Monday, March 18, 2013

Putting a Clear Face on Austerity

The Cypriot people are discovering how austerity politics plays out these days.   Like the Irish people before them, and the American public before that, they're being fleeced to bail out their crooked, money-laundering banks.

The European Commission, the European Central Bank and the International Monetary Fund have approved a Cypriot bank bailout that is essentially a confiscatory raid on savings. 

Cypriot bank depositors will see their balances lightened.  Those with holdings over 100,000 Euros will be "taxed" 10%.  Ordinary Cypriots with forfeit 6.7% of their bank balances.

The raid has been instructed by the "Troika" – the European commission, the IMF and the European Central Bank – as part of a characteristic "take it or leave it" ultimatum to the Cypriot government. The parliament in Nicosia is being pressed to ratify the deal with the threat that without it there will be no bailout funds and the ECB will withdraw all liquidity support to the stricken banks.

As part of that propaganda campaign, the focus has been on Russian oligarchs and tax evaders who have been laundering funds through Cypriot banks. In fact, among those caught in the upper savings bracket are bound to be pensioners for whom this represents their entire life savings, and others who have recently borrowed enough money to buy a modest home. But even if only oligarchs were affectedE, this is surely an admission of guilt by the European and international authorities, who are responsible for the global regulation of banks and co-ordinating anti-money laundering activities. Their own failure can hardly be a justification for expropriating the small savers of Cyprus.

The Cyprus gambit is a measure that could spread destabilizing consequences for the rest of Europe's banking industry. is foolish of the Troika to assume that its confiscation of Cypriot savings will have no international implications. Savers all across Europe will look on in horror, and are bound to wonder whether it could happen in their own countries. It is entirely possible they will respond by shifting their savings into state or postal savings banks at the very least, even if outright bank runs are avoided. If this happens on sufficient scale, it could further undermine the fragile banking system in a number of countries.

To prevent Troika raids, deposits need to be put into protective custody to preserve both savings and the domestic banking sector. For anti-austerity governments, these funds could then be used to support state-led investment and reverse the European depression.

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