One step from the dream to the nightmare for the peoples of the European Union

Alberto Rabilotta

31/03/2013

Opinión

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With the imposition on Cyprus of the "diktat" of the Troika, the European Union has dissipated what few doubts may have been left about who is in charge and who benefits from the policy to maintain the monetary union.

Even in the cases of the rescue of the Greek or Spanish debt, to cite two cases, the criticisms of economists and politicians towards the European Union and the Troika (European Commission, Central European Bank and the IMF) were not as unanimous on the basic question, the hegemonic role of Germany, as they have been in the case of Cyprus.

The Euro or life?

In newspapers, on the internet and in blogs, many economists in the US and Europe see the "solution" of the crisis in Cyprus imposed by the Troika as one more step by the European Union towards its own destruction: "The lesson of Cyprus is that Europe is politically bankrupt (. . .) Over the past week, Europe, or rather the present EU leadership, has done damage to itself it will never be able to repair" (Theautomaticearth.com, 26 March 2013).

"Cyprus should leave the euro. Now. The reason is straightforward: staying in the euro means an incredibly severe depression, which will last for many years while Cyprus tries to build a new export sector. Leaving the euro, and letting the new currency fall sharply, would greatly accelerate that rebuilding” (Paul Krugman, the New York Times).

"The good, the bad and the extremely ugly (aspects of the agreement on Cyprus)": The agreement of the Troika introduced the ugliest dimension that the new deal has introduced is the effective end of any hopes of a genuine Eurozone-wide banking union" (Yanis Varouflakis, Greek economist).

“Cyprus finds not all nations are equal” and that "the interests of the eurozone’s large nations come first" (Christopher Pissarides, Nobel laureate in economics and advisor of the president of Cyprus, Financial Times, March 28 2013).

Do what I say, not what I do

There is no doubt that the Nobel Laureate Pissarides is right here. The big nations of the Eurozone, with their big banks that indulged in speculation and were rescued by the European Central Bank, are the same who are now negotiating a Free Trade Agreement between the European Union and Canada, that the Canadian Press (CP) analyzes on the basis of a draft of the negotiations (Weaker bank rules part of Canada-EU trade talks, 27 February 2012).

The draft cited by Canadian Press left it quite clear that the famous Canadian banking system -- the only one of the G7 countries that resisted the "subprime" crisis because of the "wall" that separated deposits from high risk operations and because an effective system of supervision was maintained -- is on the table in the negotiations because "the European Union does not want to exclude financial services from the scope of the demands of performance requirements." Or in more profane words, the banks of the European Union want to be where they can make profits faster and more easily.

Canada, according to the Canadian Press, is resisting the attempts of the European Union to weaken the supervision of financial institutions that saved the Canadian banks from the crisis, and because of this the country has adopted a cautious strategy: Ottawa will only open their financial markets to the European Union if Canadian authorities can maintain the power to block trading activities that would put the [Canadian] financial system at risk. But, the comment adds, Canadian caution is bumping up against the aggressive European drive (from the Financial centers in Germany, Great Britain, France, the Netherlands, among others) that want to obtain total protection for their investors.

With words that we all understand, the "strong nations" of the European Union want to demolish all or part of the safeguards and the supervision that constitute the strength of the Canadian banking model in order to invade areas of financial risk with the European investors protected from any sanction or reaction on the part of Canadian authorities or interests.

The periphery controlled with the shackles of debt

Because of this it is no surprise to read the German journalist Jakob Augstein: “the drama over Cyprus has made clear that the euro-zone crisis is developing into a struggle over German hegemony in Europe. On the surface, (Angela) Merkel and (Wolfgang) Schaeuble – her minister of finance - seem to be working to stabilize the economy. In actuality, they're binding other nations with the shackles of debt” (Stubborn and Egotistical: Europe Is Right to Doubt German Euro Leadership, Der Speigel, 25 March 2013).

Augstein cites the US anthropologist David Graeber, who in his book Debt: "The First 5,000 years" points out that “if history shows anything, it is that there's no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt -- above all, because it immediately makes it seem like it's the victim who's doing something wrong”.

