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Today, March 25th, is Greek Independence Day, but in Athens, just as in Nicosia, there is little reason to celebrate.  In the wee hours of Monday morning, the Eurogroup and Cypriot government representatives reached an agreement in principle on a new deal that would "bail out" Cyprus and its suffering economy.  According to reports coming out of Brussels, the new plan proposes a 30% "haircut" on deposits of over €100,000 in the Bank of Cyprus, which will, as a result, be "saved."   This plan differs from last week's agreement—which was later voted down unanimously by the Cypriot parliament—which called for a 6.75% haircut of all Cypriot bank deposits of €100,000 or less, and a 9.99% levy of all deposits over €100,000.

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By Michael Nevradakis

Today, March 25th, is Greek Independence Day, but in Athens, just as in Nicosia, there is little reason to celebrate.  In the wee hours of Monday morning, the Eurogroup and Cypriot government representatives reached an agreement in principle on a new deal that would "bail out" Cyprus and its suffering economy.  According to reports coming out of Brussels, the new plan proposes a 30% "haircut" on deposits of over €100,000 in the Bank of Cyprus, which will, as a result, be "saved."   This plan differs from last week's agreement—which was later voted down unanimously by the Cypriot parliament—which called for a 6.75% haircut of all Cypriot bank deposits of €100,000 or less, and a 9.99% levy of all deposits over €100,000.

At face value, there's many unanswered questions which arise out of this new deal.  It is being reported, for instance, that the Cyprus Popular Bank will not be saved as part of this agreement and will instead be split into two banks, a "good" and a "bad" bank, but there is no word regarding what will happen with the money of large depositors in this bank (small deposits of up to €100,000 will supposedly be shifted to the "good" bank).  There is also no word as of yet as to whether this agreement comes with further "strings attached," such as cuts in other sectors of the Cypriot economy.  Last week, German Chancellor Angela Merkel rejected the possibility of dipping in to Cypriot pension funds in order to partially fund the island's "bailout"—but as has been proven over the past three years, the EU is certainly capable of reneging on its promises.

What is now known is that Cyprus will borrow €10 billion from the "troika" (the EU, the European Central Bank, and the International Monetary Fund) as part of the "bailout" package, as had originally been proposed with the first "bailout" and "haircut" last week.  What is also known is that this deal will not have to gain parliamentary approval in Cyprus, since the new laws passed by the Cypriot parliament gave the government new powers to resolve the country's banks. It seems that the European Union and the president of Cyprus have found a way to circumvent the democratic will of the people (once again) by coming to an agreement with pre-emptive parliamentary approval—a legislative blank check.  It should be noted that in a recent poll, over 67% of respondents in Cyprus were in favor of a departure from the Euro and 91% of respondents were against the original "bailout" and "haircut."

While small depositors—those with less than €100,000—have presumably been "saved" as a result of this deal, there is absolutely no guarantee that the average citizen is out of the woods.  As recently stated by economist Costas Lapavitsas in a recent piece in the Guardian, any borrowing on the part of the Cypriot government as part of the "bailout" is likely to be disastrous:

The extra borrowing will raise Cypriot public debt well over 100% of GDP. The economy is already in recession and, with the extra austerity measures, including the inevitable blow to bank credit, contraction might be around 5% this year. It is likely that the increased national debt will need restructuring in the near future, meaning fresh loans and even more austerity.
If the above scenario seems familiar, that's because it is.  This has been the reality in Greece over the past three years, where austerity measures have brought more austerity, where more austerity has further strangled the economy, and where the solution to this stranglehold has been to tighten the noose even further, a vicious, murderous cycle with no discernable end in sight.  Small depositors might see that their bank accounts have been salvaged—but may very well be assaulted with new taxes, and with reductions in wages and pensions in the near future.  And in a confirmation of what Lapavitsas wrote, a freshly released analysis by Moody's suggests that Cyprus could still default anyway, despite the deal.

