario Draghi. In this case, the precedent thus established will have profound consequences for all the others countries. We will get an inkling about the course events will take within the next 48h.


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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Ce carnet a pour fonction de rendre accessible mes travaux, qu’il s’agisse de working papers, de note de positionnement ou de notes brèves, portant sur l’économie européenne et sur la Russie. Il comprend des textes qui portent à la fois sur la crise de l’Euro et les origines de cette crise et sur l’économie de la Russie (depuis les problèmes macroéco- nomiques jusqu'à ceux de l'économie régionale, en passant par la finance).


This blog aims at the dissemination of some of my research works, including working papers, position papers or brief notes focusing either on the Russian economy (from macroeconomy to regional economics and finance) or on the European one, with a special attention to the Eurozone crisis.

Jacques Sapir

Jacques Sapir

Diplômé de l'IEPP en 1976, a soutenu un Doctorat de 3ème cycle sur l'organisation du travail en URSS entre 1920 et 1940 (EHESS, 1980) puis un Doctorat d'État en économie, consacré aux cycles d'investissements dans l'économie soviétique (Paris-X, 1986).
A enseigné la macroéconomie et l’économie financière à l'Université de Paris-X Nanterre de 1982 à 1990, et à l'ENSAE (1989-1996) avant d’entrer à l’ École des Hautes Études en Sciences Sociales en 1990. Il y est Directeur d’Études depuis 1996 et dirige le Centre d'Études des Modes d'Industrialisation (CEMI-EHESS). Il a aussi enseigné en Russie au Haut Collège d'Économie (1993-2000) et à l’Ecole d’Économie de Moscou depuis 2005.

Il dirige le groupe de recherche IRSES à la FMSH, et co-organise avec l'Institut de Prévision de l'Economie Nationale (IPEN-ASR) le séminaire Franco-Russe sur les problèmes financiers et monétaires du développement de la Russie.

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