The example of Cyprus, the imposition of the haircut on bank deposits and the blackmail by the ECB

Speech by the General Secretary of the C.C. of AKEL A. Kyprianou to the Seminar “Democracy and Solidarity within the framework of the EU’s Economic Governance”

Saturday 2^nd December 2017, Nicosia

On behalf of the C.C. of AKEL permit me to welcome you to this very interesting seminar “Democracy and Solidarity in the Economic Governance of the EU”.

I especially would like to welcome to Cyprus and to our seminar the comrades from Portugal and Ireland. Miguel Viegas from the Portuguese Communist Party PCP and Niall O’Donnghaile from Sinn Fein Ireland. I thank them for their contribution to today’s seminar. I also warmly welcome our friend Stavros Mala, the independent candidate for the Presidency of the Republic of Cyprus who AKEL supports. Our goal is that in March 2018 Cyprus will have a progressive government with a modern social character headed by Stavros Malas.

For some years now our Party has been a systematic effort to follow and study in-depth the ongoing developments in the European Union. More specifically, its policies in all areas, primarily on socio-economic issues. We want to enlighten and inform working people and society in general and are seeking to involve people in tackling them. Besides, in Cyprus only AKEL expresses a different and critical view of the European Union’s character and course.

Cypriots experienced the anti-social character of the European Union’s ruling circles with the dramatic developments in 2013, with the haircut on bank deposits and imposition of a harsh Memorandum of privatizations and severe austerity.

As we all know, the banks of Cyprus, due to deficient supervision, were allowed to expand and invest recklessly. The result was that they exposed themselves to accumulated dangers and had to be recapitalized. The Troika refrained from drawing up a Memorandum with the Christofias government because it couldn’t then impose its views. It chose to wait for the election of Anastasiades, which it helped in order to promote all its positions.

It is well known that both Eurogroup decisions taken in March 2013 were an experiment to impose a new European model of managing bank crises, in which the haircut on bank deposits would be a potential option. I regret to point out that Cyprus was used as an experimental subject. The fact that the “bail-in” was not applied elsewhere demonstrates the experiment’s failure.

The first decision of 15^th March 2013 provided for a haircut on all the banks, including guaranteed deposits as well. This violated both Cypriot, but also Community law. The fact that President Anastasiades portrayed – and continues even to this day to portray his proposal as “taxation”, besides being a mockery, does not change, nor legitimize that decision’s character.

Mr. Draghi’s admission that, “The horizontal haircut of all the depositors was not smart and was immediately corrected the day after by a decision of the Eurozone finance ministers through videoconference”, is also worth pointing out. This completely refutes the claims made by Mr. Anastasiades and the governing DISY party, who even now insist on supporting it. Worst of all is that the President of the Republic knew about the haircut from the 4^th March and did nothing whatsoever to avoid it.

The decision of the House of Representatives to reject the first haircut was correct because it was 1) illegal, 2) would lead to a massive withdrawal of deposits, 3) would not have prevented, but accelerated the closure of “Laiki” bank and its more savage haircut of the Bank of Cyprus, and 4) as was revealed, even the European Central Bank had asked for the Anastasiades proposal to be corrected for a haircut on guaranteed deposits, something however that the President concealed and didn’t do.

Eventually it was revealed that the Anastasiades government was a co-introducer of the haircut. No one had put the pistol to Nicos Anastasiades’ head. What was in fact true was that the domestic right-wing government, the European Union and the International Monetary Fund shared common class interests and perceptions. The suspicious outflows of deposits from members of the family circle of the President and local elite were also disclosed, a development which should have enraged every citizen.

What was left after the haircuts on deposits, apart from the grave consequences on the real economy of Cyprus? Firstly, what the then President of the European Parliament’s Committee on Economic and Monetary Affairs had admitted, that from now on, “the rules of the Common Market will be violated whenever the Eurozone, the European Central Bank and the International Monetary Fund want to”.

The second haircut, while on the one hand exempting guaranteed deposits, didn’t however cease constituting an unprecedented and brutal intervention to restructure the Cyprus economy; an intervention aimed at shifting the banks’ losses on depositors and, ultimately, on society as a whole.

