Financial Blitzkrieg

Boštjan Videmšek

On Sunday night  (24th of March) as the Cyprus authorities were choosing their doom from the troika’s menu, some two thousand protesters were shouting anti-European slogans in front of the European house in downtown Nicosia. Not so long ago, this edifice epitomised every positive civic and social value in the region; now its gate looked more than slightly dilapidated and was being guarded by the members of special police forces. On its front hung a plaque commemorating the European Union as the recipient of the last year’s Nobel peace prize. “Your prize, your peace,” it smugly stated.

“Europe, leave us be!”, “Keep your hands off Cyprus!” and “Angela Merkel – The Fourth Reich!” were some of the sentiments expressed by the protesters. Many of them went out of their way to inform me that Brussels and Berlin, in conjunction with the international financial institutions, have decided to start a financial war between Europe’s north and south. In their view, the ultimate aim of this conflict is to transform the south of the continent into a stagnant pool of cheap labour with no rights, as well as to form a number of so-called free economic zones that, perversely, would help the north fare better in its competition with China. And that, of course, would only be possible if a part of Europe, namely the south, became Little China – a part of Asia inside the European Union. Little wonder that the rhetoric from the Greek and Spanish streets had quickly spread over Nicosia, a city with very little experience with such open protest. Seemingly overnight, things had gotten unimaginably bad here. The crisis looked all too ready to become a permanent state, and the latest ‘deal’ offered by Brussels was about to plunge an entire country into modern day slavery.

“What we’re seeing is something absolutely new! Ever since the Turkish invasion of 1974 when my generation realised it could lose everything, our quality of life has been improving. The younger people here have no real concept of loss: the very idea of a crisis leaves them shook up and bewildered. That is part of why our shock has been so great. It happened overnight – although there have been a number of signs of impending doom. But nothing could prepare us for a disaster of this magnitude. Fourteen days ago, when the president Nicos Anastasiades announced that all deposit-holders in Cyprian banks would lose a part of their savings, people went crazy. Quite rightly, they saw it as an announcement of blatant theft! In the end, the powers that be decided the small-time savers will be spared. But the rich will lose a great part of their wealth. Okay, so that could quite rightly be seen as a short-term corrective measure, but it is also sure to wreck our banking sector and thus our entire economy! The major consequences are yet to be felt. Most people still have very little idea of what’s in store for them. Perhaps… Perhaps that is for the best,” claims dr. Sypros Syprou, a professor of anthropology at the European University in Nicosia.

The country may have been paralysed and its business life may have ground to a halt, but the sense of heavy despair hadn’t yet reached its streets and tavernas. Judging by the debates I overheard, it looked as if the residents of this tiny island state were still quietly hoping they would wake up from their nightmare, and that the slasher movie directed by Berlin and Brussels could somehow still have a happy ending.

They couldn’t have been more wrong.

. . .

“For twenty years, we have been living a materialistic illusion. There was shamefully little self-reflection. Hardly anyone was asking the right questions! We all knew that our economy was based around low taxes and an overly inflated financial sector which only grew and grew. It was only a matter of time when the bubble would burst. Now, when it did, people are set to lose their jobs, money, real estate and future. We will be forced to begin from scratch. Which would have been hard yet not impossible, but the problem is that all faith in our politicians and the EU itself is gone – irretrievably and justifiably, I might add. The European idea, which has been built around the notion of solidarity, met a grisly end here in Cyprus. What the troika is trying to impose has little to do with help. It is blackmail, plain and simple – they are trying to subjugate a nation by sheer force. The Germans are acting like a teacher who believes he can whack any pupil with a cane just because he is the teacher and he has that privilege. This is not the Europe we wished for, it is a club of politicians with a carefully planned political and economic agenda. The damage already done is immeasurable. Brussels and Berlin are sure to continue pursuing their politics of dominance through arrogance, and I’m afraid that the European idea will take a long time to recover – if it ever will!” said professor Syprou, who was deeply concerned with the future of his students. Those who had already graduated had found it increasingly hard to get jobs; now, the anthropologist believed, getting work would be almost impossible. “After many years, we will once again experience a brain drain scenario. This is bound to prove a huge loss for our society, which will have to return to a traditional way of life. I am also afraid that the crisis will soon create the conditions for the spread of extreme political movements, even fascist ones styled after the Golden Dawn in Greece. If that happens, the European Union will be very much responsible.” Or, as The Economist recently put it: “The economy in the Eurozone is stagnant. The parties, which support the protests, are growing. Euro was established as a manifestation of a grand political project. Now, it seems, it’s more a loveless marriage in which the price of getting divorced is higher than staying together.”

