Cyprus shows Eurozone crisis isn't over

Submitted by Matthew on 27 March, 2013 - 9:50

Barely one month after Greek and European rulers assured us the European debt crisis had been resolved, Greece had been stabilised, and the euro wasn’t in danger, a crisis in the Cypriot banking system and uncertainty over a bailout deal threatened the “peace”.

To be fair, rcent forecasts for the European economy showed that the EU will be in recession during 2013 and even the German economy will be in stagnation. A new crisis in the EU and the euro — as the recession exacerbates the problems of deficits and debt — was always on the cards. None of the objectives in any of the bail-out memorandums, imposed on countries in southern Europe, will be reached this year.

But then came Cyprus.

Small and insignificant compared to the size of the whole eurozone (only 0.2% of GDP) Cyprus threatened — could still threaten — to compromise the whole eurozone project. Mounting panic and uncertainty rose as to the potential impact of the events.

Stocks fell in the other so-called peripheral European economies. Values of Italian and Spanish banks fell by up to five percent on 19 March and the stock exchange in Athens was down by over three percent. The euro reached its lowest level in four months, falling below 1.29 against the US dollar, before rising slightly after the ECB assurance that it would for the time being support Cypriot banks.

But this crisis has no end. It is not due to “bad” policy choices by governments. It is not caused by the “laziness” and “corruption” of the Greeks or some other southerners. It is a crisis that stems from the functions of the capitalist system, the internal logic of the system.

The system cannot find a “normal” or “peaceful” way out of the crisis. The only way for the system to deal with it would be by a levelling of the economy, as during war periods, with a massive destruction of productive forces. On the ashes the capitalists could rebuild, make new economic “bubbles”.

The Cyprus government had to search for roughly 5.8 billion euros in order to meet the terms of a European bailout. That was enough to threaten bankruptcy in Cyprus.

At the eleventh hour, to raise those billions, Cyprus agreed to a restructuring of its banking sector, tax rises and privatisations. The bank measures mean deposits over 100,000 euros will effectively be used to pay the bulk of the 5.8 billion euro bill. These investors may lose up to 40% of their money.

Laiki Bank will be dissolved immediately — its uninsured deposits and toxic assets transferred to a “bad bank” and the guaranteed deposits (those under 100,000 euros) transferred to the country’s biggest lender, Bank of Cyprus. Large deposits with Bank of Cyprus above the insured level will be frozen until it becomes clear whether or to what extent they will also be forced to take losses. According to government sources the agreement does include a 30% “haircut” on deposits over 100,000 euros in Bank of Cyprus.

For these 5.8 billion euros, the EU has effectively destroyed the Cyprus economy; that is the combined effect and what the austerity package will mean. Immediately the closing down of Laiki Bank will mean at least 3,000 bank workers losing their job.

But the crisis is not yet over. Cyprus’s banks are only due to re-open on Thursday 28 March.

Most importantly, all the predictions for the depth of the recession and the sustainability of the public debt are no longer valid. According to new figures Cyprus should have found more than 5.8 billion euros to make its public debt viable. The prospect of worsening public debt means that Cyprus will soon need another two billion euros, which is a huge amount relative to the size of the Cypriot economy. Even worse the two billion predicted revenue from the privatisation of Cyprus public assets has been reduced to 700 million euros because of the dire state of the economy.

But, to put things into perspective: the 84 richest people in the world have increased their wealth by 241 billion euros last year, with a grand total of 1.9 trillion euros for 2012. Just one year’s income of the 84 richest people in the world is higher than the ever shrinking Greek GDP and more than 41 times greater than the 5.8 billion Cyprus needs.

The life of the Cypriot working class dramatically deteriorated during the last week. With all the banks shut and restrictions being imposed on ATM withdrawals (initially at a maximum of 250 euros to a meagre 100 euros) the Cyprus economy was effectively cash starved. Business only accepted cash transactions and imports and exports were frozen.

The shelves of the supermarkets were emptied and a petrol crisis was ready to erupt. The “unlucky ones” (mostly working-class people and the poor), those with no cash and no access to bank accounts, formed long queues for emergency food hand-outs run by government and charities.

The popularity of the president Anastasiadis, elected less than four weeks ago, has plummeted. At the same time the Cypriot people’s faith in the eurozone and the idea of a memorandum to bail out the Cypriot economy has been shattered.

