Germany cannot duck its responsibility for the mismanagement of a eurozone system from which its own exporters have benefited greatly.

One can sympathise with German taxpayers who do not want to, as they see it, pay for a bail-out of Cyprus where the development of an overly large banking sector is threatening economic ruin. 

To placate them, German politicians with an eye on September elections pushed for ordinary Cypriot deposit holders to take some of the pain – the first time depositors have taken a hit in the eurozone banking crisis to date.

From a resolution point of view, it is a disastrous decision with the potential to spread panic across the entire eurozone. But does it make any ethical sense? The German argument is that countries that make economic mistakes must share in the pain of resolving them.

The Banker agrees with this notion but feels it should be equally applied. German politicians after all led their country into a monetary arrangement that was structurally flawed from the beginning. By distributing the Deutschemark, in proxy form as the euro, to a number of countries with poor monetary track records, Germany participated in a market illusion. The market assumed – wrongly as it turned out – that the euro in every country was now supported by German standards of fiscal rectitude and productivity gains. Meanwhile German industry benefited hugely by selling BMWs and Mercedes to Greeks and Portuguese who would not have been able to afford them priced in drachmas and escudos.

But now the game is up, the illusion is over and the search for someone to blame has started. The question is whether Cypriot depositors who elected a government that failed to regulate its banks are more culpable than German taxpayers whose politicians gave up monetary sovereignty and were reckless to the consequences? Maybe the likes of Germany’s finance minister Wolfgang Schäuble should spend less time blaming Cyprus for its broken model and more time apologising to German taxpayers for their country's involvement in a broken monetary arrangement.


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