Cyprus and its banks: killing a chicken to frighten a tiger

The Panorama Coffee Shop is situated in Keilor Road, Niddrie, a fairly typical shopping strip in Melbourne's suburbs. The coffee shop is run by a hardworking Greek woman from Cyprus named Soula. It has great cakes, good coffee but it is very hard work. Last year, a branch of the Bank of Cyprus opened down the street. I cautioned Soula against depositing her hard earned money there. Late last year, the Bank Of Cyprus's Australian operation was taken over by the Bendigo and Adelaide Bank and rebadged.

You didn't exactly have to be a financial genius to realise that Cyprus's banking system, based on shonky Russian depositors, was not long for this world. Cyprus is also a safe haven for Israelis who don't want the government of the Jewish state taking too close an interest in their affairs.

Now, what is the difference between Switzerland, which runs a very similar operation, and Cyprus? The difference is Switzerland is run by Swiss and Cyprus is run by Cypriots, or to be more exact, Greeks.

The EU has chopped off the head of the Cyprus chicken to warn other bigger operators that neither the IMF or the EU will bail them out if they get into trouble. Moreover, they are getting everything they deserve.  The Cyprus banking system simply grew too big for the underlying economy. The government of Cyprus couldn't bail out the Cypriot banking system even if it wanted to. The banking system was simply too big to be saved. The same applies to other European states -- Switzerland, Luxembourg among other so called "tax havens" that have no economic base apart from manipulating the international tax system. This could even be said of the City of London.  EU countries such as France and Germany regard the Cyprus crisis as a chance to get revenge on tax havens that have been siphoning off their tax revenues.

Should Cyprus have ever been part of  the "European project?" Probably not. But the EU is like the Hotel California: you can't leave, you can only check out. Or as they used to say in Vietnam about "hearts and minds" operations -- "if you have them by the balls, their hearts and minds will surely follow." And Angela Merkel has Cyprus by the balls.

Do I feel sorry for the Cypriots? Not at all. Notwithstanding the fact that I have little say in the matter, I do pay my taxes. My surplus capital is invested in stocks listed on the Australian Stock Exchange, not sitting in a tax haven bank account, although I could quite easily do this. As for the Russians who stand to lose a substantial part of their deposits, I do, strangely enough, have a degree of sympathy. If someone wants to keep some their hard earned money out of the hands of Putin's kleptocrat Mafia state, I think that is simply being prudent.

Just to clarify my headline, the phrase to "kill a chicken to frighten a tiger (or sometimes, monkey)" is an ancient Chinese saying about demonstrating to the relevant party the desirability of following a certain course of action by inflicting harm on a lesser, usually related, victim.

Cyprus is a small, pathetic victim -- a prime example of someone getting in over their head. The Cypriots will be suffering from their naivete for a long, long time.