The offshore countries of the European Union are gripped by fear. No one wants to repeat the fate of Cyprus but it seems that the European authorities are set to destroy the “business model” of the offshore economies. The small duchy of Luxembourg could be the next target on Angela Merkel’s hit list.
The Cypriot crisis was not a banking crisis per se, it was more than that. The opinions expressed by the German press and some of the German politicians are a good indicator of the mood in Berlin and judging by their aggressive attitude, the Cypriot bailout was also an attack on the “offshore economy” of the island. The Germans wanted to see the biggest Cypriot banks go bust and the got their wish. In similar situations in Greece, Italy or Spain, the ECB went to any length to keep the banks afloat and to create an illusion of solvency. Why did the ECB refuse to provide a similar lifeline for the Cypriot banks? Because the Cypriot banks were part of the “offshore economy” and the European authorities seized an opportunity to dismantle the Cypriot offshore. This view is shared by Luxembourg’s minister of foreign affairs, Jean Asselborn who criticized the German way of solving the Cypriot crisis. Mr. Asselborn accused the German leaders of creating a de facto hegemony within the European Union and castigated the German government for imposing its will on other countries. Moreover, the Luxembourgish official has blamed Germany for the dire state of Cyprus. “Germany does not have the right to decide on the business model for other countries in the EU. It must not be the case that under the cover of financially technical issues other countries are choked,” he told Reuters. It is not often that a European official accuses the German government of “choking” an entire country. It is unlikely that the representative of the Luxembourgish government would have taken the Cyprus situation so close to heart if he was sure that his own country was safe from experiencing the same fate as Cyprus. Even though the banks of Luxembourg are in better shape than the Cypriot banks, the country has an oversized and indebted financial sector. After the demise of the Cypriot offshore economy, Luxembourg is the only offshore jurisdiction left in the Eurozone, so the fears of the Luxembourgish officials are not without merit. It is probable that Jean Asselborn fears that the next country to be “choked” by the German-controlled eurocrats is Luxembourg but there is nothing he can do about it.
Categories: EU Erosion