Cyprus' Politicians: More Dysfunctional Than the U.S. Congress

After tallying up healthy gains yesterday, stocks opened lower this morning, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average down 0.49% each at 10:10 a.m. EDT.

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The situation is increasingly muddled -- and dire --  in Cyprus as the government runs out of time and options. Banks have been ordered shut until Tuesday, there are long lines at ATMs, and the European Central Bank has given Cyprus until Monday before it suspends liquidity to its banks (which would precipitate a collapse of the banking system).

Originally, I had thought the troika (the IMF, the European Union, and the European Central Bank) was largely to blame for this fiasco by pushing a plan that included a levy of 6.75% on small depositors. However, it is becoming increasingly clear that the Cypriot government itself is unwilling to force large depositors (many of them Russian) to take the full hit for fear of irreparably damaging Cyprus' rather dubious offshore-banking franchise.


In desperation, the government is going hat in hand to the Russian state and drumming up harebrained schemes. Natural-gas-royalty-backed bonds or equity units, anyone? Just bear in mind that the gas reserves are uncertain, ownership rights are in dispute, and pumping would begin no earlier than 2019.

There are other indications that Cypriot leaders have forsaken rationality, such that one cannot now exclude the worst-case scenarios. Yesterday, the Eurogroup Working Group, which consists of deputy finance ministers or senior treasury officials from the 17 eurozone countries, as well as representatives from the European Central Bank and the European Commission, held a teleconference to discuss the situation. Cyprus didn't even bother to take part; according to Reuters, several participants understandably described the decision as "troubling."

It seems that Cypriot politicians may yet succeed where their Greek counterparts failed: forcing the EU to expel them from the eurozone. Hang on to your hats -- this could get interesting!

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The article Cyprus' Politicians: More Dysfunctional Than the U.S. Congress originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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