The second characteristic example of the treatment that Cyprus suffered in 2013 was the issue of the Cypriot banks branches in Greece, where more than one third of their deposits were found. The two banks – “Laiki” and the Bank of Cyprus – had approximately € 15 billion in deposits in Greece and € 26 billion in Cyprus, while a large part of ELA’s (Emergency Liquidity Assistance) 11 billion euros had been channeled for losses of the branches of Cypriot banks in Greece. Nonetheless, the European Commission and the European Central Bank insisted – and acted as extortionists – that the branches of the Cypriot banks in Greece were sold at humiliating prices to a Greek bank in order to cut the economies of Cyprus and Greece. So, while in one case, the depositors were treated as investors who had to pay the consequence of their investment’s cost; in the other case, the depositors of the Greek branches did not have any consequence whatsoever. The result was an even bigger haircut on depositors in Cyprus so as to cover the gap.

The European Union was sending out the clear message that, in the name of the Eurozone’s stability, it could live with the collapse of a small-sized economy like Cyprus’. According to this philosophy, the citizens of a small country like Cyprus had the tragic fate that our supposed “partners” have reserved for us.

The timing and magnitude of the banking crisis in Cyprus has many other equally serious aspects. Nonetheless, these two examples confirm only some of the inherent characteristics of the European Union’s economic model and economic governance.

Instead of consultations between “partners”, extortions and threats prevail.

Instead of respecting laws and rules, interests prevail.

Ultimately, despite the declarations in the European Treaties, in practice we are not all equal, neither as states, nor as citizens. Even among the ruling classes of the EU Member States, the hierarchy of the mighty prevails. Capitalism’s unmerciful laws were reaffirmed yet again.

During those days of 2013, many Cypriots, from all political spectrums, recalled all that the Left had been warning about before it was even an issue with regards the EU’s character, as a union of monopolies and banks; with regards the structural democratic deficit in its functioning and the precedence of interests at the expense of any proclaimed principles and values. Even the Anastasiades government itself was expressing discontent and indignation about the treatment that Cyprus had received from its European “partners”.

Questions were raised, such as:

How was it possible for the Union itself to violate its own principles and acquis by essentially demanding the robbery to the detriment of the citizens of a Member State?

Why wasn’t the much-publicized “community solidarity” with Cyprus expressed in practice, which called for a relatively small sum?

Why could a non-institutionalized body – such as the Eurogroup – exert blackmail for decisions that were lowering the standard of living of an entire people within the space of two weeks?

Why does the European Central Bank, a non-elected – and largely uncontrollable – body, constitute a shadow government of Europe?

Why in a Union, supposedly of equal countries, did a country, Germany, have and has the final say on almost everything?

All the country’s economic, political and media establishment were enlisted to legitimize these very policies. Other scapegoats were fabricated, namely AKEL, the trade union movement and the Christofias government that fought the banks. Social benefits, working people’s gains and rights, the Semi-governmental organizations, the rejection of the first haircut by the House of Representatives and so on were also targeted by this establishment. Although a section of society has adopted this propaganda, the facts can’t be doubted.

1. In 2012, Cyprus’ GDP was 19,467 billion Euros and in 2015 it stood at 17,637.2 billion. Two billion Euros were lost from the country’s GDP.
2. According to official figures released by the EU, labour income over the last three years has fallen by 1.6 billion Euros, or about 20%. At the same time, the income of capital in 2016 increased by 200 million Euros. In 2002, the share of labour in the national income was 55.6% and 46.4% in profits. In 2015, this relationship was exacerbated to the detriment of working people. Working people’s share fell to 42%, while profits rose to 48%.
3. Nearly 1/3 of the Cypriot population is in effect on or below the poverty line.
4. Unemployment is at 11% and youth unemployment is over 20%, without counting the thousands of Cypriot youth who do not return after completing their studies and stay abroad for studies or other young people who migrate.
5. Cyprus topped the table in Europe with regards income inequality, the pace in the reduction of wages, non-performing loans and is at the bottom of the table with regards expenditure on social protection and health.

This is the social and economic result of the experiment carried out by the European Union, the International Monetary Fund and the Anastasiades government on the people and economy of Cyprus. They left behind the Memorandum, which was terminated only formally. I am certain, however, that we will find corresponding dramatic statistical figures, if not in all, in most of the Member States of the European Union because elsewhere, on the pretext of combating public debt, similar Memorandums and “reforms” have been implemented, which in the course of time have been generalized throughout Europe and institutionalized permanently. The New Framework for Economic Governance and Economic and Monetary Union represented precisely the tool for the establishment and generalization of this recipe in all EU member states.

