How the great Cyprus bank heist was foiled

March 20, 2013

All Europe is in turmoil over a political crisis in one of the continent's smallest countries. The parliament in Cyprus has rejected a European Union financial bailout that would have ripped off bank depositors in order to "rescue" the banking system. The conservative government of President Nicos Anastasiades will now have to go back to the powerful governments of the EU to see if they can make another deal.

When news of the agreement between Anastasiades' government and infamous "troika"--the European Union, European Central Bank and International Monetary Fund--leaked out over the weekend, it caused fury and fear in Cyprus. The "bailout" proposed a one-time "tax" of 6.75 percent on bank deposits of less than 100,000 euros (just under $130,000 as of Tuesday) and a 9.9 percent tax on holdings of more than 100,000 euros. That was a brazen rip-off worth 5.8 billion euros, in return for the troika pumping 10 billion euros into Cypriot banks.

The week began with mass turmoil in Cyprus and a run on the banks--panicked depositors tried to withdraw their money, necessitating the closure of the banks--that spread to other European countries. The Cypriot government and the troika proposed a revised agreement that would have exempted depositors with less than 20,000 euros. But that didn't appease anyone. When the country's parliament voted on the agreement on Tuesday, not a single member of parliament voted in favor--even MPs from the president's own party abstained.

What comes next is far from clear, but Europe's financial crisis--which seemed to have abated--has clearly reached a new stage. That's true politically, too--the Cypriot parliament is the first governmental institution to reject the austerity demands of the troika.

British socialist Kevin Ovenden wrote an analysis of the bailout as news of the deal emerged at the end of the weekend. We are printing that article below--prefaced with an introduction and update written Tuesday as the Cypriot parliament said no to the EU bank robbers.

INTRODUCTION AND UPDATE: The article below was written early on Monday morning, London time. Since then, events have proceeded rapidly and dramatically. They will continue to do so. This introductory update is meant to highlight the political significance of some of those developments in a fast-moving crisis.

1) Despite the desperate protestations of Cyprus' government, it is now clear, as stated below, that the Cypriot delegation, in talks with the troika that lasted into the early hours of Saturday morning, opted to sacrifice the mass of the population through raiding whatever deposits they had in the domestic banking system.

Center-right Cypriot President Nicos Anastasiades was caught between Scylla and Charybdis. On the one hand, the demand of the troika that bank depositors take a "hair-cut" worth 5.8 billion euros in return for a 10 billion euro bailout for the banks--plus austerity piled on top of that, in an economy suffering a double-dip recession. On the other was the settled policy of the Cypriot elite: to maintain its role as a tax haven for hot and dodgy money, two-thirds of it coming from Russian oligarchs.

Protesters in Cyprus gather outside parliament to protest the deal with the troika
Protesters in Cyprus gather outside parliament to protest the deal with the troika

The IMF and German finance ministry were prepared to throw the burden onto Russian capitalists; Anastasiades opted to spread it to Cypriot retirees, workers, farmers and struggling small business owners.

2) No one involved in the talks says that the outcome--both the proposed measure to rip off Cypriot bank depositors and the inevitable social/political upheaval that followed--was intended. The dysfunctionality of the European response to a now renewed crisis could not be clearer. It is as if all the principal actors have chosen to be the prisoner of events and then--by way of a kind of collective Stockholm Syndrome--disavow responsibility for their own actions.

3) The deal was, predictably, both unacceptable to the mass of the Cypriot population and viewed almost universally as a harbinger of further bank heists. The rational response in such a situation is to get your money out--thus, the bailout agreement precipitated the kind of 1930s-style bank panic that policymakers, from Ben Bernanke in the U.S. to Gordon Brown in Britain, congratulated themselves on avoiding four years ago.

The bank robbery was also viscerally opposed by two other groups.

First, the Cypriot business class. It has been utterly dependent on the island's tax-haven status for a decade and a half, and so it rebelled. One of its main spokespeople in the U.S., the former governor of the central bank of Cyprus, Athanasios Orphanides, told any business journalist who would listen on Tuesday that the powerful states of the EU had enforced a kind of apartheid across the continent, where the law facilitated the expropriation of the weak by the strong.

