The Closet Moderate: 2013

Tuesday, March 19, 2013

The Zero-State Solution

Europe's latest bailout news has reminded us of something we'd all forgotten: Cyprus is a member of the European Union.  Like many of those European states running a Mediterranean economy with a Baltic currency, they've fallen on hard times of late.  Specifically, their large banks held a lot of two things: Greek government debt and Russian tax evaders' deposits.  The failure of the former put the latter at risk, while also imperiling the deposits of your average Cypriot.

And so, rather than let a bank fail and have the bank's bondholders and shareholders lose money (never!) the Cypriot government nationalized one bank and bailed out some more.  That didn't solve the problem, it just moved the bad debt from the banks' balance sheet to the taxpayers'.  So, one bailout begat another.  The European Central Bank agreed to bail out the Cypriot government and the remaining independent banks.  [A fuller explanation is here, if you want more details.]

The cause of most of the stink was that the plan from the ECB called for a novel funding source: a "tax" on the deposits held by the banks.  Although EU citizens have deposit insurance similar to our American FDIC, it seemingly wouldn't apply here, leaving depositors to lose 6.75% of their insured savings and a larger percentage of any savings over the insurance limit (100,000).  As you'd expect, this didn't go over well, and the Cypriot parliament unanimously rejected it.

So, that's where we stand.  But beyond this current crisis, the entire island of Cyprus represents a slow-motion crisis that's a century old.  The British "leased" Cyprus from the Ottoman Turks in 1878 as payment for supporting the Turks against the Russians at the Congress of Berlin.  The island remained Ottoman territory, but the Brits ruled it.  When the two nations went to war in 1914, the British made it official and annexed Cyprus.  The population was mostly Greek, but a significant Turkish minority lived throughout the island, as the maps here suggest.  In the aftermath of the First World War, the Ottoman Empire fell and a Turkish Republic took its place, much reduced in size.  Areas of Thrace and Asia Minor that held mixed populations of Turks and Greeks saw years of conflict that only ended with a 1923 convention mandating population exchanges.  Turko-Greek relations were far from perfect thereafter, but irredentists on both sides no longer had cause to attempt annexations of their former enemies' territories.

Cyprus, immune from the wars under British ownership, did not suffer any of this strife.  But neither did they resolve any of the hatred or distrust between the two ethnic groups on the island.  By the 1950s, the Greek majority was agitating for independence and enosis, or union with Greece.  Many Turks wanted independence, too, but with a part of the island to be united with Turkey.  The British resisted both, but agreed in 1960 to free Cyprus as a separate state in which Turks and Greeks co-existed and governed together.

You can see where this is going.

By 1963, there was widespread ethnic violence as each group agitated for their own idea of reunification with the motherland.  In 1974, the Greek army engineered a coup and the Turkish army invaded to prevent the planned enosis.  The result was a de facto partition, with the Turkish army occupying the northern 40% of the island and a rump Greek Cypriot government holding the remaining 60%.  Most commentary on the latest crisis has not remarked on this fact, and the word "Cypriot" is used to refer to the just-over-half of the island governed by the Greek Cypriot government.  The Turkish part, which calls itself the Turkish Republic of Northern Cyprus, is recognized by no nation beyond its Turkish progenitor and, so far as I can tell, has no problem with its banks.

There have been several attempts since then to re-unify the island, including most recently a plan by former Secretary-General Kofi Annan that was accepted in a referendum in the Turkish half, but rejected in the Greek half.  Despite this unresolved territorial problem, the Greek half was admitted to the EU a week later, thus involving the whole of Europe in the First World War's remaining squabble.

While I admire the Turkish Cypriots' optimism and good faith, it was probably right that the Annan plan should fail.  It would have only resurrected the co-habitation of two peoples determined to separate; a Bosnia-Herzegovina with better climate. Neither of these peoples wanted a Republic of Cyprus; the only dispute was over which nation would annex them.  In 1960, this was a thorny problem, since the people were thoroughly intermingled, but the Turkish invasion, condemned as it was by idealists around the globe, merely enacted in 1974 what the rest of the former Ottoman empire sorted out in 1923.  The Annan referendum failed, but I'd bet a referendum for enosis would be quite successful.  A referendum in the north to join Turkey would likely succeed, too, especially since the Turks have filled their side of the island with settlers from the mainland over the last 38 years.

