Godzilla Capitalism

Austerity runs Amok, Destroying EU Citizens’ Savings in its Wake

The financial fundamentalists in Europe are unwilling to waver. Despite four-and-a-half years of constant crisis management meant to save the common currency these zealots continue to relentlessly impose their austerity programs on the continent’s voters and taxpayers so weary of the ineffective austerity measures. For instance, in Britain the big budgetary squeeze is cutting down to the bone and marrow while the specter of “stagflation” hovers over the nation.

Seemingly taking the cue from his German counterpart Wolfgang Shauble (Merkel’s enforcer or gaulieter at EU financial ministers’ meetings), the chancellor of the Exchequer George Osborne is sticking to his guns by further pursuing spending cuts meant to balance the budget deficit. Britain’s austerity policies have led to tax increases, massive lay-offs in the manufacturing sector and severe cuts in social and welfare benefits. These reckless policies have seen the country sink further into a deep recession for the past three years, an economic downturn not witnessed since the end of the Second World War. Its anemic growth rate is expected to be only 1 percent in 2013, according to IMF estimates. Industrial production is falling.

Yet there’s a saving grace for the United Kingdom: not being in the Eurozone is an asset. The pound is down hence this allows for price-competitive exports destined for the EU marketplace to sell well. For their part, Mediterranean countries within the Eurozone plagued by low growth and record high unemployment don’t have this edge or luxury to devalue their currency in order to stimulate exports. They are prisoners of the Eurozone and can’t get out.

Captain Merkel’s Euro-Titanic has hit the Cyprus iceberg

For those inside the Eurozone the message coming out of Berlin and Frankfurt via the Brussels blow horn is this: There is no alternative to deficit reduction. Austerity muss sein whatever the costs to the citizenry. After Greece, Portugal, Ireland, and Spain, Cyprus is already braced for more austerity; this week is the latest to be offered an EU bailout in order to prevent the another Eurozone member state from going bankrupt. As in Greece, Cyprus’s marauding banking sector is ailing and needs another EU taxpayer funded bail out to stay afloat. Cypriot banks are reeling from the aftershock from Greece’s banking sector bust and the consequences of making bad loans to their Hellenic brethren. Greece was bailed out twice by Brussels in 2011 and 2012, with no hit to the average banking clients. This time the EU-IMF-ECB imposed “haircut” will shave off savings of Cypriot bank account holders.

In return for troika’s largesse, a tax not only on wealthy foreigners (British and Russian) but also on depositors with their life’s savings in these banks (who made too many dodgy loans) is planned to be levied this week — or as the International Herald Tribune reported, “banks will be confiscating money directly from retirees and ordinary workers to help pay for the tab for the 10 billion bailout.”1 In other words, international investors (i.e., German banks, Cyprus’s main creditors) will feel little pain while domestic depositors will have part of their savings in effect legally stolen from them in the process. This latest financial crisis within the Eurozone has sparked outrage among Cypriots, in addition to setting off another Italian-like parliamentary and political crisis as well on the Mediterranean island. “Cyprus in an extreme emergency” said Mr. Nico Anastasiades the newly elected president of the country. 2  He went on to say: “These are the most tragic events we have faced since 1974”, referring to dramatic events which led to the division of the country and an economic collapse afterwards.

Germany’s dictates conditions of bail out: Cyprus surrenders its sovereignty

According to FT reports, the rescue package was agreed to under circumstances of great duress. After being submitted to tremendous pressure coming from the German finance minister, the Greek delegation in an emergency meeting of EU finance ministers, agreed to the terms of this latest bail out. The Cypriot president in attendance said: “You’re trying to destroy us, even if I agree to it I can’t pass it [through parliament].”3 The diktat deal was done despite the opposition of the country’s highest ranking officials and its head of state. Germany’s protectorates Finland, Slovakia, and to some extent the Netherlands, also backed the harsh conditions for the financial succor of Cyprus. All this has sent shock waves throughout the Eurozone. The real fear in many European capitals so far immune to this ongoing horror fest, is the possibility of a bank run in Cyprus which could then spread elsewhere within the euro zone. Greece, Spain, or Italy — already teetering on the edge of another economic abyss due to austerity policies — are favored candidates for such an almost inevitable catastrophe or disaster just waiting to happen.

  1. Calls escalate for Britain to take a break on austerity, International Herald Tribune, March 18, 2013. []
  2. Cyprus in crisis over tax on bank deposits, Financial Times, March 18, 2013. []
  3. Fate of island depositors was sealed in Germany, Financial Times, March 18, 2013. []

Michael Werbowski is a graduate of post communist studies from the University of Leeds, UK. Read other articles by Michael.