Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Thursday, March 21, 2013

The Pirates Around Cyprus

The other day, near Athens, I met a cheerful Greek-American economist who is in his mid-seventies. He sported a white Vandyke beard. He was shuffling around his veranda in a mischievous mood. He was planning a party for that night, which would run from ten o’clock until about five in the morning. All of his guests would wear pirate costumes. He had invited an Icelander he had barely met, he told me, because Icelanders were familiar with plundering and being plundered, and also, he noted facetiously, “They don’t drink much.”

I asked where the idea for the party theme had originated. “European Union pirates,” he explained.

Greeks live well in all seasons, but this has been a dark winter of recession, social disruption, and unstable politics. My acquaintance’s merriment preceded by several days any public knowledge of the latest revelation, one that is shaking Europe and global financial markets this week.

Over the weekend, E.U. negotiators announced their demand that Greek Cypriots with bank savings part with some of their deposits by way of a onetime tax, in order to support a transnational bank bailout. (Cypriot banks have been on the verge of collapse for months because, among other things, they held too many Greek sovereign bonds.) The initial version of the proposal would have culled Cypriot bank accounts holding a hundred thousand euros or less by 6.7 per cent, and accounts with deposits over a hundred thousand would have been drained at a rate of 9.9 per cent.

As an act of piracy, the E.U. proposal, reportedly conceived by German and Finnish negotiators, was unabashed. As public policy, it was an unconscionable repudiation of legal guarantees made to small Cypriot savers, whose accounts are supposedly insured under E.U. regulations up to a hundred thousand euros, in a scheme similar to that provided by the Federal Deposit Insurance Corporation in the United States.

By midweek, a revolt in the Cypriot Parliament, hostile editorial opinion across Europe, and market turmoil had led the proposal’s authors to reconsider its terms. Yet the E.U. has continued to play tough in the negotiations, and the final outcome remains uncertain.

In its foolishness, the proposal exposed in plain light a strain of ugly discrimination—is it too much to call it racism?—that continues to run through German, Finnish, and other northern-European attitudes toward the Union’s southern debtors.

Those affected by the new proposal include not only small Cypriot savers, however, but also some of the thirty-five hundred British soldiers stationed on the island. The Tory government led by David Cameron had to announce an emergency measure over the weekend, promising soldiers, sailors, and their families that Britain would make good any losses they incurred. On Tuesday, British officials dramatically flew about a million euros’ worth of banknotes to the island, to ensure—for the television cameras, among others—that soldiers could buy groceries, beer, and other necessities.

The Cypriot banking crisis has many authors, as my colleague John Cassidy described. The island’s banking sector is a bloated, under-regulated locus of offshore secrecy, capital flight, and money laundering. I first visited there in 1992, to report a story for the Washington Post about how Belgrade allies of the then-Serbian strongman Slobodan Milošević were shifting funds from the former Yugoslavia to Cypriot banks.

More recently, the black and gray money has come to Cyprus from Russia. The Financial Times estimates that of the sixty-eight billion euros in total deposits in Cypriot banks reported publicly by the Central Bank of Cyprus, more than a third belong to Russian companies, some of which are mere nameplates designed to hold the questionable wealth of Russian individuals. Yet whatever fiddles, crimes, and reckless lending Cypriot authorities permitted during the run-up to the euro crisis, they tolerated them under the full regulatory gaze, such as it was, of the European Union.

What’s more, Cyprus’s economy and its banking sector are both small. Unlike the large economies of Spain and Italy, or even the smaller ones of Greece and Portugal, the collapse of Cypriot banks or the island’s economy would not, in itself, present a systemic risk to Europe, other than by sparking an unexpected contagion.

Because Cyprus is so tiny, its very weakness seems to have invited aggression from northern-European bankers, bondholders, and government negotiators—a degree of aggression that they would not have considered if the island were too big to fail, as Greece, Spain, Italy, Portugal, and Ireland were each ultimately judged to be.

Elections are coming in Germany; it is entirely understandable that Chancellor Angela Merkel would wish to avoid calling on German taxpayers to secure the offshore deposits of Russian oligarchs. Because it hit dodgy Russian accounts, a tax on Cypriot bank depositors to co-fund the bailout must have initially seemed like an emotionally satisfying idea.

Yet even if the Russian deposits in Cyprus reflect criminality, they arrived, again, under E.U. regulation. And most of the savers who would be hit are not Russians but, rather, ordinary Cypriots who practiced exactly the habits that too many Germans seem to disdainfully regard as un-Greek: they worked, they set money aside, and they saved to finance property purchases or retirement. There is no policy or moral case to tax Cypriot savers who hold accounts under the E.U.’s insured ceiling.

As the American economy chugs and sputters toward recovery, Europe’s interlocking crises of governance, austerity, and recession in the south of the continent are holding the world economy back. Liberal American economists like Paul Krugman have become influential in Europe because of their accurate forecasts that fiscal tightening in the midst of a recession would fail, as it has in Britain. What is required now is a different sort of American pressure on European leaders, to shake them out of their bankers’ negotiating poses and to help them craft a vision of social and economic inclusion. The Cyprus bank tax was so badly conceived that it has to be understood as a warning of the northern-European élite’s self-defeating indifference to the hardship and anger they are fuelling to their south. Pirates may be great fun on a Saturday night, but they are lousy neighbors.

Original Article
Source: newyorker.com
Author: Steve Coll

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