Prior to the election the vast majority of the Cypriot population, including (Communist) AKEL supporters, were in favour of a memorandum. Anastasiadis was elected on the premise of having the ability to network with EU, eurozone and IMF high officials; this would guarantee a “pain free” memorandum for the good of all Cyprus.

The script is a familiar one. The prime minister promises dynamic troubleshooting, and tough negotiation with the troika. Then, once elected, implements hard class-based attacks on the working classes to make them pay for the crisis caused by the bankers and big business.

But public wages have already been reduced by 15%. The cut followed the recession that struck the Cypriot economy and pushed unemployment to 14% (from 3-5%).

Critically this deal does not need to be ratified by the Cyprus parliament. When Cyprus’s parliament rejected the terms of the EU’s original bailout plan it served to deepen the crisis, spreading out across Europe, posing the risk of national bankruptcy.

Thirty-six parliamentarians voted against the deal, while 19 abstained and none voted in favour. The initial bailout plan would have charged Cypriot bank investors with a tax of 9.9 per cent for those with account balances of more than 100,000 euros, and 6.75 per cent for those with balances between 25,000 and 100,000 euros.

So money from all bank accounts in Cyprus — both small and large — would have been affected. But those primarily affected would have been Russians and British depositors who use the island country as an offshore financial centre.

Thousands gathered outside parliament to protest; and a last-minute adjustment to exempt those with less than 20,000 euros from the levy had no impact. The total collapse of Cyprus’s financial system has been avoided only by the continued closure of the banks.

Cyprus’s parliament passed legislation granting the state emergency powers, including capital controls, to block sudden outflows of money from Cyprus. The government also announced the formation of a so-called National Solidarity Fund. This misnamed entity would take money from Cypriot pensions, the Church of Cyprus, and donations from private citizens to help fund bank bailouts.

The Cypriot government’s proposal was rejected by the Eurogroup.

Cyprus was also considering offering Russia partial ownership of its financial sector, access to offshore natural gas deposits near Cyprus, and the use of a naval base at Limassol. Major Russian banks, including Alfa Bank and VTB, stand to lose large sums if Cyprus’s banks collapse or Cypriot capital controls cut them off from their assets in Cyprus.

But the fundamental character of the bailout is a massive attack on the living standards of the working class. Coming after a large anti-EU vote in the Italian elections, on-going strikes and protests in Portugal, Greece and Spain, and the toppling of the Bulgarian government last month, ruling circles are well aware that class conflict in Europe is heating up.

Cyprus is also strategically important — caught in the rising confrontation between NATO and Russia in the eastern Mediterranean.

EU officials’ attempts to present their attack on Cyprus as a popular measure — taxing Russian oligarchs with billions stashed in Cyprus — are cynical and false. The looting of Cyprus has nothing to do with expropriating capitalists in the interests of working people. While workers lose their savings and pensions, the EU is forcing the transfer of cash and business from Cyprus and Russia to the wealthiest, most powerful sections of finance capital.

EU officials clearly want to reduce the size of Cyprus’s financial sector. The Cypriot crisis effectively forces businesses now banking in Cyprus to move their financial operations into larger Western European countries.

The left needs to asses the meaning of the “No” protests by the people of Cyprus and the different “No” of the Cyprus politicians and ruling class. These are not the same.

The people rose in an unprecedented way but had neither the strength nor the scale to impose their will on the Cypriot Parliament.

The Cypriot Parliament decided to temporarily challenge German demands. Their outrage stemmed from the nature of the Eurogroup’s offered deal — it affected not only the lower classes but also the Cypriot bourgeoisie. It would shatter the model that post-1974 Cyprus governments (rightist and leftist alike) had built: international financial centre, laundering money, out-of-proportion growth in banking. The Eurogroup’s decision threatened all that.

The strongest reactions came from the Cypriot bankers and the Church. Archbishop Chrysostomos said “the church property is available to Cyprus, to avoid the collapse of the banking system and to save the country.” Of course the mighty Cypriot Church is a main shareholder in the banks. The Greek prime minister speaks to God, the Cypriot archbishop speaks with financial markets.

The vice president of the Bank of Cyprus said that the deposits of foreign investors should not be taxed, only the deposits of the Cypriot people need to be taxed. Safeguarding the interests of the financial oligarchy is the only imperative that the Cypriot ruling class recognises.

