Vol. 77/No. 14      April 15, 2013

The financial instability unfolding in Cyprus and elsewhere is a symptom, not a cause, of a deeper economic crisis rooted in a worldwide slowdown of production and trade endemic to the normal workings of capitalism.

Cyprus banks reopened March 28 after a nearly two-week shutdown as European financial “experts” cobbled together a scheme to stave off collapse of the country’s banking system and protect the interests of the strongest ruling families among the 17 nations that share the euro currency. Berlin is the strongest power and exerts the greatest influence in the eurozone, as the currency union is called.

Initially, Berlin called for closure of Cyprus’ two biggest banks. After the Cypriot government rejected this, the so-called troika — the European Commission, European Central Bank and International Monetary Fund — demanded confiscation of a portion of all bank accounts in the country as a condition for $13 billion in loans, further burdening the country with massive debt.

But popular protests and a unanimous rejection by the Cypriot parliament prompted the troika under Berlin’s prodding to come up with Plan B, another version of an offer the Cypriot rulers could not refuse: wipe out a portion of money capital and agree to impose harsh government austerity targeting the country’s working people or forgo the $13 billion loan and face the immediate economic and social consequences of a total collapse of banking and credit and exit from the eurozone.

Cyprus President Nicos Anastasiades accepted the troika’s demands to close the Laiki Bank, the country’s second largest financial institution. As far as the Bank of Cyprus, the largest, shareholders are to be wiped out and deposits over $130,000 are to get a “haircut” of up to 60 percent.

Supposedly guaranteed deposits under $130,000, which under the previous plan were to be “taxed,” are safe but unavailable for now. The government of Cyprus has imposed strict capital controls, limiting daily withdrawals to $383 and placing similar restrictions on other transactions as the only way to prevent bank runs by foreign and domestic account holders and a growth of the “banco de mattress” as a Financial Times article referred to the resulting loss of confidence in the country’s banks. This is the first time such controls have been imposed by any country within the eurozone.

The contradiction of a shared currency among nations with disparate levels of development and productivity is resolving itself through write-downs and capital controls. When “a Cypriot euro isn’t identical to a German or even a Greek euro, the single currency is closer to a hopeful fiction than an economic reality,” stated a March 28 Wall Street Journal editorial.

In some ways “this is true of euros on deposit in Greece,” stated the Times, “whose use is increasingly subject to detailed review and delay by tax authorities; or euros in Italy, where the size of cash transactions is severely restricted, at least by law.”

Cuts in hours and wages

In addition to job and wage cuts, strings attached to the troika loan agreement include raising taxes on alcohol and tobacco products and the island’s value-added tax rate.

Loss of confidence in the banks is reducing the availability of goods on store shelves, as suppliers are not taking letters of credit from banks but demanding cash. In Limassol, Cyprus’ second largest city and a center for shipping goods into the country, “the cargo network has shuddered to a halt,” reported the Wall Street Journal. “This is the artery of the economy and now nothing can move through here because no one’s sure they’ll get paid,” dockworker Marios Theodosiou told the paper.

Cyprus’ economy may contract by 20 percent over the next three years, noted Marketwatch.

The moves pushed by troika officials, fraught with their own divisions and clearly making it up as they go along, has received much criticism in the bourgeois economic press, whose armchair pundits often include their own nostrums for the crisis — all of which one way or another spell disaster and bear down hardest on working people. Under delusions that complement their faith in the law of value, the experts of capital believe that the right policies can mitigate or exert some control over the growing contradictions of capitalism.

“Cyprus Is Doomed: Why the Country Must Leave the Euro Immediately,” headlined an Atlantic magazine article, in arguing for an alternative “solution” to the banking crisis. “The Cypriot bailout and bail-in will save the Cypriot financial system by destroying it, along with the rest of their economy,” the article said.

The article doesn’t describe the immediate ruinous consequences of Cyprus dropping the euro and using a currency whose value would fall through the floor, the long-term challenge this would pose for a country that produces and exports little, or even the fact that its $19 billion public debt would still have to be paid in euros. The real options within the capitalist framework could be summarized: make it worse or make it worse.

Maria Plessa from Athens, Greece, contributed to this article.  
 
 
Front page (for this issue) | Home | Text-version home