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Beware eurozone wolves in sheep’s clothing, says adviser

Leading finance expert says stronger EU States stand to gain most

Financial turmoil in Cyprus should teach small States such as Malta to beware eurozone wolves in sheep’s clothing, a leading financial adviser has warned.

Paul Azzopardi, writing in The Times today (see his article on page 16), argues that stronger EU member states are among those who stand to gain most from giving Cypriot investors the jitters.

“What if some of those EU members dictating terms wanted, primarily, to scare Russian capital away from Cyprus so that this money found its way into their financial centres,” Mr Azzopardi wonders.

Even if this Machiavellian suggestion were untrue, the net effect of threatening to pull the rug from beneath depositors’ feet was the same: “Slowly but surely, money will migrate from countries considered to be in danger to others deemed safe, including financial centres outside the EU.”

Stronger countries, such as Germany and the US, would benefit by soaking up fleeing capital and buying companies in crisis-hit countries at bargain basement prices. But countries such as Malta, Mr Azzopardi writes, had an important lesson to learn.

“If you have anything worth taking, someone will do so. If not today, tomorrow: if not under one pretext, under another.”

That all eurozone member states, even those “who could be the next victims”, accepted the impositions made on Cyprus beggared belief, he adds.

The Government is insisting that Malta’s banking system is fiscally robust and cannot be compared to that of its Mediterranean neighbour. In a statement issued last Thursday, it defended its decision to back the EU’s Cypriot bailout terms saying they were part of an adjustment programme required of the country to “re-establish sound macro-economic and financial stability”.

Domestically-oriented banks were smaller, relative to GDP, than those in other eurozone countries, it added, and Malta ranked 13th out of 144 countries in a World Economic Forum survey of banking sector stability.

But when swimming with economic sharks, fiscal discipline alone would not cut it, Mr Azzopardi argues.

Instead, he advises, Malta would do well to diversify its economy, not throw all its eggs in one basket and ensure that its economic policy was pragmatic rather than being based on passing fads “such as the idea that manufacturing is dead”.

The total collapse of Cyprus’s banking system has left an entire nation in disarray, with the economy expected to shrink by over 15 per cent this year as ordinary Cypriots, at the mercy of the International Monetary Fund, European Central Bank, EU troika, scramble to get their savings out of banks and into mattresses.

Banking curbs have been imposed on Cypriot banks in an attempt to prevent massive flights of capital away from the country. But depositors in Cyprus had already begun to withdraw huge chunks of money before the bailout terms were announced. Cypriot Central Bank figures show that 18 per cent of all deposits held by residents of other eurozone countries were pulled out in February.

The Financial Times has reported that banks in other eurozone countries are aggressively chasing capital fleeing Cyprus, something that struck Mr Azzopardi as odd, given the supposedly suspect origins of much of that money.

“These banks must be very sure this Russian money is as clean as a whistle if they are willing to forgo their anti-money laundering procedures to grab it,” he writes.

Money flagged as suspect in Cyprus could suddenly re-emerge smelling of roses elsewhere in the eurozone. “It’s happened before,” Mr Azzopardi notes. “Heads, you smell. Tails, we get the money.”

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