The debacle in Cyprus is far from over, but it’s already taught us some very important lessons. We’ve seen, for example, that the world’s financial leaders insist on clinging to the principles of austerity economics even after they’ve failed over and over again. They don’t seem very interested in learning from experience.
They don’t seem to be all that interested in principles of national sovereignty, either.
The world’s economy isn’t run by some secret organization – unless it’s very secret – but its financial leaders do form a loosely affiliated elite of banking executives, elected officials, influential advisors, and power brokers.
The Cyprus mess has their fingerprints all over it.
First a quick summary for anyone who’s not up to speed on Cyprus (feel free to skip ahead if you are): The tiny island nation was a tax and banking haven for lots of people, including billionaire Russian oligarchs who parked their money in that nation’s high-interest-bearing bank accounts, and its banks became extremely over-leveraged. The banks gambled anyway – on Greece, mostly – and failed.
This happened, incidentally, under the approving eye of the same European banking authorities who are now scolding Cyprus.
When the banks collapsed they were rescued. (No surprise there.) But Cyprus couldn’t afford those bailouts, so the “troika” (the European Union, the European Central Bank, and the International Monetary Fund) imposed strict austerity measures on its citizens in return for its help. Then they decided to “tax” a chunk out of every savings account in Cyprus’ banks.
That provoked a huge (and justified) backlash. Now they plan to tax larger accounts -by forty percent. That’ll stick it to some Russian oligarchs – and lots of other people too, like Cypriots saving up for their retirements. Or local businesses that buy raw materials, hire people, and keep the Cypriot economy moving.
What does all this tell us about the financial powers-that-be, the “elites,” the decision makers?
Their operating principle is “Bankers, Bankers über alles …”
Once again our austerity-minded financial leaders have placed the interests of the banking sector over those of the general population. The banks of Cyprus were managed recklessly. But, although one bank’s being restructured into “toxic assets,” policymakers have focused on bank customers - and on the people of Cyprus – rather than on the bankers who behaved badly.
In fact, they seem to have forgotten about the bankers – and about the international community’s role in the crisis. The EU admitted Cyprus, banks and all. Billionaires and multinational corporations from around the world benefited from their Cyprus bank accounts. Bank malfeasance in the United States precipitated the global crisis which brought down Cyprus’ economy.
But the burden’s not being placed on bankers in the US, Western Europe, or even within Cyprus. There, as in the US, the motto seems to be “Rescue them and then pretend they don’t exist.”
They’re a law unto themselves.
Cypriot bank accounts under €100,000- the ones they tried to raid until all hell broke loose – were guaranteed. In fact, all European bank accounts of €100,000 and under are guaranteed under EU law. But the austerity architects were prepared to take almost seven percent out of them anyway.
It’s true that deposit insurance can gives banks a perverse incentive to gamble with investors’ money, as an IMF economist pointed out (and as we’ve learned here in the US). But the financial decision-makers were prepared to penalize ordinary Cyprus depositors – the victims of their banks’ gambling – for the misdeeds of their banks.
At no point in the process did anyone in the European Central Bank or EU administration say “Wait a minute. We can’t do this. Those deposits are guaranteed.” Apparently it never crossed their mind.
That’s frightening. It suggests that Germany and the IMF have the power to overrule the European Parliament, which voted that €100,000 guarantee into law. Speaking of which:
“It’s springtime for Merkel and Germany …”
“… exports are rising once more …
Forgive the reference to that musical number from Mel Brooks’ The Producers, but there’s no question: Germany’s in command. Chancellor Angela Merkel and her pro-austerity colleagues still dominate the world financial scene, despite the proven failure of their approach throughout Europe.
The Cypriot deal couldn’t be finalized until it was approved by both the EU and the German Bundestag. Germany now has veto power over the EU’s deals with other sovereign states. That makes those states something … less than sovereign.
The EU’s been great for Germany, which benefits from (among other things) a market for its manufactured goods. German exports took a hit as the EU economy tanked – the direct result of Chancellor Angela Merkel’s austerity obsession – but were rising again at last report.
