The Great Cypriot Bank Heist — a moment in the crisis

by · March 19, 2013

An angry Cypriot depositor drives an excavator into an ATM

An angry Cypriot depositor drives an excavator into a bank



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.

By Sunday morning it was dawning on tens of millions of people what had happened, as the news spread from the specialist financial commentary to front pages and top television news across the continent.

At one stroke, the Troika of the Eurozone finance ministers, European Central Bank and International Monetary Fund had, with the new right-wing Cypriot government, stolen between 6.7 and 9.9 percent of the money of all depositors in Cyprus’s ailing banks. All in the name of a bank rescue.

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, “rescue” means direct robbery of the depositor.

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 private contractual relationship — 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 the 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 generalised bank run, not just in Cyprus.

The banks in Cyprus and Greece are closed today for the Orthodox Clean Monday holiday. The Cypriot parliament is in emergency session to try to pass the measures while its government also seeks to renegotiate them. The potential in the coming days and weeks for a rapid spread of this phase of the crisis — and for a dramatic social and political rupture — is immense.

It’s not just one thing; it’s one damn thing after another. The political instability, worsening economic outlook and rising resistance are spread across southern Europe and elsewhere. This sudden sharpening of the crisis poses acutely the strategic questions for the labour 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 Cameron government in Britain, which is not in the euro, shows again this week in the face of mounting evidence of further economic collapse.

Potential for accidents at every level

The government of Nicos Anastasiades in Cyprus slipped out carefully selected and self-serving details 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 proposal was to throw the burden of bank theft almost wholly onto large depositors, those with over €100,000. The Cypriot government was desperate to keep its status as a home for hot money, a policy that had contributed to the massive overextension of Cyprus’s banks so that their business swelled to seven times the size of the actual economy. Much of the cash in the banks — €20 billion — is from Russia’s capitalist oligarchs.

So it was the centre-right in Cyprus that decided to offer up workers, pensioners, farmers and small businessmen to placate the banks and their Troika enforcers, just as in myth Athenian king Aegeus sacrificed the city’s youth to the Cretan Minotaur.

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

It’s a lose-lose situation. Whatever the Cypriot parliament decides today, the rich will withdraw their deposits anyway, ending Cyprus’s status as money laundry of the south (a barely concealed aim of Berlin and Brussels). And so will the middling and poor when the banks 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 spill-over in Greece. The Cypriot banks in Greece will now be included in the Greek banking system. But who will recapitalise them — to the tune of something like €2 billion? The money from the last round of the Greek bailout has withered as austerity deepens the slump. Greek depositors have €13 billion in Cypriot banks in Greece, principally the Cyprus Bank and Laiki, which the Troika has said it will pull the plugs on if there is 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 when the banks reopen in an atmosphere of not only ongoing social rage but of a further moment of political crisis in Greece.

The government of Antonis Samaras tried to play poker with the Troika a few weeks ago. He wants to appear tough in the negotiations and, more importantly, his government has not been able to drive through all the measures demanded. So the Troika left Athens without closing a new deal. The last time this happened, under PASOK’s 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 more must be offered up to the monster? One obvious answer now 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 the south; in a new round of austerity by the Greek state to recapitalise the banks; in the political impotence of Samaras’ tripartite government to vote through the measures, still less enforce them.

And the Cypriot bank job is set to exacerbate geo-political tensions in the eastern Mediterranean. The 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 the field 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.

How one cartoonist saw the "haircut"

How German cartoonist Harm Bengen saw the “haircut”

Left strategy — renegotiation or rupture?

There are two broad lines of argument the radical Left can articulate — and two general directions of travel it can take.

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.

There is certainly propaganda merit in showing that it is the defenders of neoliberalism and not the Left that have inflicted the nightmare on anyone who has a bit of money in the bank.

But what would it mean to say that the Left can defend the little person 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) is actually how this free market system operates. Bank nationalisation and capital controls would entail directly standing up to the blackmail issued by big capitalists and the banks, and enforced by their consiglieri in institutions such those making up the Troika.

It would mean nationalising the currency — a direct break or rupture with the Eurozone and EU. In other words, if it were to mean anything to the people who are suffering now in Cyprus, it would entail a radical anti-institutional break. It would mean the second direction of travel that is open to what the Left can try to do and argue for.

That is to say that 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.

But if the liberal capitalists cannot succeed in protecting rights of private property, 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. They are not a uniform interest group, and are not a potential bloc that the Left can mobilise, lead and rest on. For us, nationalising 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 those of us in Britain, might have seemed abstruse over the last couple of years. After all, wasn’t the central issue the bringing into office of a government that was in some way opposed to the austerity madness? The problem is that the Cypriot heist poses the question of whether there needs to be a renegotiation of austerity or a radical rupture with it — not as a policy dilemma of government, but as a political argument around which masses of people may be mobilised to have political effect.

And Cyprus did have a government opposed to austerity: its first-ever Communist President, Demetris Chrisofias. It sought exactly to find allies among governments of the south and to mitigate the austerity, while saying that things like 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. Chrisofias lost the election last month.

What the Left says and does now matters. First, can it encourage radical mass mobilisation that can 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 popularising 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 rising resistance and a social agency that is posing radical political answers.

Last year, so much of that seemed like a luxurious or even trivial distinction. But the actual dilemma is not in the future — to be faced possibly 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 implications elsewhere.

2013 is not 1953

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 the holding of 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 writing off debt against our government and the City of London has great merit. Indeed, arguing to seize the £777 billion of idle deposits in Britain’s banks and using them for socially needed investment 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 post-war boom, when Washington’s fears of West Germany being drawn towards the Soviet camp were backed by a confident US with the means to underwrite the Marshall Plan.

