Statements by the General Secretary of the Central Committee of AKEL Stefanos Stefanou on ‘Astra’ radio on the situation with the banks in the US

 

13 March 2023

We have noted the collapse of a new bank in the United States and different scenarios are being studied by the US authorities so that the problem will not spread to the rest of the world as it did in 2008. The US authorities have considered that state intervention in the market is unavoidable in order to prevent the spread of panic and chaos and a new major banking crisis from breaking out. I want to start from this State intervention a la carte that is pursued whenever banks find themselves in trouble.

Yes the collapse of the bank which is mainly concerns new start-up companies must be tackled extremely carefully. I’ve also been reading various statements being made both in the US and EU on how this collapse should be dealt with, bearing in mind the negative experience of 2008, when Lehman Brothers collapsed in the US and dragged down a number of other banks and essentially broke up the banking system.

This situation spread across the Atlantic and reached the European Union and the Eurosystem with all the implications that subsequently had across EU member states and beyond. You will remember that back then Cyprus had from a fiscal point of view recorded much better indicators than the majority of EU member states, even than Germany which is considered to be the driving force of the EU’s economy. The economy eventually went bankrupt because of the banks and the fact that the banking sector in Cyprus and the 2 big banks at that time, namely the Bank of Cyprus and Laiki Bank, were 6 to 7 times the size of the Gross Domestic Product of Cyprus itself.

Therefore, whatever problems they faced because of erroneous banking practices and poor supervision by the Central Bank at the time – these are the findings of the European Commission itself – these ultimately led the economy to bankruptcy. So it is very, very important for countries to reflect on how they deal with any ramifications.

In relation to the selective intervention pursued by governments, in relation to the issue of state intervention, I would also like to point this out. Whenever society needs support, the ruling circles of the EU, but also the majority of governments that are right-wing and neoliberal in the EU declare that we should not allocate resources to provide support to society. However, when it comes to the banks these ruling circles approve generous decisions and provide support to the banks with money from taxpayer’s pockets and that is precisely why we had this situation after 2008 across the EU, which led millions of citizens to social marginalisation and impoverishment.

All this happened without of course those bankers and politicians who had provided cover for the bankers who hadn’t suffered any consequences and implemented these erroneous banking practices that led to an unprecedented global financial crisis, even bigger than the global crisis of capitalism in 1929-33.

As you described previously how the crisis was transmitted from the US after the fall of the Lehman Brothers, it passed from the United States to the EU, systemic in nature it passed to Cyprus too from Greece. We all remember the PSI and the damage done by the write-down of the Greek bonds. Was it one could say a banking disaster and erroneous handlings that led to where Cyprus too ended up in essence?

It should be noted that even Barack Obama too in his memoirs noted the poor way in which the EU attempted to deal with the banking crisis pointing out characteristically that the EU evidently chose this selective way of tackling the crisis so that it would avoid admitting the erroneous practices, particularly of the French and Germans. Seeking to cover up these responsibilities, the EU tried to shift the responsibility on its member states, with the result that those economies that were most exposed were hit hard primarily the economies of the South, but also those states that had a banking system that was too big with numerous problems in its operation and that’s the case mainly of Cyprus but also, to a lesser extent, of Spain.

I note that Brussels at the time had accepted that Spain should have a special programme exclusively for the banks. We as a government had back then requested Brussels to take the same approach given that there was an admission that the problem in Cyprus was a banking problem. Unfortunately, Brussels, obviously because there was a left-wing government in Cyprus and because Cyprus was too small and did not affect the EU economy, finally chose to implement a programme of haircuts on bank deposits, which of course the government of Demetris Christofias at the time had not accepted. Despite the announcements and pledges made by Nicos Anastasiades, within 14 days of his election [to the Presidency} he had accepted it and as a result the Cyprus economy was destroyed.

This is a pivotal issue which at some point when we have more time I would like to open up because it took a long time for the system to be able to articulate or admit that 2013 was primarily a banking crisis – a crime – and I remember what was written and what was said.

The problem was not mainly of the banks. The problem was the banks.

When we went into the mechanism, Cyprus’ public debt and budget deficit were much lower than those of Germany. We had much better fiscal and economic indicators than the majority of EU member states.

The principal problem was the banks which, as I have said, were also very big in relation to the size of the Cyprus economy and over the last several years had developed extremely erroneous banking practices.

At the same time, the Central Bank was burying its head in the sand and the erroneous practices had to do mainly with attracting foreign deposits, mainly Russian, Ukrainian and others. This meant that there had to be high deposit rates to attract foreign deposits and at the same time these funds were not covered by anything.

For that reason, when the crisis broke out the banks found themselves facing serious problems of liquidity and other situations. I note that they also proceeded to made very bad investments because of the excess liquidity, but also because of the fact that many bankers would take kickbacks.

We eventually were confronted with this situation. The establishment blamed the crisis on the government of the left and Demetris Christofias. It was an easy solution and it was the way to whitewash and exonerate themselves.

The bankers who bear grave responsibilities for the crisis, as well as for the then Governor of the Central Bank himself and at the same time so that they can whitewash the system’s erroneous practices at the expense of a government that tried to prevent the crisis in the midst of the worst crisis of the capitalist system and to protect society from the consequences of this crisis.