Abid Ali

Abid Ali, Al Jazeera’s Business Editor, has covered global business for over a decade.

Cyprus Industry Minister Neoclis Sylikiotis (left) signed an offshore gas deal with Noble Energy in February [EPA]

I’ve often thought there is only so much the people of the eurozone’s crippled nations could take. But again and again, I think I underestimate the amount of pain people are willing to take on.

The latest harsh and unfair salvo from the eurozone, is just one of those extreme measures that you would think would break the camel’s back. The imposition of a tax on all deposits is an aggressive statement of intent from the eurozone’s creditor nations — take it or leave the euro club.

It’s the first time the eurozone has asked depositors to take the blame for banking failures, remarkable when Cypriot banks passed the European Central Bank’s stress tests. The eurozone feels it can continue to make the rules up as it goes along, different rules for different nations.

Draconian measures

Which begs the questions: What was Cyprus’ crime? Its low corporate tax rate, the fallout from Greece’s blighted economy, allowing Russian oligarch’s and alleged mafia money into the banking sector — these hardly merit penalising small depositors, 3,500 British service personnel and the like. The threshold for taxing deposits could have been set at 10,000 euros or maybe a little higher.

Would the same draconian measures have been meted out if the savers had been German?

According to the Wall Street Journal. International Monetary Fund Managing Director Christine Lagarde was looking for depositors above 100000 euros to pay up to 40 percent. But most galling was the final press release where Largade, stating she supports the solution that “appropriately allocates the burden sharing.” I’m still at a loss  to see how ordinary Cypriots contributed to this crisis.

Could this push more money out of peripheral nations? I think this is highly unlikely — as once again the average man on the street is not sophisticated in switching money from one nation to another. The poorest, weakest people — who had no stake in the current crisis — again are hit hardest.

What’s the purpose of the euro club if members won’t ride out this economic storm? It would appear that a small nation like Cyprus can be bullied. How? Eurozone negotiators had threatened to stop providing money to Cyprus’ failed banks — depositors would have lost a whole lot more than the 6-to-10 percent of their saving, ironically named ‘solidarity tax’.

But Cyprus is not a poor country, off its shores lies what looks like 60 trillion cubic feet of gas — it signed three exploration agreements with the likes of Total, Eni and Noble. True, Cyprus needs the money now, not in 2018/19 when the country plans to export gas. Right now, there are many sophisticated investors out there who would buy bonds from Cyprus — underwritten by gas.

Reuters estimated the value of Gas at $400 billion euros. That’s more than enough to bailout the country, it’s banks and put an end to a raid on deposits. 

And it would appear from this report. Russia’s Gazprom has offered to restructure Cypriot banks “in exchange for exploration rights.” The question is why President Nicos Anastasiades won’t consider it.

 At the time of writing late last night, it appears the President offered to share gas wealth with Cypriots in exchange for this one-off levy.