Communist Party of Australia

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Issue #1587      March 27, 2013

A system based on theft

The move last week by the European Central Bank (ECB), the European Commission and the International Monetary Fund (IMF) – the notorious Troika that stalks Europe – to impose a “tax” on people’s and corporate savings in Cypriot banks sent shock waves across Europe and beyond. The level of anger and opposition amongst the Cypriot people was so strong that not even one government MP had the courage to vote for its own agreement with the Troika when it was put to parliament for ratification on Tuesday March 19. Opposition was not confined to the people. The precedent of raiding people’s bank deposits to bail out banks raised alarm bells within ruling class circles and amongst economic commentators, who feared a run on banks beyond Cyprus and possible loss of confidence in the banking system across Europe.

Thousands of people have joined the ongoing broad protest actions outside Parliament saying “NO”. The Communist Party (AKEL), which has the second largest representation in parliament, came out strongly against the deal and played a leading role in organising protest actions. It had been in government until last month’s elections and previously refused such conditions for a bailout.

Banks were closed all week to avoid a run on funds. Panic and fear reigned, with electronic fund transfers frozen and businesses refusing to accept non-cash payments. ATMs were quickly emptied as people rushed to extract what they could of their savings.

The bailout deal agreed to by the new right-wing government led by Nicos Anastasiades is nothing short of state-sponsored theft designed to destroy the Cypriot banking system and with it the Cypriot economy. The move glaringly exposed capitalism for what it is: a system based on theft.

The direct dipping into people’s accounts is unprecedented. In Greece, Ireland, Portugal and Spain the theft was indirect or at least less blatant. The bailouts were fully funded by external financial institutions and taxpayers through government austerity measures footed the cost of loans and turning budget deficits into surpluses.

The government was seeking a €17 billion (US$22 billion) bailout to recapitalise Cypriot banks and provide them with the liquidity they needed to continue trading. This is peanuts compared with the massive bailouts provided to countries such as Spain and Portugal. Yet Cyprus is being subjected to the most destructive terms imaginable.

The Troika, urged on by German Finance Minister Wolfgang Schaeuble, threatened to withhold all credit to Cypriot banks unless Cyprus funded €5.8 billion (US$7.5 billion) of the bailout in cash from domestic sources as well as approve privatisation and austerity measures to bring its contribution to €7 billion. Only then would they provide €10 billion (US$13 billion).

On Monday March 27, a meeting of the Troika and EU finance ministers reached agreement with the Cypriot government to provide €10 billion towards the bailout. The government must raise the remainder of the package through a massive tax of around 30-40 percent on bank deposits over €100,000 ($128,000), an increase in company and capital gains tax, privatisation of public assets and austerity measures. Details have still to be finalised. All deposits under €100,000 will be guaranteed.

It is estimated the government will raise around €4.2 billion (US$5.5b) from deposits in the Laiki (People’s) Bank alone. Its share holders and bond holders likely to lose everything as the bank takes over “bad debts” from the other major bank, the Bank of Cyprus, and is eventually closed. The Bank of Cyprus will absorb the “good loans” from Laiki but its large deposits will also be raided.

No other EU/IMF bailout has made such demands on a government to raise such a large proportion of a bailout in cash. The Troika also stipulated that the cash could not be the product of a loan or a government issue of bonds. The demands were framed so as to force the government to raid bank deposits unless it could raise the funds from another international source.

The government had initially agreed to a 9.9 percent tax on deposits over US$100,000 and 6.7 percent on smaller deposits to raise the €5.8 billion. It agreed to privatisations and other austerity measures. The version that went to Parliament on March 19 was slightly watered down, exempting savings below €20,000.

Germany’s agenda

The deal, which the Troika and the German government is imposing on the people of Cyprus, is a criminal violation of Cyprus’s sovereignty. It is a blatant, political attempt by international finance capital to destroy the Cypriot banking system and with it the Cypriot economy. Germany is the main force behind this agenda which will bring pain and devastation to the Cypriot people.

Following the failure of the Cypriot Parliament to pass the initial measures, Wolfgang Schaeuble, who played a prominent role in the negotiations with the Troika, warned: “The ECB has made it clear that without a reform program, that the aid can’t continue. Someone has to explain this to the Cypriots and I think there is a danger that they won’t be able to open the banks again at all.”

Just in case the message wasn’t clear, he followed with an even more direct threat: “Two big Cypriot banks are insolvent if there are no emergency funds from the European Central Bank.”

The economy of Cyprus, with a population of just over one million, was in tatters following the 1974 Turkish invasion and then occupation of part of its territory which continues today. It could not rely on agriculture for its prosperity. It developed two pillars – tourism and banking – and became a highly successful international financial centre and tax haven with a 10 percent tax rate and high interest rates on deposits.

Cyprus has attracted a large number of investors from Russia, the Middle East and more recently Chinese are beginning to invest there. As an additional inducement, investors can obtain Cypriot citizenship and hence a passport into the EU by meeting certain investment requirements.

Germany is developing Frankfurt as an international financial centre, with the aim of replacing the City of London. It is out to destroy the Cypriot banking system and economy so as to draw investors to the seemingly more stable economy and financial system there.

