El almirante Padilla, euro version

There are few musical genres that are more enchanting than the vallenatos, particularly those composed by Rafael Escalona and interpreted by Carlos Vives.  Escalona’s songs deal with everyday life in the Carribean coastal region of Colombia which stretches from Cartagena to the Guajira peninsula.  One of my favorites is El Almirante Padilla in which Escalona laments the prospects of Tite Socarras, whose contraband business has been ruined by the intervention of the Colombian Navy and who may now be forced into a new, conventional, and dull professional life.
 

Y ahora padonde irá, y ahora padonde irá?
A ganarse la vida el Tite Socarras
Y ahora padonde irá, y ahora padonde irá?
A ganarse la vida sin contrabandear
 

Change came just as suddenly to Cyprus, long accustomed to serving as a regional hub for shipping, trading and financial services.  Cyprus, planted in the middle of the Eastern Mediterranean sea, governed over centuries by various invaders, had lately morphed into the most important offshore center for Russian investments.  An EU member, it was a more reputable tax haven for corporations than more exotic venues.  It also offered a low tax refuge for thousand of European individuals, particularly British retirees.
 

In sum, its business model grated on big European authorities as much as Socarras’ contraband grated on regional authorities, and while Brussels didn’t send a frigate to deal with the irritant, the end result was the same.
 

Pobre Tite, pobre Tite...
La armada le salió lista
Hombe! que ahora esta muy triste
Lo ha perdido todo por contrabandista
 

But high living Cyprus was not in default – although it had lost access to international debt markets – and while some of its banks were essentially bust, the majority wasn’t.  Ironically, its demise was caused not by real estate speculation or other home-made disaster, but by its banks’ excessive exposure to Greece.
 

Under such circumstances, for Brussels to force its government – and for the latter to agree - to freeze bank deposits and confiscate part of them, including those that were supposedly government guaranteed is incomprehensible; not to work on a plan with Russia which is the biggest contributor to the economy of Cyprus and has the most to lose is mystifying; to force on depositors a levy equivalent to 30% of Cyprus GDP is very difficult to justify; that the Cyprus government opted to target depositors rather than bank creditors and shareholders is mind-boggling.
 

It is clear to me that the EU wanted to do away with Cyprus as a tax haven; it is extraordinary that the government of Cyprus didn’t think it was committing economic and financial suicide.  But if Cyprus’ business is ruined, its tormentors’ is also severely damaged. 
 

Yes, the economy of Cyprus is unbalanced, with a financial sector many times the size of the GDP; but is it very different from that of Hong Kong, or for that matter that of Luxembourg? 
 

Yes, when people take business risks they should be ready to pay for their mistakes; but should they now expect the EU to arbitrarily change fundamental financial rules in areas such as: government deposit insurance, the order in which losses are allocated to creditors, applying quasi bankruptcy rules in the absence of same?
 

Yes, membership to an economic and financial union carries with it obligations, but should member countries and private economic agents expect a degree of assistance and solidarity in times of crisis or that stronger members will muscle in to extract deep competitive benefits as the price for a modicum of help?
 

Don’t get me wrong, Cyprus and its banks got themselves into trouble, but they were no more guilty than Ireland, Spain, Portugal, Italy and, perhaps, France tomorrow.  Unlike others, they were too small to resist the pressure (the only exception being Ireland on the topic of corporate income tax).  
 

The latest Cyprus crisis is a reminder that the eurozone problems are a long way from being solved.  It also shows that the future of the eurozone, in its current composition, is very bleak: there is too much disparity in economic size and strength, which makes policy harmonization quasi impossible; cultural differences are too wide; finally, the eurozone is the ultimate Rorschach test: some see in it the solution to political weaknesses, others see in it an economic multiplier, a few seek enhanced geopolitical security.  In the end, whatever they want from it, no member is willing to surrender economic and financial sovereignty to a common center.
 

The eurozone may well survive this latest challenge, but in no way should investors assume that this union is comforted.  Rather, I expect each member country to more closely look after its on interests - minimizing the allocation of resources to common strategies in order to safeguard its own future – and to look for potential fellow travelers so as to enhance its security and negotiating position in case of future troubles.
 

Unos pierden porque juegan
Escalona enamorando
Pero el Tite, pobrecito
Lo ha perdido todo por el contrabando.