A Lack of Self-reflection

“We have been asking ourselves far too few questions. All the time, we are seeking guilt abroad. But we must first admit a great part of the blame for this calamity can be placed with us!” dr. Sypros Syprou told me in his office at the European University. Despite the gravity of the situation, the entire university still seemed to be burbling with joy. In our conversation, professor Syprou was quick to note that the Cypriot society gladly looked the other way as the authorities made deals with Slobodan Milosević or the Russian mafia. The people of Cyprus also didn’t particularly mind when their country became an important part of the process of selling arms to the regime of the Syrian president Bashar al Assad (mind that Cyprus is the only EU country which borders Syria). Yet all this is far from being even close to the reason why Brussels and Berlin decided to ransack the Mediterranean island state.

. . .

When Cyprus entered the EU in 2004, the tiny country’s annual growth was  4 percent, which was almost entirely based on its banking sector, tourism, off-shore enterprises and real estate deals – bubble after bubble, in short. After the euro got introduced as the national currency, the Laiki bank and the Bank of Cyprus abused the conditions to expand beyond any semblance of reason, fueled by exceptionally low taxes and the fact that there was almost no regulation worthy of the term. The two banks were offering their customers exceptionally high interest rates exceeding the normal EU rates by as much as two percent. Billions of euros from all over the world started pouring into Cyprus. Much of this money was – and still is – of highly dubitable origin. But for a long time this simple fact bothered no one, least of all the three institutions that now form the brutal financial troika. And the more money poured into Cyprus, the happier the banks were to lend it.

Credit became nothing less than a way of life. In 1998, Cyprus and Russia signed an agreement preventing double taxation, while the corporate tax was already negligible to the point of non-existence. As soon as Cyprus entered the Eurozone, the trouble started – the sort of trouble that could have been predicted by most alert laymen. In 2011, Cyprus’ banking system exceeded the country’s GDP almost by a factor of eight. But then the entire system blew up – due, above all, to the crisis in Greece, which caused the Cypriot banks to lose billions in Greek bonds. Laiki and the Bank of Cyprus, for instance, had lost four billion each. The system was starting to collapse, but the authorities – helmed by the ruling communist party – pretended as if nothing much had happened. When the troika started knocking at the door, it was clear that Cyprus was the next in line to experience what the international press still calls ‘relief’ but anyone with any sense knows to be financial occupation. As I visited the island, the reality was that Cyprus had already gone bust. If what remained of the banking system fell apart, the national debt would be set to reach 145 percent of the GDP. The tiny island’s politicians have waited too long before admitting there was a problem. Kiriakos Hadyianis, a member of the ruling DIKI party, told the British Sunday Times: “We knew that we are busted in 2009 already, but we didn’t do anything.”

The forecasts before this latest rapid downturn were saying that the Cypriot economy was bound to shrink by 3.5 percent in 2013. It now seems that number will probably be at least five times greater. An economic downfall of this magnitude can normally only be noted during wars or exceptional natural disasters.

. . .

“I’m badly afraid I’ll never wake up from this nightmare. The whole thing reminds me of 1974 and the Turkish occupation. Back then, my family was stripped of everything. Now, when our occupiers are the international financial institutions, much the same is bound to happen. Our savings are in danger – that is something people all over Europe should take note of! Apparently, there are no more rules. This is war! It is a horrible thing. I can’t seem to wrap my head around what’s happening. What a shock for each and every one of us! I don’t think any of us expected such disaster would strike overnight and rob us of our future! Look, the people of Cyprus, we’re all ready to contribute to save our country… But not like this, not under such a vicious dictate by the international financial elites! Not so long ago, the EU was an absolutely positive reference in our society. Now it is a horrible threat, an occupier, an aggressor! And exactly the same goes for Germany!” said Mrs. Despo Ioanou between tears. I spoke to her during the recent demonstrations. For the past 35 years, she has been working for the Laiki bank. She doesn’t have long before retirement, but – along with thousands of co-workers – she is now sure to lose her job.

