Cyprus in Crisis

By Mark McConaghy. 

The people of Cyprus are facing an egregious betrayal of trust by their own government, who has proposed to steal 10% from their citizens personal bank accounts to pay for an EU sponsored bailout. With yet another European country on the verge of total financial collapse and social upheaval, the question that must be answered is: when will a new politics emerge that will have the courage to protect society from the ravages of a neo-liberal order gone wrong?

The Scene: Theft by the Government

What would it take to get ordinary Canadians out onto the streets to protest? What could get them angry enough to bound together with their fellow citizens, who in really are just a collection of strangers, to start a movement of civic action?

How about the Canadian government using its juridical powers to steal money from Canadians’ personal bank accounts? What if you woke up one day to find that 10% of your hard-earned cash was just gone, wiped out, by government fiat? Would you stand for that kind of theft by your own government?

Such an act would no doubt get even the most conservative of Canadians angry enough to be mobilized. And this is precisely the situation that the citizens of the island-nation of Cyprus are facing right now, in a fast-breaking financial crisis that has stunned even the most jaded of observers.

To sum up the situation: Cyprus’ banking sector is on the verge of insolvency, thanks in part to exposure to runoff from the Greek financial crisis. The country’s banks need a bailout on the order of 10 to 15 billion euros, which it negotiated with its three international lenders- the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC)- known collectively as the Troika. This same Troika is where Greece, Portugal, Ireland, and Spain all had to go to for help when their own financial systems were gripped with crisis, forcing them to accept tough austerity measures (massive slashes to public spending) in exchange for bailout funds.

The twist in Cyprus’ case is that in order to agree to the 15 billion dollar bailout, the Troika has demanded that a part of it- 5.8 billion to be exact- come from the domestic Cypriot banking industry itself. This money will be garnered out of a tax imposed on the deposits of individual savings accounts.

Why the Troika felt it could pressure the government of Cyprus into effectively stealing from its own people’s bank accounts to pay for the bailout is still open to question, with some Troika officials now publicly denying their own role in the egregious plan. Yet the upshot of all this is a threatened run on Cyprus’ banks: people aren’t going to see their money stolen. Naturally, they have sought to get it out of the country’s banks as quickly as possible. Fearing a massive withdrawal of funds, the government of Cyprus shut down all banks on the island last Friday, making it impossible for people to withdraw any more funds than can be had at ATM machines.

A massive showdown is now underway: the people rightly want to protect their money; the government fears popular backlash and yet is in desperate need of the Troika’s money; and the Troika has still not backed off on its initial desire to force the people of Cyprus to shoulder the burden of the financial speculation that drove their country into the throes of insolvency in the first place. To make matters more complicated, Cyprus is a massive tax haven for foreign companies and investors, and its banks have tens of billions of dollars in Russian, British, and other international investor’s money. The Russians, quite rightly, were outraged over the idea of taxing their own money to pay for the financial mistakes of the European Union.

Social Crisis in Cyprus
The People of Cyprus Say No to Government Theft

The situation is fluid and evolving. The ECB is not backing down and has threatened to cut off emergency funding by next Monday if a deal is not in place. The Cypriot banks are now completely reliant on such emergency funding. If it gets cut, the entire banking system will collapse, wiping out billions of dollars in savings not just for the Cypriot people, but for British, Russian, and other international investors. If the Cypriot government wants to keep its financial sector alive, it may very well have to accept not only dreaded austerity measures, but the hated levy on individual accounts that the Troika has insisted upon. For the Troika, this is a way in which the burden of resuscitating the Cypriot financial sector is shared by everyone involved, and not just European (read: German) taxpayers who are sick of giving money to poorly managed countries swimming in debt.

It is, all in all, an absolute meltdown that is reaching surreal, almost metaphysical proportions. The vultures are circling. German finance minister Wolfgang Schaeuble has warned Cyrpus that unless terms of the bailout are agreed to their banks may never re-open. One wonders if the venerable minister Schaeuble ever thought of what that would mean to the people of Cyprus who, believe it or not, may want to access their bank accounts to pay for the goods and services they need to survive. Russian energy giant Gazprom has offered Cyprus a clearing of their debts and a restructuring of their financial sector- in exchange for exploration rights of the natural gas that lies just off the Cypriot coast. It’s good to see the old Russian tactics that made oligarchs out of thugs in the 1990s- short term loans in exchange for long-term control of resources worth billions of dollars more than the value of the original loan itself- are alive and well.

