Cyprus, power politics and banking union

The forced bail-in of depositors in Cyprus (a.k.a. taking away between 7 and 10 percent of depositors' savings) to fund part of the country's bailout is likely to be the first shot in the move toward a more consolidated banking system in the EU, but not the way that proponents of banking union envisaged it. In the Commission's plans, the market would be opened up for banks to merge and acquire one another until fewer were left standing and banks by nature served customers across Europe's national borders. But banks, regulators and garden variety depositors have kept within their national borders since the crisis began.

The Cyprus deal changes all that. Although the EU maintains that Cyprus is a special case, Germany maintains that the deal is to ensure that a restructuring of a country that goes bankrupt (even indirectly, to keep its banking sector afloat) costs German taxpayers nothing. That means it isn't an isolated event. Deposits in program countries are under direct threat, and there will be no warning, other than the prospect that a national government will need to reach out to the EU for help.

That means that depositors who have savings and wish to protect them will have to seek safe havens. That means the core countries of the northwestern European Union, at least within the EU. Capital will run. The choice between EU transfers coupled with harsh conditions to prop up the banks and allowing banks in the EU's periphery to be bought up by competitors will grow.

Germany's Chancellor, Angela Merkel, has a long history of playing power politics ruthlesslessly, identifying the competition's weakness, and waiting until the right moment to spring the trap. No one wanted a banking union that would open up a war between the EU's strongest states. But the program countries?

As Thucydides once said, the strong do what they can. And the weak do what they must.

European Parliament kills Budget Proposal

The European Parliament voted against the budget proposal for 2014-2020 yesterday, rejecting the cut in EU spending. Parliamentarians apparently did feel the pressure of national governments, or of national constituencies, by breaking from their political groups to vote on national lines, at least more than they usually do.

Although this event shows an increase in the EP's power and assertiveness, it also shows that it is far from independent of the Council's influence.

But the outcome is certainly different.

European Parliament to vote in secret on budget

The European Parliament has agreed to vote in secret on the multi-year EU budget known as the Multi-Annual Financial Framework. Proponents argue that it will prevent national governments from pressuring their members of parliament. At stake is the first budget reduction in EU history, secured by the governments of northern Europe, and Parliament's demands for an increase.

Sad, yes?

Greek politicians detach from reality

Greek politicians are apparently resisting demands for the liberalization of the economy and budget cuts, in the hopes that Europe will pay a bigger part of the bill. That is provided that Angela Merkel loses her upcoming election in Germany, and that the Social Democrats win power. So reports the German weekly Der Spiegel. Given that the IMF is now inclined to support an easier deal for programme countries, that strategy could pay off in theory, provided Greece is truly committed to reforms on a modified timeline.

What is more worrying is evidence that the Greek political class has no intention of reforming. Andreas Georgiou is the country's head statistician since 2010. Among other things, he is responsible for reporting the country's accounts, which include its government deficit. Georgiou was brought in as a well-repected statistician from the IMF after it became clear that the country's existing statistics people and the government had lied about the extent of the country's public sector deficit, and had been lying about it for years.

Threats of a lawsuit have been swirling since 2011, an attempt to intimidate Mr. Georgiou, and now the lawsuit has been made in criminal court, that he is working as part of a German conspiracy to undermine the country by inflating the deficit figures. What it shows is that Greece has not learned its lessons about honesty and integrity in public affairs, and that some bloodletting has to take place in Greek public administration. It appears to be retreating into a paranoid, hysterical effort to defend the right to lie, and to demand handouts for any reason. That may be coming from members of the statistics authority, but it doesn't happen without the compliance of the government and of the courts.

Europe has to respond, and target the Greek state directly. And it has to respond now.