Of course, throughout the week, EU leaders paved the way for the new agreement by justifying any new haircuts and new measures as necessary to trim Cyprus' "bloated" banking system down to size.  The president of Germany's Federal Intelligence Service (BND), Gerhard Schindler, stated recently that 40% of Russian money deposited in Cyprus originates from the black market.  This, of course, is somehow meant to justify a haircut of all large depositors—whether their money was attained illegitimately or not.  Indeed, the rhetoric about the black market activity of Russians in Cyprus has been a constant theme from the first days of this new crisis.  Not a word, either by EU officials or the self-righteous media, about how hardworking Cypriots who have managed to "do the right thing" and save a substantial amount of money over the years will be adversely affected by the decisions of the "fair" and "socially just" EU.  Not a word about actually investigating those who are laundering their money through Cyprus, instead of punishing everyone for the actions of a few.  Not a word about punishing bankers for the poor decisions that they have made which helped precipitate this crisis—in Cyprus and elsewhere.  Certainly not a word about similar tax and banking havens in European territory, including Luxembourg (with an outlandish external debt of $1.8 trillion), Lichtenstein, Gibraltar, the Isle of Man, and the City of London corporation, not to mention such overseas havens as the Cayman Islands, and a new favorite of Germans seeking to evade taxes: Panama.  What's that?  "Honest" and "hardworking" Germans evading taxation?  Imagine that!  For a moment, we thought that only lazy, corrupt, ouzo-swilling Greeks (and Cypriots and Russians, apparently) were tax cheats!  (For an incredible example of German tax evasion, look no further than Hochtief, the German-Spanish company which operates the Eleftherios Venizelos International Airport in Athens, and which is alleged to owe as much as €600 billion in back taxes to the Greek State).

More disturbingly, though, it seems that Cyprus is not just being "punished" due to its supposedly oversized banking sector.  It seems that there were more than a few politicians within the EU who wanted to teach Cyprus a different lesson.  As reported recently by Time magazine:

Some experts say resentment toward Cyprus has compounded the problem.

“I think patience with Cyprus was running out also on other issues, such as its intransigence over the (Turkish) north and its history of encouraging tax evasion,” said Josef Janning, a political scientist at the German Council on Foreign Relations, an independent think tank in Berlin.

Cyprus has refused to budge in long-running negotiations to find a political solution for the breakaway Turkish north of the island, which Nicosia refuses to recognize.

In other words, Cyprus is being "taught a lesson" for refusing to accept the Annan Plan, which would have "reunified" the island—37% of which remains illegally occupied by Turkey.  However, what is never mentioned is that this plan was rather lopsided in favor of Turkey, which invaded and occupied the island in the first place.  It would have permitted a permanent Turkish military presence on the island with enhanced intervention powers, would have given the Turkish Cypriot community wildly disproportionate representation in the governmental structure of the new "unified" state, and would have required Greek authorities to contribute towards the reparations that would be paid to the Greek Cypriot refugees who lost their homes and properties during the Turkish invasion!  This plan, however, had the full support of the United Nations, the United States, the "fair" and "just" EU, Turkey, and even Greece—where treason is a time-honored political tradition which continues to this day.  The "pro-European" Cypriot president Nikos Anastasiadis, who was elected just last month, was also a supporter of the Annan Plan back in 2004.  Perhaps then, his current stance on the EU "bailout" should not come as a surprise at all.

To add further salt to the wound, Turkey's minister for EU affairs and its chief negotiator in accession talks with the EU, Egemen Bagis, recently suggested that Cyprus could adopt the Turkish Lira as its currency.  It probably should come as no surprise that such an abrasive and undiplomatic individual is in charge of negotiations with the EU—he would fit right in with the "diplomats" and politicians in Berlin and Brussels!  Indeed, this is not the first time Bagis has generated controversy: last year, in a visit to Switzerland, he publicly made remarks denying the Armenian Genocide, which led to an investigation against him launched by Swiss prosecutors.