The collapse of Cyprus’s banking system would be catastrophic for the economy. Cyprus has a GDP of around €20 billion (US$25 billion). Cyprus relies on the banking system for almost 50 percent of its GDP and is now being told to raise the equivalent of 29 percent of its GDP overnight in cash or face economic ruin.

The Laiki Bank and Bank of Cyprus are on the brink of bankruptcy. They took a hit due to their exposure to Greek debt and are being kept afloat by emergency credit made available by the ECB. The banks saw 70 percent wiped off the value of their large holdings in Greek bonds during the Greek financial crisis, amounting to €4.5 billion in losses.

State theft

The deal sets a dangerous precedent. People in Ireland, Portugal, Greece and Spain who have already been subjected to harsh austerity measures in Troika bailouts are rightly asking if, when the next round of bailouts comes, they too will see their savings raided.

Past bailouts were paid for by the people through the imposition of pension cuts, sackings, wage reductions, loss of services and the sell-off of public assets. This raid on bank accounts is a far more direct imposition which is immediately felt by those whose savings are raided. Restrictions on withdrawals and cash only transactions are hitting hard. Workers cannot draw on their wages, parents cannot buy milk for their babies, small businesses cannot do business, etc.

The previous AKEL-led government was not prepared to accept such terms. It seems the EU waited until its defeat in the elections last month so that it could deal with the new Democratic Rally (DISY) government which is all too willing to sell its people and economy down the drain. Rumours abound that certain figures had relocated their savings offshore in advance of the Troika deal.

The Troika gave the government until Monday this week to find a means of raising Cyprus’s contribution to the bailout of the banks.

“Acceptance of the Troika’s unprecedented demands, which violate decisions of EU bodies, would lead us to a vicious circle of new even more painful demands. It is obvious to every European citizen that the dominant circles of the European Union chose to move in a vindictive way towards Cyprus, at the same time when they caress Turkey – a country that has been for almost four decades occupying illegally part of the Cypriot territory,” AKEL General Secretary Andros Kyprianou said in a statement on March 21.

“It is evident that the Eurogroup took a decision mainly on political criteria and not on strictly economic criteria. The aim is to enslave the Republic of Cyprus economically and to exercise political domination over it. If we were to allow something of the kind, we have no doubt whatsoever, that it would have had extremely negative consequences against the efforts we exert for the solution of the Cyprus problem and the use of our natural wealth in benefit of the people of Cyprus,” Mr Kryprianou said.

The “Cyprus problem” is a reference to the illegal occupation by Turkey of the northern 37 percent of the island since 1974. Cyprus is also of importance to NATO, Britain and the US in particular, with two large British bases on its soil as well as the occupied territory with its Turkish military presence. It is strategically located on the edge of Europe, northern Africa and the Middle East.


The Cypriot government unsuccessfully sought assistance from Russia last week. Russia, which is involved in a joint oil pipeline project to carry oil from Siberia through Germany to the rest of Europe, does not appear to be willing to upset Germany. At the same time it is interested in the offshore liquid gas reserves off the coast of Cyprus and may assist following settlement with the Troika.

The Cypriot government passed legislation on Friday for the restructuring the banking system, separating good and bad loans between the Bank of Cyprus and the Laiki Bank respectively. Greece’s Piraeus Bank looks set to take over the branches of Cypriot banks in Greece. This would safeguard deposits of Greek citizens but weaken the Cypriot banks.

The government is setting up an Investment Solidarity Fund based on pension funds, future gas revenue and state assets. This could be used by the government for emergency bond issues.

Banks have limited ATM withdrawals to a maximum of €100-120 a day, to prevent the sort of run on banks that precipitated the Great Depression. Other restrictions on banking still remain.

The restrictions on access to funds has set a dangerous precedent, Cyprus is being used as a guinea pig. Foreign investors will turn to a safer haven. The damage will have been done. The people of Cyprus – workers, pensioners, unemployed – will pay the price.

People’s solution

The Communist Party of Greece (KKE) has expressed its solidarity with the people of Cyprus, “against the blackmail and the barbaric anti-people measures imposed on them by the EU, the IMF with the complicity of the bourgeois governments, including the Cypriot and the Greek ones, in order to safeguard the interests of capital.”

“The Greek people, the Cypriot people and the other peoples of Europe can and must make their mark on the developments. They should reject the blackmail of capital, the EU the IMF. They should not line up behind any imperialist power. They should follow the road for the disengagement from the EU and the imperialist alliances,” the KKE’s statement concluded.

AKEL issued a warning that it “is not going to consent to measures that will condemn the whole of the people of Cyprus, and especially the workers, the unemployed, the young generation or the pensioners to poverty and misery. AKEL is not going to consent to Cyprus taking the disastrous path that other peoples of the European South have found themselves in.”

AKEL is insisting that a solution must be found outside of the Troika framework, based on its own forces with the support of countries that have reasons to help it. It has presented the government with proposals which are centred around the issuing of State Solidarity Bonds of 10-year length.

It has called on the political and social forces of Cyprus to rally their forces in order to build and forge a front of resistance against anti-people policies.   

Next article – Editorial – Labor’s descent into chaos

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