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Euro and the implications of the ‘too big to fail’ doctrine

There is a view, prevalent amongst the supporters of the European Union in the countries of the South, that the Euro is too big to fail and that it will survive whatever the costs. Thus, the argument goes, a country in dire economic situation, like Cyprus, should hang in there until the eurocrisis is over.

I don’t dispute the fact that the Euro is too big to fail and that it’s survival will be facilitated, if needed to a great extend, by the Northern member-states who are willing to endure large financial loses for the maintenance of the common currency. The risks posed by the uncertainty and the unforeseeable effects of such a break-down are substantial enough to support the thesis that the richer countries will indeed support the common currency at all, or at least at great, costs.

What the pro-Europeans in countries like Cyprus don’t get, is that part of the costs that the Northern Europeans consider worth paying in order to save the Euro, are those resulting from letting countries like Cyprus go bankrupt.

The euro will survive at all costs, even at the expense of letting countries like Cyprus go bust, even if the European citizens in countries like Portugal, Italy, Greece and Cyprus are impoverished and barely survive. The old ideology of the ‘United Europe of Equals’ is long gone. The Euro will go down only when and only if the costs to save it overweigh the costs to let it go. The costs referred to here, are not the costs that everyone is going to bear, but rather the costs of the richer European member states, who by the way, have not lost a single penny from the crisis in the Eurozone.

Any discussion on whether a country should stay or leave the Eurozone must be done in light of the realisation that the ‘too big to fail’ doctrine is tied to the costs and benefits of the richer members of the Union. Moreover, the decision on whether to follow the ‘exit and default’ or the ‘stay and bankrupt gradually’ route, should be taken knowing that the Northern Europeans have not lost any money yet, bringing thus into the foreground further geopolitical considerations on whether a country (Cyprus in this case) can bear the political alienation that is to follow, or, to put it blatantly, whether Cyprus can afford politically to leave and whether it will be allowed to do so.

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