April 3, 2013

Socialist Action: Cyprus Bank Crisis Rocks Europe



By ANDREW POLLACK
The outrage of workers in Cyprus against a plan to “save” the country’s finances by seizing cash in small depositors’ accounts forced the country’s parliament to vote unanimously in late March against it. The plan was intended to avert the wrath of the International Monetary Fund, the European Central Bank, and the European Commission.
This “troika” of powers had settled on the island nation as next in their list of “debt-ridden” countries whose finances needed to be re-arranged to try to restore the profits and wealth of the continent’s richest and most powerful.
A week later a new plan was put forward, one tailored to not require government approval, and putting more of the main burden on bigger depositors—especially Russian magnates who have used the country as an offshore tax haven—and on the banks’ bond and share holders. But there is no doubt in anyone’s mind that those being directly soaked will find indirect ways to recoup their losses by dipping into the pockets of the island’s workers.
Still, just the fact that Cypriots loudly and repeatedly said “No!” has inspired workers throughout the region. Such inspiration is all the more crucial as the spillover from the Cyprus crisis will be quick and massive both inside and outside its borders. That spillover includes expected runs on banks, not only in Cyprus but in every European country on whose finances the troika have cast scornful eyes. The recurring theme among workers interviewed is, “They threatened to steal our cash once; who’s to say they won’t actually do it next time?”
Radical author Thanasis Kampagiannis wrote that “Cyprus bank deposits will take a dive. Ironically, that makes the cost of recapitalizing them even greater.” This, in turn, means further extractions from depositors as well as austerity measures, which then means further deepening of the recession, which weakens profits and tax revenues, and on and on.
Some of the more oblivious and/or duplicitous business columnists (such as The New York Times’ Andrew Ross Sorkin) argued that Cyprus was so small and unique that its crisis would have little impact elsewhere. But in fact the biggest blow to Cypriot bank stability was a product of the country’s very interconnectedness, i.e. the “haircut” imposed on Greek banks—which hold huge amounts of Cypriot bank deposits—in return for the “bailing out” of Greece. This is symptomatic of “fixes” to crises under capitalism. The schizophrenic mutual dependence on the one hand, and competition on the other, of economic and political institutions mean “solutions” to one entity’s problems must take place at the expense of others—with, in times of crisis, snowballing devastation.
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