We should at this point make a self-critical admission. The truth is that we as the Left aren’t succeeding – to the extent circumstances demand – in convincing the peoples, and more specifically the working people of our countries, that what they are going through is due to the class policies pursued by the ruling class at a national and European level. Despair sadly clouds the crisis, while the majority of the mass media serve their class interests against us.

Consequently, a persistent painstaking effort is needed to decode each time what is actually hidden behind the nice-sounding titles of the Treaties, decisions and declarations (“Stability Pact”, “Euro + Pact”, “European Stability Mechanism”, “Fiscal Pact”, “European Semester”, “Enhanced Economic Governance”, “Six-Pack” and the “Two-Pack”). These have all institutionalized austerity, forced labour costs down and restricted national sovereignty in the exercise of economic policy. It is the European Union’s toolbox for imposing privatizations and restructuring that big capital demands, in combination with the imposition of cuts in working people’s incomes and social gains.

The much-advertised “Banking Union” is aiming at ensuring the centralization of banking capital and protection of the big banks. At the same time, the possibility for a haircut on depositors when demanded, remains among the options. Furthermore, the developing Capital Markets Union, which according to the European Commission’s proposal will be completed by 2019, will set up a shadow banking system that will favour big investors instead of small and medium-sized businesses. There is even the danger of it developing into a new speculation bubble.

Despite all this, the European Union is determined to further deepen these policies. The Juncker plan for the future of the EU provides for the following:

1. Permanent austerity mechanisms in the Member States (the so-called competitiveness committees).
2. An all-powerful Finance Minister, who evidently will not be subject to democratic accountability.

III. Preventive “control” of every legislative initiative of the Commission and of the Member States through an economic outlook so that they won’t deviate from the fiscal indicators.

The question is what we are doing and what do we propose on all of these issues. AKEL had and follows throughout its history and activity the philosophy of developing immediate goals for assertion and linking them dialectically with the struggle for fundamental changes in society and the economy.

• The forces of the Left in Europe have put forward the demand for the abolition of the Fiscal Pact, the Stability, Coordination and Governance Treaty and the European Semester, and their replacement with policies for social convergence, employment and sustainable development without exclusions.
• We have also projected the demand for public control and the decentralization of the banking sector as opposed to the consolidation of the Banking Union and the immediate cessation of the procedure of the Capital Market Union.
• We assert from the institutional bodies and Member States that they should support and promote the creation of an intergovernmental body on tax issues under the aegis of the United Nations with sufficient resources and a mandate to develop a UN convention with regards taxation and international cooperation in this sector, a road map and a joint action plan to put an end to tax havens. Even on this issue too, it is evident that double standards are applied. The European Union has not shown the required sensitivity about the scandals of the Panama Papers and LuxLeaks; scandals that have revealed how wealthy individuals and multinational companies have used legislative non-transparency for money laundering, illegal tax evasion and tax avoidance, concerning taxes belonging to society.
• We are asserting the introduction of a Framework Directive for the promotion of dignified work in all forms of employment, ensuring for each worker a basic set of enforceable rights in relation to minimum wages, pensions and unemployment benefits. We support the EU’s accession to the European Social Charter in order for tools to be provided so as to address the most anti-social aspects of the Single Market and the Economic Governance Framework, in particular of the Member States in the periphery. The amendment of the Treaties so that a social progress protocol is introduced, which puts in practice fundamental social rights above the freedoms of the internal market, is another common demand.

All these are measures and policies that can alleviate exploitation, poverty and inequality. However, the vicious circle will not end if the question of “what kind of Europe?” and “by whom and for whom?” isn’t raised.

AKEL links the struggle to curb the extremist neo-liberal policies and for social protection measures with the struggle for another and radically different Europe.

• A Europe of democracy and the parity of its members, which respects their sovereignty, traditions and specific characteristics, and not an EU of the directorates.
• A Europe of Solidarity that will be focused on those who produce wealth and who are the driving force of the economy: the working people.
• A Europe of Peace and not the EU of militarization, NATO and of the arms industry.
• A Europe of democratic freedoms, individual rights and open pluralistic societies.

That is why we are struggling together with the forces of the Left and the workers’ movement in our continent – for the battles we are waging today and for the vision of the future.

That is why we are waging the battle in Cyprus to get rid of a government that has undermined the future of its people and to form a new progressive government under the presidency of Stavros Mala, who projects a realistic program aimed at the sustainable development for all.