Cyprus can't repay its debt and the EU can't go on throwing
money at it. The entire banking system needs a radical overhaul
The Guardian, 8
April 2013
[…]
Is this not how ordinary people in Cyprus must feel these days? They are
aware that their country will never be the same again, that there is a
catastrophic fall in the standard of living ahead, but the full impact of this
is not yet properly felt, so for a short period they can afford to go on with
their normal lives like the cartoon character suspended in mid-air. And we
should not condemn them: such a delayed response is also a survival strategy –
the real impact will come silently, when the panic is over. This is why it is
now, when the Cyprus crisis has begun to disappear from the media that one
should think and write about it.
There is a well-known joke from the last decade of the
Soviet Union about Rabinovitch, a Jewish man who wants to emigrate. The
bureaucrat at the emigration office asks him why, and Rabinovitch answers:
"There are two reasons. The first is that I'm afraid that in the Soviet
Union, the communists will lose power, and the new power will put all the blame
for communist crimes on us, Jews – there will again be anti-Jewish pogroms
…" "But", interrupts the bureaucrat, "this is pure
nonsense, nothing can change in the Soviet Union, the power of the communists
will last forever!" "Well," responds Rabinovitch calmly,
"that's my second reason."
It is easy to imagine a similar conversation between an EU
financial administrator and a Cypriot Rabinovitch today. Rabinovitch complains:
"There are two reasons why we are in a panic here. First, we are afraid
that the EU will simply abandon Cyprus and let our economy collapse…" The
EU administrator interrupts him: "But you can trust us, we will not
abandon you, we will tightly control you and advise you what to do!"
"Well," responds Rabinovitch calmly, "that's my second
reason."
This is the deadlock at the core of Cyprus's predicament: it
cannot survive in prosperity without Europe, but nor can it with Europe – both
options are worse, as Stalin would have put it. What we can see emerging on the
horizon are the contours of a divided Europe: its southern part will be
increasingly reduced to a zone with a cheaper labour force, outside the safety
network of the welfare state, a domain appropriate for outsourcing and tourism.
In short, the gap between the developed world and those lagging behind will now
exist within Europe itself.
This gap is reflected in the two main stories told about
Cyprus, which resemble two earlier stories about Greece. There is what can be
called the German story: free spending, debt and money laundering cannot go on
indefinitely, etc. And this is the Cypriot story: the brutal EU measures amount
to a German occupation that is depriving Cyprus of its sovereignty.
Both are wrong, and the demands they imply are nonsensical:
Cyprus by definition cannot repay its debt, while Germany and the EU cannot simply go on throwing money to fill the Cypriot
financial hole. Both stories obfuscate the key fact: that there is something
wrong with the entire system in which uncontrollable banking speculations can
cause a whole country to go bankrupt. The Cyprus crisis is not a storm in the
teacup of a small marginal country, it is a symptom of what is wrong with the
entire EU system.
This is why the solution is not just more regulation to
prevent money laundering and so on, but a radical change in the entire banking
system – to say the unsayable, some kind of socialisation of the banks. The
lesson of the worldwide crashes after 2008 is clear: the whole network of
financial funds and transactions, from individual deposits and retirement funds
to the functioning of all kinds of derivatives, will have to be somehow put
under social control, streamlined and regulated. This may sound utopian, but
the true utopia is the notion that we can somehow survive with only cosmetic
changes.
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