Even the Foreign Minister of Luxemburg, Jean Asselborn, criticized Germany for "seeking hegemony in the Eurozone" and in passing made clear his critique of the "business model" of Cyprus (similar to that of Luxemburg) because Germany should not “under the cover of financially technical issues” choke the "economic models" of other countries.

Asselborn noted that the big countries, such as Germany, France and Great Britain, are unable to argue that only their financial centers are necessary and that those situated in other countries should be shut down (Reuters, 28 March 2013).

Without a doubt Asselborn was not happy with the statement of the French Finance Minister Pierre Moscovici, addressed to those who criticized him for agreeing with the policy applied to Cyprus: "to those who say that we are strangling a whole people. . . Cyprus is a casino economy that was on the brink of bankruptcy."

The Cypriot economist Christopher Pissarides, in his article in the Financial Times (28 March 2013), rejects the notion that Cyprus had a "casino economy" and recalls that, since the Turkish invasion of 1971, Cyprus lost the greater part of their agricultural and industrial base and then decided to make business services and tourism the principal export sector, to attract business from the Middle East, the European Union and Russia, through agreements on double fiscal taxation, relaxed immigration policies and low taxes for business.

Nobel laureate in 2010 and, since January, advisor of the president of Cyprus, Pissarides affirmed that for the Troika the "problem" is that large bank deposits that were made in Cyprus inflated the banking sector to the point of "unsustainable" dimensions, approximately eight times the GDP. But this proportion – the economist points out – is lower than that of Luxemburg, and not much different from those of Malta and Ireland.

He also points out that the plan of the Troika is based on the assumption announced by the German Minister Schaeuble, that this "business model" is "unsustainable" and that the Cypriot banking system should shrink by 50 to 60 per cent during the next five years.

Pissarides notes that the Troika did not refuse the opportunity and liquidated the two big banks of Cyprus, the Laiki Bank and the Bank of Cyprus, which had heavily invested in Greek bonds and needed capital to stay in business, and says that "this is where the troika decision-making becomes baffling and the vision of the founding fathers of the single currency becomes a mockery."

For the economist Yanis Varoufakis it is welcome that the cost of the fatuous Cypriot bankers has been laid on the depositors that assumed risks, but one should not be surprised if this episode in Cyprus, that lasted one week, may end up in the annals of history as the point of a principal change in direction: the moment in history in which Europe went beyond the barrier of what is acceptable.

Varoufakis recalls that the new President of the Eurogroup, Jeroen Dijsselbloem, said in very clear terms that the agreement with Cyprus opened the way for other rescue agreements which would be such that the European Union "would never have to consider direct recapitalization" of banks that fail, which – the economist points out – constitutes a death sentence both on the recapitalization agreements in the European Union in June of 2012 and of any banking sector that makes sense: “The message is thus clear: Each to his or her own! All plans to use the ESM in order to de-couple the banking from the public debt crisis are off the table”.

For the Greek economist, the combination of (a) the negation of the need to consolidate the public debt, (b) the derailing of any bank union that makes any sense, and (c) the heavy hand with which Cyprus was treated during the past week, implies a new and horrible state of relations in Europe. To date, those who supported austerity and the way that Germany managed the crisis of the Eurozone in indebted countries, including France, “have argued that we need to go along with Berlin and Frankfurt so as to inspire sufficient confidence in those who control the purse strings (in our willingness to ‘do our homework’) before they can yield to the inevitable eurobonds, to the logic of a banking union, to whatever it takes to bring about greater political and economic union”.

Varoufakis concludes, however, that “the Cyprus deal reveals how wrong this view was: Even though peoples throughout the periphery (in Ireland, in Portugal, even in Greece and Italy) have, however grumpily, bowed their heads to severe austerity and the removal of labor protection laws, the powers that be in Berlin and Frankfurt are shifting away from unifying moves, adopting increasingly authoritarian, divisive policies that are pushing the Eurozone in precisely the opposite direction to that dictated by political and economic sustainability”.