The Russian Bride

At a recent conference in Nicosia, the recipient of the 2010 Nobel Prize for Economic Sciences and Chair of Council of National Economy Christopher Pissarides remarked that he saw no good reason for Cyprus to follow the troika’s dictate. “I’m unable to comprehend why the Eurogroup blocked funding to Cyprus when the economy’s main weakness was its banking system, as opposed to the situation in Greece, a country which received a large amount of EU funding,” said professor Pissarides. “Luxembourg is even more dependent on financial services than us and I did not hear anybody talking about that. We are not seeking a loan from Germany but from the euro system, which should help our banksCould Cyprus’ treatment by the Eurogroup really be explained by the fact that many Russians, who are not wanted by eurozone ministers, use Cypriot banks? Any member of the eurozone should find the Eurogroup’s stance towards Cyprus offensive. The source of the problem in Cyprus and Europe in general is the issue of banking supervision which was never solved, but simply left to each state, causing a crisis of confidence,” is an opinion of a Nobel laureate from Cyprus.

Pissarides also believes that Cyprus will be able to use the large stores of natural gas near its southern coast to bounce back. But under the best of scenarios, the gas will hit the international markets no sooner than 2019. By then, Cyprus is sure to turn into a third-world country seeking its new allies outside the EU. One prime candidate will be Russia, who has already turned the island into its financial and touristic colony. Russian citizens have an estimated 30 billion euros parked in the currently frozen Cypriot bank accounts. But so far, the Russian government has failed to offer much assistance. The Kremlin potentates are well aware that, even at the cost of heavy financial losses, it makes more sense to remain on good terms with Germany than to start solving the probably unsolvable mess in Cyprus.

This, the matter’s basic insolvability, was roughly the view of Hermes Solomon, a commentator with the Cyprus Mail daily newspaper, which is being published in the English language. According to him, the Cypriot parliament voting such a resounding NO! to the trimming of the bank accounts was merely a tactical ruse to buy the local political elites more time and to let Russia know that, if properly motivated, Cyprus stands ready to protect its assets. “Voting no was just a show put on to quiet the little guy in the street and to retain as much of Russian money here as possible,” Solomon believes. He was quick to add that, days before the eruption of this latest episode of the financial blitzkrieg, a great deal of Russian money had already left the island and was now parked in Latvia, Malta, Zürich and London. Salomon also believed that the current austerity package was sure to fail, since it had been put together in such haste as to verge on panic. “Solidarity fund will prove an utter failure. No one will be crazy enough to entrust their money to our government. Robbing Petros in order to help Pavlos will not help. It will all end in tears. Now the shit has really hit the fan, and our trust in our banks and our authorities is gone for good.”

Salomon went on to explain that he was in no way supportive of the official EU policy, yet he also expressed the belief that his countrymen would do well to wake up and realise who the beggar was and who the master. “Here in Cyprus, no one is prepared to pay the price of our banking and political mistakes. I sense a great tragedy is brewing. Among other things, the unemployment rate will skyrocket. It’s too late to shout and protest now. We should have confronted our own corruption and wastefulness years ago. Now it’s time to finally sober up.”

»They’re trying to turn us into their slaves!«

For a number of years, Manolis Mihalis has been working for the Bank of Cyprus. His position had afforded him a front-row seat for observing the rise and fall of the most overblown financial sector in Europe. Sure, he nodded at me cautiously, the global financial meltdown did make itself known here, but not even in his most frightening dreams did he expect the state would simply go bankrupt overnight. “It came completely out of left field. It was a total, utter shock. We were all surprised to say the least. Over the years, I’ve climbed to a quite high position in the bank – I ought to have heard something, or at least got an inkling. But I didn’t. True, we weren’t doing so good for a while now, but after these last ten days of international pressure, all that’s in store for us is a mass funeral!”

I talked to Mihalis at a café in downtown Nicosia. He seemed visibly shook up and angry, though he wasn’t all that worried for his personal future, since his father in law owns a huge hog farm. But he was very much concerned about the future of his friends, co-workers and the entire country. “We’ve been utterly stripped of our sovereignty. We have no other choice – we must bow to the troika’s dictate. If our politicians were better negotiators, we would have got a better deal than this unconditional surrender, but as it is… There’s a financial war going on in Europe. There’ll be plenty casualties, just like in a real war. But right now, we are defenceless. Our adversary is too strong. The situation is truly tragic.”