He virtually genuflected in front of the Statue of Liberty, hailing the doctrine of equality before the law in an effort to persuade Wall Street and Capitol Hill of the unfairness of it all.

Second, Moscow. Staggeringly, the Eurozone finance ministers did not even inform, let alone consult, the Russian government about their plan to extort possibly up to 4 billion euros from Russian business interests. Russia's President Vladimir Putin was rebuffed, and his government moved swiftly to consider its own independent intervention.

There are deep and bitter divisions among Russia's oligarchs, with Putin at the head of the state and representing one wing. He indicated that there were certain hostile interests whose hair he would shed no tears over clipping. The Russian finance ministry toyed with demanding a version of the Lagarde List--an inventory of tax evasion among the Greek rich who stashed their money overseas when the debt crisis hit.

But whether it was friends or factional opponents of the Russian government who were to suffer, Putin's position was clear. If any oligarch was to get a buzz cut, have their liquidity frozen or be thrown in the slammer, it was to be a Kremlin decision, and no one else's.

The Cypriot finance minister tendered his resignation; it was not accepted. So he headed off to Moscow for talks while his bosses sought new negotiations with the troika and getting something--anything--through the Cypriot parliament.

4) On Tuesday, the Cypriot parliament not only rejected the original deal, but it rejected a revised package exempting those with deposits under 20,000 euros.

It didn't just reject the deal. Not a single member of parliament voted for it. Thirty-six MPs voted against, and 19 MPs from the president's party abstained.

The Cypriot vote is a watershed. For the first time in three years of the banking and sovereign debt crisis in Europe, a governmental institution has voted no. That crisis is, of course, an expression of a deeper global slump. But the ways it has manifested itself have depended on the particular architecture of the competing interests that make up the EU.

In Greece, the parliament--at the price of bleeding the political center--voted through savage austerity measures put forward in the so-called Memorandums. In 2011, that also meant a hit for holders of Greek sovereign debt. This pushed the Cypriot banks over the edge.

The Italian political class, in its majority, voted for pain and accepted, as did their Greek counterparts, the imposition of an unelected prime minister, Mario Monti, to see it through. Last month, saw an electoral revolt against the Italian political class.

And now there is little Cyprus. Not only the mass of people, but now also a political institution--the Cypriot parliament--has said no. A small child--Cyprus joined the EU in 2004 and the single currency in 2008; it accounts for just 0.2 percent of the EU's economic output--has told the rest that the emperor has no clothes.

The profound significance of this will continue to play out, as there is now both a desperate scramble to reassemble some deal over Cyprus's banks (Russian takeover? Exceptional European Central Bank cash? Creative destruction?) and deepening criticism across Southern Europe toward those politicians who said the only game in town was to accept austerity in order to secure a bailout of the financial system.

5) The failure of the Cypriot parliament to agree to the bank heist on Tuesday was total. The political positions of the MPs, still more so the interests of the conflicting social classes in Cyprus, are far from uniform.

With the Cypriot business class opposing the troika, with Russian oligarch depositors alienated and with Moscow floating alternatives, a number of even center-right MPs could find a backbone to oppose austerity. Even Anastasiades' Democratic Rally could slither into abstention.

But those parameters will change. In the combination of conflicting pressures that produced the Cypriot No, there is one central element for the radical left. It is the mobilization--and with it, the political agency--of the mass of the people in Cyprus who took to the streets outside the parliament on Tuesday, with the backing of, among others, the official opposition party.

That means not being oblivious to the cracks and fissures that are opening up in official politics as a parliament of an EU state bucks the austerity trend. But it also means firmly standing independent of those conflicting elite interests, even while exploiting their mutual clashes.

All sorts of voices in Cyprus and across Europe will now seek to gather political strength to plot their preferred way out the crisis. As the article below argues, the radical left should have its own voice, based upon extending the kind of mobilizations we've seen in Cyprus so far and upon a trajectory of fundamentally breaking with a failed system.

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.

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 that was now on the public books.

Now, nearly five years on, the "rescue" means direct robbery of the depositors.

It's as if, as the crisis has continued and deepened, the capitalist system has become auto-cannibalisitic. What was meant to be sacred--private property and the essential contractual relationships of capitalism--has become profaned; not at the hands of some North Korean "communist terror," but by the partisans of re-turbocharging the neoliberal model, which is what austerity is all about.