Because Cyprus has historical relations with Russia, the Middle East, the UK and, lately, with Israel, its political staff showed a degree of independence from Europe never matched by Greece. Cyprus was a financial centre before the introduction of the euro, benefited as a financial centre inside the euro, would like to preserve this dual capacity. If it doesn’t work out, the idea of returning to a national currency will definitely be in play.

But the need for a hard currency was one of the main reasons that Cyprus — modelling itself as a little Switzerland of the Mediterranean — rejected the Cypriot pound in favour of the euro. And it remains a powerful reason why the first thoughts of a referendum and exit from the euro were replaced by second thoughts of accepting a highly detrimental deal and keeping the euro.

The Cyprus economy is similar to that of Iceland and Ireland. It too has a disproportionately large banking sector (the banking sector in Cyprus is about eight times bigger than the country’s GDP). Until 2009 the Cyprus economy was doing well, its figures better even than Germany’s: the public debt of Cyprus before the crisis was less than 60% of GDP, while the budget had a surplus.

Problems began with the speculative games of the Cypriot banks — Laiki and Bank of Cyprus — which gambled on the government’s bailout funds by “investing” in Greek bonds and other toxic assets with potential high returns. These banks are now in tatters.

The policies of the Cyprus government — as political representatives of ultra-neoliberal capitalism — are predictable. The same cannot be said about AKEL, which led the government of Cyprus until February 2013’s election.

When in government AKEL was the first to cut salaries and pensions to save the bankers. AKEL was in government when the economy plunged into recession. Instead of nationalising the Cypriot banks under workers’ control (in order to guarantee the deposits of the lower classes) it attempted to “manage” the capitalist system. AKEL paved the way for the victory of right-wing Anastasiadis.

AKEL still insists on talking about the need for “national unity”, about the need to form a government of broad, patriotic cooperation, something which will cold-bloodedly lead the Cypriot workers into the slaughterhouse.

In Greece, a large chunk of the left, most notably the leadership of SYRIZA, until recently looked to AKEL’s leader Demetris Christofias as a role model, as a “left-wing” way to negotiate a memorandum. The left refuses to draw the necessary conclusions. If Syriza were to become a government of the left in future and managed the capitalist system with policies similar to those used by AKEL, the result will be a disaster.

Struggle against EU bailout conditions cannot be exhausted in tough talking on the terms of repayment. Neither can they be resolved by the exit of a country from the Eurozone and the EU.

Any “deal”will have a negative outcome for deposits, revenues and workers’ living standards and working conditions. Conditions will not improve if Greece, Cyprus, etc., just leave the EU but remain under capitalism. The depreciation of the new national currency of these countries as a result of leaving the Eurozone will be at least equal to those of the current confiscations and reductions of deposits, wages, pensions and welfare.

• The first step out of the systemic crisis, to benefit the working class, is an immediate ban on big depositors moving their money out of the banks. Without such measures the big losers from any bailout agreement will always be the small and very small depositors.

• The second measure is the nationalization of banks, without compensation to shareholders, and under workers’ control. The confiscation of this subsection of bourgeois property is the minimum price to be paid for the immense profits that they have got by the overexploitation of the working class. This has to be directly linked to the nationalisation of the big capitalist private enterprises that are of critical importance to the economy, which have borrowed from these banks and cannot now repay their loans. In this way, the state can collect all the economic resources of the country and, in a designed and planned way, redistribute them to safeguard the survival of the population.

• Thirdly there needs to be the total cancellation of debt, not in a bourgeois nationalist context, but within an internationalist context, linked to a United Socialist States of Europe

The public debt of Greece created for the sake of financial speculation is five times greater than the wages given to workers annually. Therefore, in order to pay this debt, from a bourgeois perspective, the workers “need” either to work five times more, or five times as hard, with the same wages. None of this can be done or should be done.

• The task is to overthrow the bourgeois governments in Greece, Cyprus, Italy and throughout Europe. Workers need to get the power into their hands, to put through these economic measures, to democratically plan, organise and reorganise the economy according to working-class interests.

Either they “confiscate” our lives for the sake of the capitalist private profit spreading misery and absolute destruction, or the working class will take the lead to expropriate their expropriators and crush the capitalist state for the sake of the vast majority of people.

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