The letter which forms the main body of this post was first written on 28th July 2011 – two weeks after the Mari disaster – in the form of a private letter to a key person in the unfolding Cypriot banking and economic catastrophe.

The letter called for the urgent separation of the Greek banking activities of the Cypriot banks with a view to shutting down the contagion channel which eventually engulfed Cyprus. Despite the ceaseless efforts of the recipient of this letter to do exactly that, our political and economic elite never took this warning seriously: even as late as this week, Cypriot bankers and officials are procrastinating with respect to the Troika’s request to spin off the Greek-based banking activities of Cypriot banks.

Today, and as predicted in this letter almost two years ago, Cyprus is staring at the destruction of its banking system as we have known it. As for the Eurozone, by now it has probably passed within the “event horizon” which leads to it being split asunder, most likely with an eventual German departure but not excluding departures from the periphery as Eurosceptic political parties rise in the polls everywhere.

28 July 2011

Attn: Mr …………

Dear …………..,

On current trends, and given our structural weaknesses in public finances, I am concerned that if we also add the recapitalization liabilities for our banks onto the public debt we will be looking at a lost decade for the economy, as by necessity the public sector must proceed to strangle the private sector on an ongoing basis in order to service the debt.

What is worse, this huge sacrifice of the recapitalization burden might fail to save our banks if the participation of Cyprus in the Eurozone is questioned even slightly leading to deposit flight.