'EU leaders are behaving like thieves'

By Jonathan Weil

Amid the global outrage over the European Union's plan to save Cyprus from bankruptcy by igniting a run on its banks (and perhaps, in the not-too-distant future, the banks of other European countries), it's worth taking a moment to reflect on what a horrible idea it was for Cyprus to join the euro area, and just how recent the move was.

Cyprus, long a bastion for money laundering and other offshore-banking abuses, switched its currency to the euro from the Cyprus pound in January 2008. A little more than five years later, the country already is taking a bailout. Cyprus has been an EU member since 2004. EU leaders are behaving like thieves by confiscating insured deposits from Cypriot banks' customers, while leaving the banks' senior bondholders whole. As disgraceful as this part of their bailout plan may be, the original sin was having Cyprus join the EU. Neither the EU nor Cyprus was ready for each other. If we were to think about the EU and Cyprus as a business combination, it would rank with Bank of America Corp's decision to buy Countrywide Financial Corp as one of the worst ever.

Recall that Iceland was far better able to withstand the collapse of its banking industry precisely because it hadn't adopted the euro and could devalue its own currency. Officially, the EU still classifies Iceland as a "candidate country" that's "on the road to EU membership," although it's hard to imagine how Iceland could do better by joining now. The people of Cyprus can only wish they hadn't been in such a rush.