Above all, the governments and institutions remain wedded to one another and to austerity. It was in the name of the national that Anastasiadis 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 showed.

The central question posed for the Left is whether we can speak to them, but not with the aim of drawing them into a bloc with a section of the elites that have failed. Instead, to create a new, powerful political pole that strikes at the root of the problem.

Tsipras told the audience at a public meeting in London that a large majority 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 did not expect anything to change.

A part of changing 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 centre-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.

A version of this article has also been posted at the UK-based blog Left Unity.

Now also cross-posted at Crikey.

Discussion5 Comments

  1. Thanasis Kampagiannis says:

    A short comment on the Cyprus issue:

    The articles by Kevin Ovenden and Michael Roberts provide very useful insights, so I will take them for granted and move on to a few points that have not yet been made.

    The mainstream story in Greece and Southern Cyprus is that the hair-cut in deposits was imposed by the Germans. This national narrative is more and more shaping the way people across Europe see the unfolding of the Eurozone crisis. But a closer look can give more important lessons than this.

    What has actually happened the night of the negotiations was the demand by the German government (along some of its allies of the North) that the funding of Cyprus bail-out would not exceed 10 billions, so the rest (approx 8 billions) should be found by national resources (privatisations plus the hair-cut in deposits from the over-swollen cypriot bank sector). This meant 5.8 billions from the deposits. All the dramatic moments of the night – the threat by Cypriots to leave the negotiation table, the blackmail from the EU that the ECB would stop funding of the Laiki Bank through the ELA mechanism which would provoke a default, the comeback of the Cypriot Minister after talks with Anastasiadis – had to do with the 10 billions cap on the bail-out and the insistence on Cypriots finding the rest of the money (a hair cut on deposits was the only practical way to do that). In the end, the cypriot government accepted the blackmail and decided to go along with the haircut.

    Now, Anastasiadis, the President and leader of the Right in Cyprus, insisted that the hair-cut of big investors deposits should be less than 10% (hence the 9,9% number), for Cyprus not to lose it status as a financial laundry of the Mediterranean. The FT write: “Several officials suggested putting all of the burden on deposits over €100,000. Berlin was agnostic about where the axe fell. But Cypriot officials, with the backing of the commission, felt anything over 10 per cent would appear so onerous that it would make the situation even worse. “The Cypriot president did not want to agree to a levy higher than 10 per cent,” said one top negotiator. “People were joking that he has only rich friends”.” The Cypriots were supported in this by the European Commission and the ECB, whereas the IMF sided with the german proposal for a big hit on the big investors. In the end, the decision was unanimous, it was just a matter of maths (see a very useful tool in Reuters here: Now, Schauble accuses the Cypriot Government over the whole mess. So what do we get out of all that? Who is responsible for the break of confidence on the banking system everywhere and the hit of small depositors in Cyprus (which is now a dangerous precerent)?

    Whereas Anastasiadis is the politician who obviously pursued this decision, it is ridiculous to take the responsibility off the EU back. To say it otherwise: if the EU leaders wanted to secure the deposits under 100k, they would extend their blackmail against Cyprus over this issue as well. But they didn’t! In this small instance, the EU fully exposed its nude class-sidedness: blackmails are only meant for the bankers’ safety, not for the ordinary european citizens. What the EU leaders of course know is that it is increasingly tough to pass this kind of favours to “rich friends” from parliaments and political institutions. But Anastasiadis said that he could. The answer from the rest of the EU leaders was probably something between “Good for you!” or “It’s your fucking problem!”. What this reveals is the utter failure of the EU institutions to collectively face the political backlash taking place in many nations against austerity. The EU is an international entity, facing an huge crisis, with no common political brains. This is why even the most obvious political move (saving the under 100k deposits) was in the EU’s negotiations table noone’s job to promote. The king could not have been more naked.

    Now, the rest happening is almost common-sensical. Anastasiadis goes back to Nicosia and of course he finds out that he cannot pass the hair-cut of small depositors even from a parliament vote (let alone the society). There is no “surprise” here: people in the EU meeting could just turn their eyes to the Italian representation and see Monti talking for Italy. But it now seems like the EU bureaucracy will only wake up when Beppe Grillo farts in its meetings wearing a red nose… Now, Anastasiadis seeks a new deal, a new Eurogroup will meet, the cypriot parliament stalls… In the mean time, the banks are closed, and the EU has blown the most important factor in getting away with a financial crisis: the faith of the mass of the people that their deposits are safer in the banks than under their mattresses.

    We don’t know whether there is going to be a bank-run in the next few days, what the outcome will be on the greek programme and so on. The thing we do know, is that the european ruling class and its political personnel revealed, apart from their utter contempt for the masses of the people with just a few money aside, their total weakness in face of the crisis. This is something that our side should definitely take into consideration in the discussion on what is the relation of forces and how far we can go in out fightback against the crisis of their system.

  2. […] also – The Great Cypriot Bank Heist — a moment in the crisis by Kevin Ovenden for Left […]

  3. […] also – The Great Cypriot Bank Heist — a moment in the crisis by Kevin Ovenden for Left […]

  4. […] previous post was written early on Monday morning, London […]

  5. The Zedian says:

    It is a shame that the EU central Bank and the Greek Governemnt have decided to take this course of action which is the highest level violation of individual property rights. This lack of rational expectations analysis will come with big a price for the EU and Greek economy. Invesotors will certainly withdraw their investments from the Greek economy due to lack of political stability by the Greek Government and its undermining of the rule and respect of laws that protect property rights.This current turn of events should have not occured in a mordern capitalist country……the Greek masses will suffer considerably for this poor or lack there of good Judgement for a longtime.