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The tiny spark, that started the fire…

The tiny spark, that started the fire…

…that burned the house down

 

Perhaps you, like me, were taken by surprise at the unfolding news headlines about the meltdown of the Cypriot banking system over the last week with reports of a bail out deal including (temporary) nationalisation, by the ECB, of Cypriot bank deposits/reserves. No doubt things have been shaky in Cyprus for some time but I’ve followed the headlines and it didn’t get much media profile compared, for example, with Greece, Spain, Ireland, and Italy, to name a few. Given the political decision making paralysis in Brussels since 2008, it’s a little hard to avoid a view that the movers and shakers in the European Union have commenced a dark social experiment to investigate, on a relatively manageable scale (population of Cyprus is less that one million), what will happen if an EU member state goes bust and is expelled from the Union. Watching the news coverage unfold over the last few days it is alarming just how quickly and easily pundits and commentators were prepared to throw the Cypriots to the dogs, with comments like Nobody in Europe/Germany cares what happens to the Cypriot economy,, etc, being repeated on all of the mainstream news channels. Of course, if you’re a Cypriot with your life’s savings and assets tied up in the Cypriot financial system, or a foreign investor, of which there are many, you probably have a slightly different perspective.

 

Developing headlines do little to assuage the idea of a social experiment: –

 

EU leaders gamble in Cyprus bank bailout – Gavin Hewitt, BBC News

 

Cyprus told it can amend bailout, as key vote postponed – BBC News

 

…with political decision about economic policy which has far reaching social consequences seemingly being made ‘on-the-hoof’ and based on sentiment.

 

The “it doesn’t matter or affect us” message was quickly reinforced by UK political leaders who seamlessly stepped up to confirm that Armed forces and other Government personnel stationed in Cyprus would be protected from the impact of these issues. Clever move, if a little mercenary for most tastes.

 

If anyone is still under the impression that this won’t affect us, whoever, ‘US’ may be, you need to wake up and smell the coffee. As a positive, the other day I heard the UK Prime Minister, David Cameron, make a speech stating for the first time (first time I’ve heard him say it rather than first time he has said it in context of insolvency) that “You can’t borrow your way out of debt”. Of course he doesn’t really explain in layman’s terms what this means so that everybody can understand. Well, put simply it means that if you are already bankrupt you can’t borrow more money to repay the debts you already can’t afford to repay. If, like the UK, USA and significant others, you can still borrow money at an affordable interest rate, you have an economy that is still ticking along and generating sufficient tax revenues to enable you to balance your budget, and you have dominion over your central bank so you can you can print new money when things get a little tight, then you can get away with tightening your belts for twenty or thirty years. In contrast, if you are like Cyprus, Greece, and others, whose credit worthiness is declining to the extent that it has forced up borrowing costs to unaffordable levels and you can’t print new money, then it means something entirely different. That is why the Plutocrats in Brussels don’t know what to do, or how to avoid the potential melt down in social cohesion that is sure to follow – sooner or later. Perhaps the media dependent public has become immune Michael Myers rambling reports about American becoming a third world country, or reports of food lines and poverty in Greece, but by the sheer power of simple mathematics, this is coming to a street near you –
sooner or later.

 

Even in the relatively cosy UK where the UK£ Sterling still rules, public debt is rising, therefore the interst burden on that debt is rising which, based on current economic policy, means more austerity, which means further economic stagnation, which means lower receipts from tax revenues, which means more austerity, which means…

 

Spot the difference

 

If as a private individual you go bankrupt, your reputation and creditbility is seriously compromised, your assets are liquidated to offset the liabiilty of creditors, and you either re-schedule your debts over a longer repayment term with higher interest, or, you are denied access to any form of prime credit for many years. In Cyprus, bank deposits and reserves have been ‘temporarily’ nationalised, there is discussion of a new tax, and access to EU Central Bank funds is being restricted. It’s becoming harder and harder to see a positive outcome to the political economic stagnation because politicaisn are too afraid to tell their voters the unpalatable truth and set about finding a socially equitable solution to the problem.

 

Brussels is burning, it’s just that it is still the tiny spark, that started the fire, that burned down your house

 


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Nov - 18 - 2014

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About Nick Keca - as a management professional and organisational psychologist, I have created this site to share my research on subjects that are of interest to me. These primarily relate to Virtual Team Working in distributed matrix organisation structures. Since this is becoming the d...

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