Cyprus: is everyone in it together?
It would be rash at this stage to suggest that the dust has settled on the Cyprus bail-out, but after two weeks of frenzied headlines, it may be possible to stand back a bit and look at one aspect that has resonance in the UK. Who has lost out and who has benefited from Cyprus’ bank crisis? Is everyone in it together?
The short answer is that, although the news coverage has suggested that Cyprus has eventually bucked the trend and made the rich pay while the poor escape, that’s really not the whole story. Ordinary Cypriots are still paying for a crisis they didn’t cause, which is probably why the immediate losers from the bail-out aren’t complaining too loudly.
The prevailing story of the bail-out seems to have been that, in Cyprus at least, those who didn’t cause the crisis were told they would have to pay for it, protested, and won, with the cost of the Cypriot end of the bail-out being borne by people with bank deposits of over €100k (that’s about £85,000.) Instead, the losers will be the rich, and especially those foreign – mainly Russian – investors who have parked money in Cypriot banks to take advantage of low taxes and minimal disclosure rules – buried on ‘Treasure Island’ as Paul Krugman alluded. Basically, speculators and money launderers, it is alleged. In addition, there must be some doubt about the future security of what was considered the cash-cow of the Cypriot economy, its offshore tax haven financial sector.
Of course, it’s really not that simple. For a start, austerity measures agreed at a much earlier stage of the crisis are still in force: cuts in public services and jobs, wages and so on. So ordinary Cypriots are still paying the price of a crisis they didn’t cause. What they have forestalled is being asked to pay even more, under the proposal to tax all bank deposits, regardless of the euro-wide agreement from the early phase of the crisis to protect deposits up to €100k. And as Dr Michael Lloyd has pointed out, the Cypriot austerity measures mean that the crisis imposed on ordinary Cypriots won’t be resolved any time soon, regardless of whether this bank bail-out ‘works’.
But what the Cyprus deal has done is impose some of the austerity measures on the super-rich, whose ill-gotten gains are the basis of Cyprus’ staggeringly large – banking sector. I particularly liked Russian PM Dmitry Medvedev’s wry allusion to Marx’s “expropriation of the expropriators” by way of Lenin’s “the stealing of the stolen”, as covered in the Daily Telegraph. I suspect that the Russians are not complaining that much precisely to avoid further scrutiny of their deposits, which may be shrunk, but maybe still not by as much as an Icelandic solution (still less paying proper levels of tax) would result in.
So, overall, the rich are facing some of the pain – but nowhere near as much – as is being imposed on working people and the poor around Europe. Some note should surely be taken of how muted their cries of anguish have been, which suggests that we could in fact have asked them to dig significantly deeper before, in Denis Healey’s 1970s phrase, “the pips begin to squeak!”