01/21/2014 08:56 am ET Updated Mar 23, 2014

Europe's Values in Retreat: With Cyprus and Greece Still Languishing Under the Troika's Heel

This is really a protest in retrospect -- my early resolution, too, for the New Year. Because the punishing new reality on the banking system in Cyprus, stubbornly imposed by the European Union in March last year, lives on unchallenged. Perhaps in time reaching even beyond. Sharing the blame, of course, were successive governments that had been amassing for years an unserviceable sovereign debt in Cyprus -- hardly with Aphrodite's blessing either. Both policies were bad mistakes.

Where, I wonder, is a European stabilization programme to help revive the agonizing south? Indeed, one with "multiple pilot projects" as was once advocated by the President of the European Commission, Mr José Manuel Barroso? Tapping into the entrepreneurial heritage and business acumen, in this instance of the worst hit Greek and Cypriot people? Designed to change collectively the commercial landscape unleashing the power of fresh confidence and hope to stimulate growth? It is just nowhere -- or maybe is it wasting away lost somewhere in the labyrinth of Brussels' bureaucracy?

This lack of innovative initiative has driven the people of Europe to accept living -- emotionally drained -- under a continuing economic crisis certainly not of their own making. But also the entire continent to fall well behind, stalling over six whole years of relentless spending cuts, while progress has been impressively shifting eastward led by India and China.

Immersed instead in "grand plans" for manipulative (often immoral) financial engineering, that merely reshape mountains of existing debt, Europe's leadership remains eerily at ease with the misery and despair it has spread this way to millions of people. Today, the eurozone can count nearly 30 million Europeans having lost their jobs as a matter of "standard policy" blindly committed to continuing austerity. Precipitous falls in salaries, cuts in pensions and higher taxation have practically decimated aggregate demand in the EU.

Cyprus and Greece, of course, epitomize this imposed march backwards. And even Moneyval and Deloitte this time were uncharacteristically involved. The European Council's auditors sent to Cyprus as part of last March's €10 billion bailout deal hadn't found anything wrong in their four previous evaluations since 1998. In their last check-up in 2011, they had in fact reported, "Cyprus did better to fight money-laundering than half the governments in the eurozone". So, what so suddenly was the fuss about? Other than unduly resenting conspicuous Russian wealth typically converging to a nearby prospering beautiful island? Or perhaps equally spitefully overreacting as the rest of us in Europe continued to struggle to make ends meet? Be this as it may, it was only ex post facto and rather late in the day in May that these same auditors curiously discovered "systemic deficiencies" in an already existing anti-money laundering enforcement regime they had previously so admired.

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Ever since, facile accusations of illegality continued to surface openly maligning a fully competitive banking system in Cyprus. But without specific, detailed or conclusive evidence. All along there had been no diligent investigation, no formal identification of illegal transactions and no documented or independent verification of actual sums allegedly "laundered". This insidious compulsion even led to the panicky, though perhaps timely in retrospect, sale of the country's gold reserves.

By late March 2013, however, something unrivalled in contemporary European affairs occurred. Government-sponsored larceny in Cyprus was hurriedly promoted to official policy. By the European Commission, the ECB and, mostly in a fractious partnership, with the International Monetary Fund --the trio of lenders known as the Troika. Transcending previous mistakes, this was the ultimate error of the three institutions "rescuing" Cyprus. Fantasizing from a position of say-so authority that they were entitled to confiscate private property in a tiny island in the Mediterranean by taxing at will the savings of ordinary depositors there (forgetting, incidentally, that the level of saving in any economy is a pivotal driving force ensuring sustainable investment and thus growth). Aggressively denouncing in addition the island's entire banking sector as having "grown too large" and become "one of the world's leading money-laundering havens."

A host of capital movement restrictions were rushed in as a result severely victimizing banks in Cyprus -- which basically only temporarily lacked liquidity that could have been easily forthcoming had the ECB chosen (as it might have) to be more accommodating as lender of last resort. They were all mostly suspect and onerous bank constraints that without exception run counter to the EU's treaty guarantee of capital freely flowing across borders.

To this day, the Cyprus imbroglio remains in a state of flux -- overloaded, as it is, with a profusion of punitive criticisms casually based on unresearched generalities. Which naturally does matter. But, significantly, what matters more here is that a new principle -- however perverse -- has by now become firmly established: that in the desperate struggle to keep the €/EU afloat anything goes. Including hazardous morality (tantamount to brazen lawlessness) that has been openly introduced in Cyprus and has left practically eviscerated the island's until recently vibrant economy. By any account this is a bad precedent. One not to be glossed over or, indeed, recklessly trivialized being in turn ignored as past history. Keeping alive anything so immoral, and likely to spread with the next opportunity, could seriously compromise our lives in Europe as a free market economy.

However, lack of confidence in Europe has been even more endemically aggravated by the prevailing "consensus" that we do not help or show genuine solidarity with our "troubled" fellow member states unless their citizens first are made to feel pain en masse -- to learn not to misbehave again. Hence, too, what has emerged as a near-permanent slump and stagnation in the eurozone that has established a sorry state of "benign" depression as the new normal for the European economy.

Greece in particular wholly reflects this social and economic evil, as Professor Dusan Sidjanski of the University of Geneva lucidly points out, The Federalist Debate, Papers on Federation, XXVI, Number 2, July 2013 New Series, pp. 16-20. Adding that "due to the intense interdependence resulting from European integration and contrary to the view of certain experts and politicians in the North, even a small country like Greece, cannot be quarantined or -- even less -- expelled from the monetary union. And if deprived of an act of European solidarity and further subjected to harsh austerity measures, this small European country can set off a chain of crisis spreading from one country to another, threatening to break the euro apart."

But any "acts of solidarity", already overdue, from Brussels aiming at this stage to extend a helping hand to Greece and Cyprus can only come in terms of its own trio of lenders absorbing themselves a realistic percentage of the sovereign debt of two of the smallest member states of the EU -- only worth about 2% of the eurozone's GNP -- and which, of course, might eventually amount to a mere pittance in the pockets of those in the business of bailouts.

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The fundamental question thus remains loud and clear, Why shouldn't Europe's executive Troika have long ago rolled up its sleeves and worked hard on what the President of the European Commission had once promised? Wouldn't a healthier and more efficient development have followed, both in Cyprus and in Greece before it, relying not on sterile financial engineering and economic repression. But rather helping to revive entrepreneurial activity creating more jobs with series of practical, profitable, carefully selected and effectively promoted major projects in sufficient numbers? Based on plenty of natural resources, an intelligent population, a pretty good infrastructure and a stunningly beautiful environment in these countries both optimally located geopolitically? Above all, too, not financed restrictively within the EU itself -- but rather worldwide.

Even in the aftermath of the deleterious effect EU policies had so far, this kind of bold initiative could still today effectively deliver the missing link: focusing more realistically on traditional industries such as tourism and shipping in both countries and further developing new energy industries to exploit rich natural gas reserves that lie just offshore.

With Greece (albeit largely academically) at the helm of Europe for the next six months, perhaps we can look forward to a rare opportunity for lessons to be learned all around. Particularly as we are nowadays about to reach in Europe the "ideal" environment for demonstrating once and for all that disciplinarian Germany and its ephemeral allies in the eurozone have gone too far.

Nicos E. Devletoglou, Emeritus Professor of Economics, University of Athens, is author of the books Academia in Anarchy: An Economic Diagnosis (Basic Books) written jointly with Nobel Prize Laureate in Economics James Buchanan; and Consumer Behaviour: An Experiment in Analytical Economics (Harper and Row).