Where this all leads is anybody’s guess, although it is likely that the national sovereignty of Cyprus will be severely compromised in any eventual agreement, whether it is with the Troika, the Russians, or whomever else who ultimately steps in to bail the country out.

The Analysis: Society Must be Protected

I don’t profess to have all the answers here, as I’ve spent the last week reading about a small island nation I knew relatively little about four days ago. However, I would like to make the following observation, which the crisis in Cyprus definitively alerts us to:

In this era of global austerity, our institutions of self-protection have turned against us. Banks tell us that they are safe places to put our money, where we can build a nest-egg and get good advice on safe investments for our children’s college and our own retirement. The rapaciousness of neo-liberal capitalism, which I take to be the root cause of the global financial crisis of 2008, has grown to such dazzlingly surreal proportions that the very institutions that are designed to safe-guard society have become agents for its dislocation.

Think of what we are witnessing here. We are now in a situation in which a government has been forced to out and out steal from its own people in order to pacify the demands of international creditors. Ironically, the very measure meant to forestall a run on Cypriot banks- the tax on deposits- has only accelerated the prospect of such a run. The bailout, the austerity measures, the restructuring of financial systems have only added to the very same panic, instability, and market fluctuation they were meant to prevent.

And this is to say nothing of the suffering that has been enacted on European society since austerity measures and bailouts have begun. Once again, I must emphasize: the very institutions that are supposed to protect and nurture us have been forced, via the strictures of neo-liberal austerity, to become sites in which social suffering is amplified.

This does not just mean the theft from the bank accounts of the people of Cyprus. This is also the cuts in essential medical services that people need to survive in countries like Greece, Spain, and Ireland; the utter denudation of educational systems that provide people with the skills to build betters lives for themselves; the impoverishment of public systems of policing, firefighting, road maintenance, transportation, and primary care that people need to live secure, productive lives.

This, ladies and gentlemen, is social violence enacted by governments on their own people in order to appease a group of institutional investors (banks, equity funds, corporate shareholders) that represent, numerically, a very small percent of the overall global population.

the new normal
The New Normal

And these austerity measures have been enacted not just in the debt-stricken Eurozone, but in Canada, America, Britain, Japan, South Korea, Australia, etc. That is to say, austerity is the new normal across the globe, in which on the alter of investor confidence and market stability violence is being done to the vast majority of middle class, working people around the world.

The institutions we relay on to protect us- the school, the hospital, the bank, the daycare, the government itself- have become sites in which violence is being enacted upon the individual lives of citizens. The basic irony of course is that the very austerity measures meant to calm markets only compound social instability, class struggle, and economic stagnation- the very things that create market anxiety in the first place. The austerity measures are their own prophetic deliverance: to combat instability they actually create ever more of it.

The Hope: A New Politics

Can a New Politics Emerge?
Can a New Politics Emerge?

To all of this I must say: society needs to be protected. We cannot accept obscene amounts of social dislocation enacted upon the innocent bodies of the vast majority of citizens so that institutional investors and corporate share holders can remain calm.

Austerity must be resisted at all costs, because it’s violence is too much to bear. So on this Thursday morning we here in Canada stand in solidarity with the lowly citizens of Cyprus, whose government is preparing to steal directly from them, whose country is about to lose its financial sovereignty, whose society is preparing for massive austerity ahead. In just under 2 hours, we ourselves will be getting a new federal budget from our Conservative government. Predictably, it will be one full of cuts and freezes, without asking the wealthiest of Canadian corporations and citizens to pay one dollar more to the public good.

The level of social dislocation, the threat to the social fabric, will be so great that there can be only one outcome of all this: a new form of politics, a new society, must emerge.

When complete faith in the system has been lost, a new faith must be found. And it is our task, here at this blog and in progressive intellectual circles around the world, to be the harbingers of that new faith. To build the new secular creed for a just world in which our institutions actually protect us.

We must be the prophets of that new world, for society must be protected.

Mark McConaghy is a doctoral candidate in the East Asian Studies Department at the University of Toronto. He studies aesthetics, political economy, and the dynamics of historical change in the 20th century. An avid cinephile, he also reviews films for the Toronto Review of Books. At the moment, he is actively thinking of ways to integrate his political interests into a variety of aesthetic projects, spanning from poetry to experimental film.

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