News of the 10-billion-euro bailout for Cyprus should not be cause for celebration. An ambiguous plan has been put forward to restructure the country's banking system and the effective expropriation of depositor funds will continue. Yet global stock markets have, as usual, risen on the news that the ECB has once again bailed out a bankrupt country from within its ranks. So the well-worn mold that has been created by the ECB and global markets continues. Europeans are rightly insecure about what comes next, as they should be given the precedent that has been set, and psychological 'stress fractures' are becoming even more pronounced throughout Europe.
Nowhere is this more the case than in Greece, where the main opposition party -- the Syriza Coalition -- which had praised the stance of the Cypriot parliament in rejecting the ECB's initial proposal last week, has clashed with the Greek government by supporting a similar taxation on savings of high net worth individuals. Syriza has opposed measures that have been put forward until now limiting pensions, salaries and other benefits, stating that taxation of wealthy companies and individuals is the only realistic and effective alternative to the harsh measures implemented thus far, which have failed to lift the Greek economy.
While the need for political sobriety has never been more imperative, populist rhetoric by the leftist Syriza Coalition, the liberal-conservative Independent Greeks (Anexarteti Hellines) party, and the extremist far-right Golden Dawn has never been more intense. Such populist political rhetoric is aggravating the angst among the Greek people, with the full compliance of the Greek media, which is whipping it into a frenzy. The government has maintained a more sober stance, with members of the political establishment stating that Cyprus is a special case, and while acknowledging that direct taxation is not part of the plan at the moment, it is in no position to offer a guarantee to the Greek people that if their situation should worsen, that some sort of levy or taxation on bank deposits will not be necessary.
The absence of certainty -- seemingly about anything regarding the future in Greece -- threatens to generate a new round of social unrest, which would only serve to further delay progress toward a meaningful economic recovery. The result is likely to be a rise in political extremism. With Golden Dawn already commonly acknowledged to be the third largest political party, it is not hard to imagine its popularity rising as the angst grows. Golden Dawn has already demonstrated a propensity for racial violence, consistent with its anti-immigrant platform, which has unfortunately resonated with a significant number of Greeks.
Although we have yet to see how events in Cyprus will manifest themselves in other parts of Europe, what seems clear, based on the Greek example, is that when economic distress gets bad enough, average Europeans succumb to highly nationalistic, far right political affiliations. Yet according to the Institute for Strategic Dialogue, the appeal of far right parties has been on the rise in many parts of Europe since the 1980s -- well before the Euro Crisis erupted. And a study by the Friedrich-Ebert-Stiftung Forum notes that radical right wing parties have surged since the onset of the Crisis in many of Europe's wealthiest countries, such as Austria, Norway, and Switzerland. So Europe is pre-disposed to take a turn to the right, particularly when economic times get tough.
In all likelihood, the net result of the latest chapter in the European saga is that average Europeans will have less confidence in their collective future and governments. The Cyprus deal only serves to underscore how fragile Europe remains and how vulnerable it is to reverting to nationalism and the far right political movements that go along with it. That is hardly cause for celebration. On the contrary, the continuation of 'business as usual' should be ringing the alarm bells. Loudly.
Daniel Wagner is CEO of Country Risk Solutions, a cross-border risk management firm based in Connecticut, and author of the book Managing Country Risk. Alexis Giannoulis is a CRS research analyst and a freelance diligence and political risk analyst.