Would this solve the bailout problem?  Not really.  Matt Yglesias, in an article heavily derivative of my tweet to him yesterday (screenshot below), suggested that Turkey buy the north from Cyprus, thus getting the much needed cash to the [Greek] Cypriot government.  But that still leaves the rump Cyprus independent and broke, (though slightly less broke) with a bunch of banks propped up by Russian gangsters' deposits.  So here's a better idea, one that should've been done in Ireland, Greece, and America, too: let the banks go broke.  Deposit insurance will protect the small accounts (if you even consider 99,999 small).  People who had more than that may lose.  So may the banks' bondholders.  Why do you think the rates were so high?  That's risk, friends.  True capitalism requires the ability to fail, not just the ability to succeed.  The current "solution" has already triggered a bank-run; how much worse could this be?


Wednesday, January 16, 2013

XXVIII Amendment

Bless us readers, for we have sinned.  It's been one year since our last bloggings.

If any of you are still subscribed here, welcome back!  Let's get right to it:

Some events in the news this week got me thinking about our Constitution, and the parts that could be better.  One section, in particular, now seems antiquated and unnecessary and people have been talking about changing it for years.

No, not the guns.

The news story was about the presidential limousine sporting the "Taxation without Representation" slogan that adorns most plates in the District of Columbia.  It made me think about Washington and its unusual quasi-colonial status.

People in what became the District of Columbia had voting rights as citizens of Maryland and Virginia until 1801, when the District was incorporated.  In 1847, the federal government retroceded the Virginia portion of the District to that Commonwealth, so the voters their got back their rights as citizens of Virginia.  Citizens of what remained of the federal district did not.  In 1961, the states approved the Twenty-Third Amendment, which granted the citizens of Washington three electoral votes for President and Vice President,.  By that time, Congress had also given the District home rule, which guaranteed them some of the control over local affairs that a state has, though not all of it, and not in any way that couldn't be rescinded by Congress.

That still left Congressional representation.  Although Washington elects a delegate to the House of Representatives, she has no vote.  In 1978, Congress sought to remedy this problem by passing another amendment to the Constitution that would have treated the District as a state for purposes of representation in Congress.  It went over like a lead balloon, with only sixteen of the necessary thirty-eight states approving the amendment before time expired in 1985.  

Since then, several bills have been introduced in Congress that would admit Washington as a state, but none have come close to passage, and there is some doubt about whether it would even be constitutional without Maryland's permission.

Several other options have been proposed.  Retroceding the remaining District to Maryland is one solution  and Representative Regula of Ohio regularly proposed bills to that effect, but none were successful.  There was also some question as to whether Maryland would want it back.  Further, the Twenty-Third Amendment would be nonsensical without a federal district, and would need to be repealed.

So as long as a Constitutional amendment is required, here's my solution: let the people of Washington vote as though they were Marylanders in federal elections, but not in state elections.  That sounds like it violates all sorts of constitutional provisions, but it's an amendment, so we can mostly do whatever we want. I even wrote a draft of the text, if you're into that sort of thing:

§1. For the purpose of election of the President, Vice President, Senators, and Representatives, and for the purpose of apportionment of Representatives, the residents of the District constituting the seat of the government of the United States shall be treated as residents of the State from which that District shall have been ceded.
§2. The Twenty-Third Article of Amendment to the Constitution of the United States is hereby repealed.
§3.  This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of three-fourths of the States within seven years from the date of submission.
This gives everybody something.  To those who think the District shouldn't be a state: it still isn't.  For those Washingtonians who want voting representatives in both Houses of Congress: you got it.  For Democratic officeholders in Maryland: your re-election just got easier.  Democrats in Congress: you just got a new House member.  Republicans in Congress: yeah, they got an extra member, but you didn't give up any Senate seats, and Maryland's Senate seats have both been held by Democrats for the last twenty-six years, anyway.  Republicans in Maryland state government: yeah, you guys would kinda get screwed.  Sorry.