Manolis cut our conversation short, since he was in a hurry to get to a protest. In parting, he said: “I believe that some 10 000 people are about to lose their jobs in the next few days. The Laiki bank is sure to go bust, my bank probably as well. And after that, the rest of them will gradually fall too. The domino effect will ruin our entire economy. Once trust is gone, it is impossible to recover. The offshore companies will leave our country. Social unrest is sure to break out, and that will lay waste to the third important branch of our economy – tourism. Before long, this entire island will be a wasteland. They have decided to destroy us. In my view, they didn’t so much do it because of the Russian money, they did it because of our natural gas. If we were allowed to tap it and sell it abroad, we would have become a strong country in our own right. They couldn’t let that happen, right? It is hard to imagine what Cyprus will look like in a year. But today is the first day of the rest of our lives. From today, for all of us, every euro counts!”

According to Mihalis, Berlin and Brussels are using Cyprus as a laboratory to test the limits of endurance of an entire society. “It is a grand-scale experiment, and our hands are tied. There is literally nothing we can do. We are about to become a so-called free enterprise zone, a tiny slice of Asia or Africa inside the European Union.” In stark contrast to the majority of his compatriots, Mihalis refused to place a shred of hope in Russia. “The Russians, too, are playing their own geo-strategic game. They’ll never take on the EU or Germany on our behalf. Why would they? It wasn’t the Russians who got us into this mess – it was our own politicians, both left and right, all of them lying through their teeth. We’ll pull through easily, they told us. There will be no cuts. Your savings are inviolable. The troika is really here to help. We are far too important to be left high and dry. Oh yeah? Well, look at us now – look at the situation a mere few weeks after the election!”

. . .

“Disaster! I can hardly believe what’s happening! They want to destroy us and turn us into their slaves. All this time, they knew perfectly well what was going on in our banks! Both Europe and Germany gave their explicit assent! They let our politicians bleed us dry and then betray us horribly. All they can do now is bury us!” I was told this by a woman named Maria at a mass protest organised by the workers of the Cypriot banking sector. She had been employed with the Laiki bank; at the time I talked to her, it was a well-known fact that particular bank would never open its gates again. On account of Laiki’s fall, sure to be followed by the destruction of several other banks, some 8000 people were about to lose their jobs. “What happens to my family?” Maria implored: “I have no savings! Even if I had, I couldn’t get to them! I have a substantial loan, and the instant I’m sacked I’ll no longer be able to make the payments. My sister works for the Bank of Cyprus, her husband does as well. Both of them will lose their jobs sooner or later. The entire banking system is about to topple. We, the normal people, will be left with nothing. They have ruined our lives. What are we to do? There is no way for us to fight our financial occupiers!”

The Death of the European Idea

In Cyprus, the dictatorship of the international financial markets in conjunction with the political elites of certain core countries is shaping history. The idea of the European Union – which, even a few years ago, meant a beacon of hope for the so-called New Europe – has been dealt a blow that it may never recover from.

“This is the German Union, not the EU!” an angry man roared in Nicosia square on the Thursday the banks were ready to reopen. All of my Cypriot interlocutors had been quick to raise the question of where the much-vaunted European solidarity had gone. In the streets of Cyprus – just as previously in Spain and in Greece – the word Europe is now just a tad milder curseword than Germany or troika.

Here in the beleaguered south, one conviction is daily gaining credence. It is that the rich of the Europe’s north have decided to yank the reins of debtocracy and turn a number of previously sovereign countries into their colonies so as to be able to better compete with China. It certainly seems as if the leading men and women of the European core have decided to get rid of a lot of what they perceive as dead weight. In this endavour, they are helped by the manipulative international financial institutions and a thoroughly corrupt press forever harping about ‘the lazy, hedonistic south’, even though the official statistics tell a very different tale. The first step of this massive process has been taken on January 1, 2007, when both Romania and Bulgaria were admitted into the EU – two gigantic pools of dirt-cheap labour with a certain Asian looseness to their legislatures, especially concerning workers’ rights.

Ten years ago, the optimists were presuming the surge of economic growth would make China more like the EU politically. Now it is clear that exactly the opposite is taking place. In Greece, six years into its irreversible plunge into slavery, the process is nearing completion. The price of work, what little work is left, has plummeted. The young generations, in no way responsible for the sins of their corrupt political elites, have been robbed of their future. Everything they have been taught about Europe has proved a tawdry farce. The European south is being governed by a completely different set of rules than the north. But at least the north has now finally shown its true face, which is not at all democratic or compassionate. Rather, it is a cankerous maw which, among other things, is mainly responsible for the unstoppable rise of neo-nazism in Greece.

Boštjan Videmšek, Nicosia