Writing in the Financial Times, Wolfgang Munchau spelled out the consequences:

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 generalized bank run, not just in Cyprus.

It's not just one thing; it's one damn thing after another. The political instability, worsening economic outlook and rising resistance are spreading across southern Europe and elsewhere. This sudden sharpening of the crisis acutely poses strategic questions for the labor 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 conservative 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 of the agreement over the weekend, claiming that 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 that Anastasiades bridled at the initial German/troika proposal. But that 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 reputation as a home for hot money, a policy that had contributed to the massive overextension of Cyprus' banks, so that 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 oligarchs.

So it was the center-right in Cyprus that decided to offer up workers, pensioners, farmers and small businessmen to appease the banks and their troika enforcers, as the Athenian King Aegeus in myth sacrificed the city's youth to the Cretan Minotaur.

Now, faced with an enormous backlash--which, staggeringly, commentators say was not predicted by the geniuses who run the Cypriot government and euro-institutions, they are looking to tilt the burden back toward squeezing the Russians and others.

It's a lose-lose situation. Whatever the Cypriot parliament decides, the rich will withdraw their deposits anyway, ending Cyprus' status as the money laundry of the South--this was a barely concealed aim of the troika officials who hail from Berlin and Brussels in Northern Europe--and so will the middling and poor customers when the banks do reopen. As Munchau says, they will be acting rationally. If others withdraw money, then 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 spillover in nearby Greece, the epicenter of the debt crisis in Europe.

The Cypriot banks in Greece will now be included in the Greek banking system. But who will recapitalize them--to the tune of something like 2 billion euros? The money from the last round of the Greek bailout has withered as austerity has deepened the slump. Greek depositors have 13 billion euros in Cypriot banks in Greece, principally the Cyprus Bank and Laiki, which the troika has said it will shut down if there's 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 in Greece, when the banks reopen in an atmosphere of not only ongoing social rage, but of a further moment of political crisis in Greece.

The Greek government of Prime Minister Antonis Samaras tried to gamble with the troika a few weeks ago. Samaras wants to appear tough in the negotiations with troika, and, more importantly, his government has not been able to drive through all the measures demanded by the EU. So the troika left Athens without closing a new deal. The last time this happened, under a PASOK government led by 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 must be offered up to the monster now? One obvious answer, post-Cyprus, 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 Southern Europe; in a new round of austerity by the Greek state to recapitalize the banks; in the political impotence of Samaras' coalition government with the center-left to vote through the measures, still less enforce them.

And the Cypriot bank job is set to exacerbate geopolitical tensions in the Eastern Mediterranean. The Greek 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 it 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 which might together push for an alternative. People are not only being squeezed and having publicly owned assets handed to the 1 percent; they are now being directly robbed, as surely as if at gunpoint.

THERE ARE two broad lines of argument the radical left can take, with two accompanying general directions of travel.

First, we can say that the problem is Germany; that Angela Merkel has put bank deposits at risk; that it is the left, not the partisans of neoliberalism, which can ensure the basic inviolability of the private financial transaction; and that the agency for an alternative to austerity is institutional--a bloc of governments of varying hue that can stand up to the mafia in Berlin and Brussels.

Of course, there is certainly propaganda value in showing that it is the defenders of neoliberalism and not the left that have inflicted a nightmare on anyone who has a bit of money left in the bank.

But what would it mean to say that we defend ordinary people in Cyprus and elsewhere?

It would mean taking control of the banks. The Cypriot state--with overnight bans on electronic transfers and other withdrawals--has just shown that this is not only possible, but--and for its own purposes--this is actually how this free-market system operates. Bank nationalization and capital controls would entail standing up directly to the blackmail of the big capitalists and the banks, enforced by their consiglieri in the institutions that make up the troika. It would mean nationalizing the currency--a direct break or rupture with the Eurozone and EU.

In other words, if the actions were to mean anything now to the people who are suffering in Cyprus, they would have to be a radical anti-institutional break. It would mean the second direction of travel open to what the left can try to do and to argue for.

That is to say: if the agencies of capitalism, in the interests of capitalism, can take over the banks and seize deposits, then so can the left, for entirely different interests and with different effect.

