During my career in the City there have been moments, days or weeks, where it was possible to feel the mighty wind of change, that instant where things start happening, for good or bad. I remember the Japanese crisis, the Russian one (when they still didn’t know how to manage liquidity or they didn’t know to have some). I remember the Dot com crisis and the Credit Crunch, the perfect storm that led to the bankruptcy of more than 150 banks worldwide (Lehman aside). I remember very well how the financial tsunami impacted the same bank I work with, which led me to three years of work to restructure and bring it back to stability.
As in these days we face another potential Eurozone crisis, triggered by the technically right solution of finding monies ‘extra-moenia’, into the deep depositors’ pockets in Cyprus (as this may avoid further headaches on financial markets), I wonder if what is lacking into the ECB is some higher degree of lateral thinking. The Cyprus solution is a levy on a specific class of people and it has not the potential destructive impact, apart some cash less (safe the depositors below some threshold), of the austerity measures used in Ireland, Greece, Spain, Portugal and Italy. Unless those measures were slightly phoney, as they addressed the cost issue but not at all the efficiency one. The problem is not to cut spending, but to get more out of the same Euro, or be able to save one Euro to reinvest at least 50C on something else.
As old habit from my academic studies, I like to draw, to map what could be potential solutions for a problem, from deals, to new policies, to how to get from A to D. This morning, on a desert tube and in this kind of bitter winterish march, something downed on me. The ECB could get the money needed to save Cyprus, from…Cyprus’ depositors but not as vexing condition. What about a Bridge Loan, dear ECB? Or a 12 months overdraft to Cyprus economy.
This is my ‘taak!’ solution:
1. Cyprus Banks Depositors yield c. 4.5% for their money. ECB asks a loan from Cyprus banks (yes, it is absurd, but continue reading) and it pays something less than 4.5%. Negotiation will be then between banks and depositors, between a potentially irreversible crisis, Cyprus out of the Euro, with immediate devaluation of their deposits via redenomination in some new currency. And the depositors may accept something less than usual rate;
2. ECB then transfer funds obtained in such fashion to the Cyprus government together with the other money committed, in a renewable 12 months Bridge Loan to Funding. Cyprus will pay the difference between the Depositors rate in Cyprus (or the negotiated one) and the ECB Funding Rate (so ECB won’t be damned twice, only once);
3. Cyprus government will issue a ST Bond to repay the interest.
4. All the stakeholders have now one year of time to determine a more proper route to recovery and stability. Cyprus is a dynamic economy, in a crucial part of the world, still small, but with potential. With this form of Bridge, now Cyprus and ECB have one year of time to get their act together and think harder to new solutions.
I know, it may sound pretentious to have found the solution for Cyprus and the Eurozone, just sketching something on an A3 pad on the tube, but this is what proper finance should be. Using the right tools and think outside the usual way of thinking, question soutions but be determined on implementing them. And, yep, some better spin and communication style may help our beloved European Authorities.
When I was a child, I was dreaming over the map of the European Union my father brought me from Bruxelles. I was feeling this was the place I belonged to. Europe, its mountains, the seasides, French cathedrals and the tall towers of the steel plants of the Ruhr. This fascination has continued to grow during the years, when I spent one year working for the European Commission, discovering its bureaucratic governance, but also the amazing human and intellectual activity. Our parents have been pioneers of this brave European world and, frankly, who has the right to destroy this dream and all this potential of people, ideas, innovation, future, for such a small amount of money?
ECB, take this overdraft from Cyprus…just use the same wisdom of Toto’
VIDEO - Toto e Peppino De Filippo – Prestiti fra Fratelli
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PLEASE NOTE: These are my personal opinions and they do not represent the views of any organisation I work for. But, if you have comments, they are welcome. Just be nice, as this solution was not tested...yet