How the great Cypriot bank heist could crash the eurozone
The Cypriot government's idiotic decision to tax bank deposits could have a dangerous spillover effect in Greece and the rest of the eurozone, writes British political activist and commentator Kevin Ovenden.
Two months ago, perennial optimists were telling us that the worst of the eurozone crisis was probably over. Then came the Italian election. Now the great Cypriot bank heist.
At one stroke, the Troika of the eurozone finance ministers, European Central Bank and International Monetary Fund had, with the new right-wing Cypriot government, stolen between 6.7% and 9.9% of the money of all depositors in Cyprus’ ailing banks. The troika has demanded every Cypriot bank account holder pay a tax of at between 6.7% and 9.9% on their balances. All in the name of a bank rescue. When the leading capitalist states moved in 2008 to rescue the banks it was through taking on debt themselves and guaranteeing small and medium deposits in order to prevent a run on the banking system following the collapse of Lehman Brothers. The public, of course, was then to be squeezed in the name of reducing the debt now on the public books. Now, nearly five years on, “rescue” means direct robbery of the depositor.
“If one wanted to feed the political mood of insurrection in southern Europe, this was the way to do it. The long-term political damage of this agreement is going to be huge. In the short term, the danger consists of a generalised bank run, not just in Cyprus.”
Banks in Cyprus will remain closed until Thursday to stem withdrawals, but teller machines across the country have already run dry. The potential in the coming days and weeks for a rapid spread of this phase of the crisis — and for a dramatic social and political rupture — is immense.
It’s not just one thing; it’s one damn thing after another. The political instability, worsening economic outlook and rising resistance are spread across southern Europe and elsewhere. This sudden sharpening of the crisis poses acutely the strategic questions for the labour movement and the Left.
While the German government and its representatives in the European institutions remain utterly rigid in enforcing an austerity that is failing, they are not alone in hurtling over the cliff — as the dogma of the David Cameron government in Britain, which is not in the euro, shows again this week in the face of mounting evidence of further economic collapse.
The government of Nicos Anastasiades in Cyprus slipped out carefully selected and self-serving details over the weekend, claiming it had bravely fought German demands and that the island had been overwhelmed by a foreign power from without — comparing the economic disaster now with the Turkish invasion of 1974. On one level, it’s true Anastasiades bridled at the initial German/Troika proposal. But that proposal was to throw the burden of bank theft almost wholly onto large depositors, those with over 100,000 euros. The Cypriot government was desperate to keep its status as a home for hot money, a policy that had contributed to the massive overextension of Cyprus’ banks so their business swelled to seven times the size of the actual economy. Much of the cash in the banks — 20 billion euros — is from Russia’s capitalist oligarchs.
So it was the centre-right in Cyprus that decided to offer up workers, pensioners, farmers and small businessmen to placate the banks and their Troika enforcers, just as in myth Athenian king Aegeus sacrificed the city’s youth to the Cretan Minotaur. Now, faced with an enormous backlash, which commentators staggeringly claim was not predicted by the geniuses who run the Cypriot government and Euro-institutions, they are looking to tilt the burden back towards squeezing the Russians and others.
“People are not only being squeezed and having publicly owned assets handed to the 1%; they are now being directly robbed as surely as if at gunpoint.”
It’s a lose-lose situation. Whatever the Cypriot Parliament decides today, the rich will withdraw their deposits anyway, ending Cyprus’ status as money laundry of the south (a barely concealed aim of Berlin and Brussels). And so will the middling and poor when the banks reopen. As Munchau says, they will be acting rationally. If others withdraw money, the banks will be in further trouble, which means more austerity with the possibility of a further bank heist — so you had better get out now as well.
There is immediate spill-over in Greece. The Cypriot banks in Greece will now be included in the Greek banking system. But who will recapitalise them — to the tune of something like 2 billion euros? The money from the last round of the Greek bailout has withered as austerity deepens the slump. Greek depositors have 13 billion euros in Cypriot banks in Greece, principally the Cyprus Bank and Laiki — and the Troika has said it will pull the plug on these banks if there is no agreement in Cyprus to raid the deposits. Why on earth should anyone leave their money in the Greek outposts of those banks?
This question will hit this week when the banks reopen in an atmosphere of not only ongoing social rage but of a further moment of political crisis in Greece. The government of Antonis Samaras tried to play poker with the Troika a few weeks ago. He wants to appear tough in the negotiations and, more importantly, his government has not been able to drive through all the measures demanded. So the Troika left Athens without closing a new deal. The last time this happened, under PASOK’s Evangelos Venizelos, it took the imposition of a poll tax on property to get the Troika to come back and deal. People in Greece are asking what more must be offered up to the monster? One obvious answer now is their deposits.
The intersection of political and economic crisis poses a major systemic danger. An accident can happen at every level: in the vote in the Cypriot Parliament; in withdrawals by big investors (mainly Russians); in a run by the mass of depositors; in a spread of the bank run to Greece and the south; in a new round of austerity by the Greek state to recapitalise the banks; in the political impotence of Samaras’ tripartite government to vote through the measures, still less enforce them.
And the Cypriot bank job is set to exacerbate geo-political tensions in the eastern Mediterranean. The government is promising a share of future profits from gas extraction to those (principally Russians) who keep their money in the country for the next two years. But the recently discovered gas field has yet to be exploited. And rights over the field are contested by Greek Cyprus, Israel, Lebanon and Turkey.
The government of Samaras, a hard nationalist who rejoined the New Democracy party in Greece after his own chauvinist party hit the rocks a few years ago, is toying with unilaterally declaring an Exclusive Economic Zone in the Aegean — in flat opposition to Turkey.
The crisis is not waiting for the coming of an anti-austerity government, still less a consortium of some European governments that might together push for an alternative. People are not only being squeezed and having publicly owned assets handed to the 1%; they are now being directly robbed as surely as if at gunpoint.