It's tempting to say that where the liberal capitalists fail in their solemn undertaking to preserve the holiness of the private contract, the left can succeed--and in so doing, can even attract, as part of a "hegemonic bloc," sections of the population that lose out in the "bailout" well beyond the ranks of the working class and poor, and sections of the middle class.

But if they cannot succeed, there is no reason to imagine that we can. Rather, there is every reason to base our arguments and agitation on an anti-capitalist position.

Depositors in banks are not a social class, a uniform interest group, nor a potential bloc that the left can mobilize, lead and rest on. For us, nationalizing the banks means protecting working people and the middle class at the expense of big business and finance. That means further measures that impinge on capitalism.

The debate over such measures, certainly for us in Britain, might have seemed abstruse over the last couple of years. The problem is that the Cypriot heist shows that the question of whether a renegotiation of austerity or a radical rupture with it is posed now--not as a policy dilemma of government, but as a political argument around which masses of people may be mobilized to have a political impact.

And Cyprus did have a government opposed to austerity: its first-ever Communist President Dimitris Christofias. It sought exactly to find allies among governments of the South and to mitigate austerity, while saying that measures such as taking over the banks were at best a provocation that would prevent winning broader political support, and were at worst futile.

The futility was in not taking radical measures. Christofias lost the election in Cyprus last month.

WHAT THE left says and does now matters.

First, can it encourage radical mass mobilization to shift the political calculus? If it does not, the rise of the fascist Golden Dawn in Greece shows that there are others who will. Secondly, extending and popularizing arguments against the banks and big capital, and for a rupture with both impacts on whatever outcome there is from future elections. We want the right out and the left in. But will that left follow the path of Chrisofias or a different one?

In large part, that depends on whether it comes in on the back of a rising resistance and a social agency that is posing radical political answers.

Last year, so much of that seemed like a luxurious or even pettifogging distinction. But the actual dilemma is not in the future--to possibly be faced by a government led by the radical left SYRIZA party in Greece or some equivalent elsewhere. It is posed now in what the social reaction is to this extreme moment in Cyprus, with its implications elsewhere.

Alexis Tsipras, the leader of SYRIZA, was in Britain at the end of last week. He repeated his call at the time of the Greek general elections last summer for a modern version of the London conference of 1953, which forgave 60 percent of West German debt.

Now, from the point of view of those of us in London--home to so many of the banking leviathans--championing the writing off of debt against our government and the City has great merit. Indeed, arguing to seize the 777 billion pounds (around $1.175 trillion) of idle deposits in Britain's banks and using them for investment also has great value.

But as the anti-capitalist writer and activist Panagiotis Sotiris has argued, the circumstances for such a conference do not obtain as they did in 1953: the beginning of the long boom, with fears of West Germany being drawn towards the camp of the former USSR, with a confident U.S. able to underwrite a Marshall Plan.

Above all, the governments and institutions remain wedded to one another and to austerity. It was in the name of the nation that Anastasiades decided to bleed the people of Cyprus in order to remain a financial facility for dubious Russian money.

Increasing numbers of working people, the poor, farmers and sections of the middle class are not, however, wedded to the failed policy, as the Italian election--widely seen as a rejection of all the parties of the status quo--showed.

The central question for the left is whether we can speak to these social forces--not with the aim of drawing them into a bloc with a section of the elites that have already failed, but to create a new, powerful political pole that strikes at the root of the problem and rests on the kind of social force we saw two years ago when Egypt's dictator Hosni Mubarak was overthrown after decades of politicking had failed.

Tsipras told the audience at a public meeting in London that a large majority in Greece expected SYRIZA to win the next election, whenever that is--and everyone on the left everywhere will be hoping that SYRIZA and the left as a whole do win. But he added that the same majority in Greece did not expect anything to change.

Part of transforming that hopelessness, pronounced elsewhere as well, is for the left to base itself squarely on building the widest effective resistance now, and articulating a political vision that inspires confidence that it will bring change--because it is based not on the ambiguities and triangulations that have seen the center-left enervated across the continent, but on a radical rupture with a system that has failed.

Cyprus and our response to it is a moment to advance an argument for just such a break.

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