Quo Vadis Europe?

Once the leader of the World and the birth place of the modern civilization, the continent of Europe is experiencing hard days.

Greece already bankrupted and the others like South Cyprus, Portugal, Spain, Italy and Hungary are in the queue.

Once Ireland was on the lead and everybody was quite sure that she would economically collapse ahead of the others. The firm precautionary measures taken by the Irish government seem now quite effective and Ireland now managed to keep her mouth above the water. How long she can keep up like this, nobody knows yet.

Greek Cyprus is doing very badly now a days.

Moody’s, the international credit rating company, has lowered its ratings on Cyprus's government debt to junk status because of the impact of the crisis in neighboring Greece on its banking system and also cut the country's rating on long-term bonds to Ba1 from Baa3 and on short-term debt to "Not Prime" from "Prime-3" with a negative outlook.

Standard & Poor's took a similar decision in the middle of January, lowering its notation by two notches to BB+ which is equivalent to a rating of Baa3 by Moody's. The third main agency Fitch Ratings downgraded Cyprus by one notch at the end of January to BBB- and now the Greek Cyprus bonds to BB+/RW’N/B’bo.

This means no more investment in South Cyprus and no more loans, nor long term neither short term.

The fragile market confidence in Cyprus, which has already led to a loss of access to international debt markets, is likely to continue, with a high potential for further shocks to funding conditions for the sovereign and the domestic banks.

Greece, the motherland of South Cyprus, is in the verge of a very important monetary decision, either to stay in Eurozone or get out of it.

Greece's political parties have failed to form a working coalition following voters' rejection earlier this month of austerity measures insisted upon by the European Union and the International Monetary Fund, so the Greeks will return to the polls in June.

The vote is being seen as a referendum on the euro. Syriza, the surprising socialist party, which came second in the recent election, is promising to freeze payments to creditors and renegotiate the terms of the bailout from the EU and IMF - terms that demand austerity measures to bring down Greece's debts.

They are strongly against the ruling of EU’s troika the Greece’s financial income and expenditures.

Troika had to take over the Ministry of finance as Greece was living beyond its means even before it joined the euro and even after it adopted the single currency, public spending soared and the debts as well.

And while money flowed out of the government's coffers, its income was hit by widespread tax evasion. So, after years of overspending, its budget deficit - the difference between spending and income - spiralled out of control.

Eurozone experts, financial wizards, bureaucrats and politicians for a very long time opposed the divorce request of Greece from Eurozone. But now after months of refusing to countenance the possibility of Greece leaving the euro, they all are slowly beginning to acknowledge there may be no option but to let the country go.

If Greece goes out, the Greek Cyprus sinks to the depths of the swamp, both financial and economic and later on politic.

Accordingly the negotiations in Cyprus issue will also divert into another track. Things will not go as the Greeks were dreaming for the past 62 years.

Prof. Dr. Ata ATUN

ata.atun@politikadergisi.com