They’ll probably fall again as continued austerity hammers the Zone, but the lucky Germans are still being buffered from the full impact of their own government’s disastrous policies.
Austerity is still crazy after all these years
The financial decision-makers initial plan to use the savings accounts of ordinary, austerity-battered Cypriots for their government’s bank bailout was bound to create public panic, and to reduce the availability of cash for goods and services among ordinary Cypriots.
That means that once again the “elites” were prepared to make an economic crisis much worse in the guise of making it better. That’s classic austerity behavior: It at first you don’t succeed – if, in fact, you wreak havoc instead – change nothing. Which also proves that …
The world is not a meritocracy.
The cat’s finally out of the bag: The people in charge don’t know what they’re doing.
The latest proof of that is the enormous flap created by Dutch Finance Minister Jeroen Dijsselbloem, who panicked European markets by saying that the raid on Cyprus’ savings accounts was a model for future bailouts.
Ssshhh, Jeroen! You’re not supposed to say that out loud. That panics people by .. well, perhaps by giving them a glimpse of reality. Truth is, Dijsselbloem was probably talking out of turn. In all likelihood, nobody knows if Cyprus is a model or not – because they don’t have their act together enough to even have a model.
But some people were clearly considering doing the same thing again in countries like Spain or Italy – and that’s frightening.
Here’s the reality: The world’s financial leaders have misplaced priorities, are unscrupulous and undemocratic about financial matters – and are frequently just making it up as they go along.
They don’t really care about “job creators.”
If they did, why would they raid the bank accounts of job-creating Cypriot businesses?
Nobody but a banker deserves a decent return.
The old definition of a “prude” was “a person who lived in fear that somebody, somewhere was having a good time.” A “member of the global financial elite” is somebody who hates the idea that anybody but a banker is getting a decent return on their money – even if, unlike bankers, they’ve done nothing wrong to earn it.
Foreigners who parked their money in Cyprus bank accounts weren’t doing anything illegal. It’s true that they were getting much better interest rates than they could in most other places. But that’s not a “moral hazard,” to use the economic term. That’s just a good deal.
The world’s financial elites apparently think that a getting a good rate of return if you’re not in their club is reason enough to retrospectively take some of your money. And remember, this isn’t a “tax” in the usual sense. They’re not taking forty percent of depositors’ income. They’re taking forty percent of their savings.
That’s confiscation, not taxation – and their rationale seems to be that these depositors had a really, really good interest rate.
That, and the fact that they weren’t bankers.
They’ll shaft 100 innocent people to get one person they don’t like.
Sure, some Cypriot depositors are Russian oligarchs. But this tax applies to everybody. How many innocent people is it worth shafting to get at one shady character – 10? 100? 1,000?
They won’t say. But apparently it’s a lot.
Chief Red Cloud was right.
There is a Native American tribe named the Oglagla Lakota. Like all Native American tribes, they made numerous treaties with the US government, most of which the US government promptly broke.
One of the tribe’s chiefs was called Makhpia-sha – in English, “Red Cloud.” The Dakota-Lakota-Nakota Nation’s Human Rights Advocacy Coalition reminds us of the famous quote attributed to Red Cloud:
They made us many promises, more than I can remember. But they kept but one – They promised to take our land…and they took it.
An EU-guaranteed savings account, like its American counterpart, is a promise. The idea of sovereignty among nations is a promise. Economic self-determination is a promise. A well-regulated banking system that protects your livelihood is a promise.
But the global financial sector’s implicit promise, one that was made explicit by events in Cyprus, is this: Whenever they need or want your money, they consider it theirs to take – and sovereignty be damned.
The people of Cyprus are learning some of the same lessons we’ve been learning in the United States – about wealth redistribution to the top 1 percent, undeserved bailouts, and unjust applications of the law. The global financial elite has made many promises, regulatory and economic, but only one of them has consistently been kept.
They promised to take our money – and they took it.