Mark McConaghy breaks down what we know about the deal Cyprus struck to avoid fiscal collapse, and why it sets a very dangerous precedent for fiscal policy in the 21st century. Are we going to find ourselves in a world where even our personal bank accounts are not off limits from state power?
A deal appears to have been reached between Cyprus and its Troika of creditors. And yet for those readers who thought this would bring an end to crisis in Cyprus, think again. This is just the beginning of a whole series of social dislocations and upheavals that will not only affect the quality of life of the people in Cyprus, but will have grave consequences for Eurozone policy in the future.
I have already detailed how the fiscal upheavels in Cyprus indexes a wider general crisis in neo-liberal political economy today. Now we have to sift through the news reports and politician’s announcements regarding the Cyprus deal to understand its full ramifications. This is not an easy task. Both the Cypriot government as well as Troika representatives have been very cautious in releasing details on the bailout for fear of further upsetting the Cypriot people, institutional investors, and wider markets. Anytime a government is reluctant to tell its own people about a policy development, you know it’s going to be something very objectionable indeed.
Here’s what we do know: as part of a wider 13 billion dollar bailout, the Cypriot government has agreed to raise roughly half of that amount, 7.6 billion, by directly taxing deposit accounts in its own country. Yes, that’s right, the dreaded tax on individual savings accounts is part of the deal agreed to by the government. They’ve tried to soften the blow by exempting all accounts under 131,000 euros. All those over that threshold will see the government out and out steal from them in order to pay for the country’s failed banking system.
It is an amazing turn of events, one that will outrage not only the Cypriot people, but the thousands of international investors, from Russian billionaires to small British companies, who use Cyprus as a tax shelter. It will cripple the Cypriot economy, which is heavily reliant on foreign deposits as a source of banking revenue: what foreign investor would ever feel safe placing their money in Cypriot banks, having endured the ignominy of having 40% of their money stolen by EU fiat? And of course our attention should be most squarely focused on the people of Cyprus. Few of these people are billionaires tax cheats. No, they are working and upper middle-class people who could see as much as 20 to 40 percent of their savings wiped out overnight by their own government. This includes parents’ with college money for their kids; young entrepreneurs with limited capital for investments; and retired pensioners who have saved all of their lives.
At the moment, the Cypriot government is taking measures to prevent a bank run that seems inevitable. When Cypriot banks re-open later this week, there will be a ban on cashing cheques, a limit on exporting euros, and a limit on the amount of withdrawals one can make each week. In effect, the government will abrogate the banking rights of its own people in order to artificially keep their money within the country.
The Cypriot people should all collectively be outraged at the theft their government has performed here. If I were in their shoes I could see no other option but massive collective protest, labor strikes, and peaceful civic unrest until the government resigns and the terms of the deal are rejected.
And yet the most startling danger of all this is the precedent that it has set for future EU business. If European governments want bail out funds from the Troika, it is no longer just brutal austerity measures that will be part of the equation. Now, the Troika has a precedent upon which to demand that governments steal from their own people’s savings accounts in order to offset the costs of any future bailout. The threat to the integrity of the internal banking systems of any country who incurs financial distress in Europe is immense. Now, austerity will be borne not only by cuts to social services and increased taxes, but through a government “reach in” to the savings accounts of individual citizens. Amazing.
And if you don’t believe me, if you are inclined to say that this is a one time aberration, something that could only happen to a weak and economically marginal country like Cyprus, think again. No less an authority than the head of the Eurozone group of finance ministers, Dutch Finance Minister Jeroen Dijsselbloem, has claimed in an interview with Reuters that taxing uninsured bank deposits of more than 100,000 Euros could be a “template” for future bailout plans of struggling economies. There will be no more bail-outs in Europe without “bail-ins.”
It was an amazingly crass statement, one that Dijsselbloem quickly retracted when Asian and European markets rightly struggled in its wake. We are now in a situation in which elected foreign leaders are not even pretending anymore to hide the violence they will impose on people in the name of fiscal austerity. They now openly proclaim that they will simply steal from citizens’ in order to subsidize the speculative activities of banking elites and the governments who fail to regulate them.
It is an incredible world we live in, in which hypocrisy and corruption are not only not covered up, put pretty much openly proclaimed as sound public policy. We are now in the age of the bail-in, where the state of crisis is now the norm and open theft from the people is justified as sound fiscal restraint.
To all of this, we rightly feel outraged and angered. If Cypriot bank accounts are not off limits, no bank accounts are. We may wake up one day and find that our BMO or TD accounts will need to be taxed as well, to offset the speculative losses that unchecked trading units within those institutions incurred. I could just see it now: Harper and Flaherty shaking their heads somberly, talking about the need for shared sacrifice in a time of fiscal uncertainty, boldly claiming that in the long run, yes, this will lead to economic growth and opportunity for all of us.
All Canadians, and all global citizens of whatever nationality, need to be very afraid this morning. Even that which we find most sacred in this money driven world- our personal savings accounts- are not off limits to state power.
Where will we turn to for protection when the Cypriot “template” becomes a policy norm? The time for action is not during the crisis, when the backroom deal has already been made, but now, when there is still a chance to avert it.
We need a movement for the self-protection of society, one that works to safeguard the institutions of common good that are the bedrock of justice in our time: the school, the hospital, the police, and yes, even the bank, that place that was once a safe haven for our money.
Society cannot be violently rend in the name of a fiscal austerity that damages economies rather than grows them.
The crisis, I’m sad to say, is not over.
Indeed, it has barely even begun.
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.