Even the journalist Jean Quatremer, from the French daily Libération, writes that the Berlin government appears to be incapable of controlling its enormous power, and that if in the times of the "Merkozy" (the alliance between the ex-president Nicholas Sarkozy and Chancellor Angela Merkel) there was some appearance that decisions were taken mutually, with the refusal of President François Hollande to "stick to" Merkel, it has become clear what European institutions really are: the fig leaf that prevents European citizens from seeing the will of Germany.

He adds that Germany decided to resolve the Euro crisis on their own terms, and that the supposed superiority of the economic vision of Merkel is leading to a state where "Germany loses all of its friends, even though they are still not enemies."

Many analysts consider that the recipe employed in the case of Cyprus has nothing to do with "saving Cyprus" but rather with the destruction of Cyprus, pointing out that there is no doubt that the position of Germany and her allies are the cause of the "democratic deficit in the European Union." Pissarides concludes his article noting that for Cyprus "the future is indeed bleak. It is not clear what is coming next and from where”.

The breaking point?

In political terms what happened in Cyprus, and the reactions of the German politicians and of the other "great nations" of the European Union, has already come to a decisive change in the political position of the Parti de Gauche of Jean-Luc Mélenchon, who for the first time talks of the European Union and of the Euro in terms of a "rupture".

Asked about urgent measures to be taken, Mélenchon, former presidential candidate for the Parti de Gauche, said to the daily L'Humanité that "this is at the centre of everything: sharing wealth in favour of labor, undertaking the ecological transition of the system of production. To achieve this, it is necessary to hit the heart of the problems, Europe. This requires a rupture on three points. First, the Franco-German relationship: completely unbalanced, functioning for the exclusive advantage of German capitalism. After this, the Euro. We had always defended the notion that the single currency could be a point of support for progressive policies, but we have reached a point where this discourse is no longer operative due to the stubbornness of the European leaders. Finally, the 'Mediterranean crescent'. Are we not at the point of realizing that we have another centre of gravity than Germany, from the other side of the Mediterranean?"

For the Bloomberg news agency, the "saga of Cyprus" will give ammunition to the populist leaders over the whole south of Europe, who are saying that the political elites who are managing this crisis have no interest whatsoever in ordinary savers. Italy has a political system that is paralyzed; Greek voters are indicating growing support for the Syriza party that wants to renegotiate the rescue of Greece.

Slovenia is moving towards a request for rescue and, according to Carsten Brzeski, economist of the ING Group in Brussels, the crucial problem will come when the Cyprus problem begins to affect more important economies, such as Spain and Italy.

According to the IMF, to refinance the public debt in 2013, Slovenia will have to create bonds amounting to three thousand million Euros, something extremely costly for the country given that the interest rates on these bonds went from 4.5 to 6.4 per cent as a result of the Cypriot "rescue".

According to the economist Yves Smith (nakedcapitalism.com, 29 March 2013), the next confrontation on bank rescues and structural reforms will be in Slovenia: “One open question is what stance the new center left government will take in any negotiations. The president, Alenka Bratušek, has made clear that she wants to give priority to growth, not debt reduction. But that does not square with Germany’s position. Slovenia and Germany could get into a row over the reforms required of Slovenia in return for assistance. If Slovenia attempts to push back against the Troika, it’s certain to get a forceful rejection just as Cyprus did. And another display of brute force is unlikely to go unnoticed by Italy and Spain.”

The "rescues” and the policies of austerity that accompany them are causing social and economic disasters in a growing number of countries of the European Union. Even large economies, such as that of France, are moving towards recession because of increased unemployment and lower levels of consumption and industrial production.

The imposition of German hegemony on the European Union, a project in which the Euro is a key element because it concentrated financial power and led to the indebtedness that is shackling an increasing number of countries, has converted the old dream of a prosperous European Union with a social consciousness into a nightmare.

La Vèrdiere, France.

(Translation to English: Jordan Bishop)

- Alberto Rabilotta is an Argentine-Canadian journalist.

https://www.alainet.org/de/node/74967?language=es