One of the buzzwords that has been repeated often during the past three years of financial crisis in the EU has been "responsibility."  We were told that the Greeks, for instance, would have to "take responsibility" and "stop blaming others" for a mess that they created.  We're hearing the same things now about Cyprus: that the country, and its people, need to take "responsibility" for mismanaging their economy and their banking sector.  Nowhere though in all of this self-righteous talk about responsibility is any blame thrown the EU's way.  If the EU is so big on the idea of "taking responsibility," then why does it not take responsibility for the failed "haircut" of Greek bondholders that it imposed, which not only did not make a dent in Greece's external debt or bring Greece any closer to meeting the EU and IMF's comical growth projections, but it also precipitated the current crisis in Greece.  Cypriot banks were heavily exposed to Greek bonds and were forced to take major losses when the haircut was imposed (not to mention the thousands of ordinary Greeks who lost substantial amounts of money that they had invested in the supposedly "safe" government bonds).  One year later, the banking sector in Cyprus is—surprise, surprise!—seriously in trouble.  We're supposed to believe that money laundering run amok is entirely to blame?  Not to mention that the haircut in Greece was imposed after two years of failed austerity policies, which instead of helping to lead Greece back to growth, as repeatedly promised in 2010 and 2011 (and 2012 and continuing up until today), instead shoved Greece further into an economic depression.

Based on all of the above, I have a few very simple questions, which most professional "journalists," however, seem completely incapable of asking: how does the EU, after all of these lies, after three years of austerity policies that have completely failed, after proposing policy after policy that punishes ordinary people instead of the politicians and bankers, still have any legitimacy?  How can the EU and the IMF dare talk about corruption and about the need to "take responsibility" when their own members are corrupt to the bone?  How can they talk about "money laundering" when countries such as Luxembourg and Lichtenstein continue to operate their own "oversized" banking sectors unabated?  And, perhaps most significantly, who appointed Germany as the ultimate and final "decision-maker" in Europe?  It's interesting how we never really hear what so many other countries think about the austerity measures and "haircuts."  It's always the German chancellor, the German finance minister, and German EU officials in the news, along with perhaps the occasional Dutch politician.  Is the EU really a "union," or is it a dictatorship that is ruled by Germany, in a modern-day Fourth Reich?

The media shares in this hypocrisy and crisis of legitimacy as well.  Over the past week, hoards of international journalists have converged on Nicosia, the capital of Cyprus.  Not one of these journalists has uttered more than a cursory mention of the fact that Cyprus, an EU member-state (lest we forget) remains partially occupied by Turkey, and that over 20 years after the fall of the Berlin Wall, Nicosia remains a divided capital, within EU territory.  Instead, these "journalists" (the quotation marks are, sadly, necessary) resorted to the cheapest forms of sensationalism possible.  Photos of supermarkets with supposedly empty shelves were uploaded onto their Twitter feeds and blog posts—except that these photos were not from Cyprus, and certainly not from the past week.  Absolutely shameful.  Perhaps an addendum to the above question should be added: not only should we question the legitimacy of the EU and its structure and representatives and decision-making power, but we should perhaps also begin to question the supposedly "objective" and "reputable" media and all of the (mis)information that it has been feeding us (and all of the information it has been denying us) about Cyprus, about Greece, about Portugal and Spain and Ireland, about Iceland, about the bank(st)ers in the United States and Europe and worldwide.

By this point, EU and austerity apologists that are reading this article are surely asking: "yes, but what else could Cyprus have done?," following in the logic that Cyprus had no other choices available to it other than accepting the EU's bitter "medicine" or going under in a catastrophic national bankruptcy.  Such narrow-minded thinking completely (and conveniently) overlooks the possibility that the bankers and politicians responsible could be held accountable for their actions, prosecuted, and their assets seized.  It overlooks the possibility that independent commissions could be formed that would investigate matters such as the banking mess in Cyprus, or how Greece's debt grew to be so large and what percentage of it is, in fact, illegitimate or odious.  And it completely ignores real-world examples that have proven to be effective, such as what Iceland did following its own banking crisis, which has many parallels to that of Cyprus.  In the words of Lapavitsas:

Iceland followed a radically different path, as it is free of the troika and not a member of the EMU. It refused to increase its national debt and it thus let banks go bankrupt, shifting the costs on to shareholders, bondholders and depositors abroad. Iceland looked after small depositors, but also allowed its currency to devalue and applied capital controls. The country avoided a deep and protracted recession, and last year the economy grew at 2.5%.
And of course, there's the biggest move of them all: a departure from the Eurozone, which over two-thirds of Cypriots are in favor of.

All of the above solutions, however, would require that politicians, bankers, technocrats, and high-echelon businesspeople take responsibility, and would require that banks in the "core" of the EU accept losses.  And in the Nobel Prize-winning EU that professes to be "socially just" and "fair" and which touts responsibility while shifting blame on everything to the corrupt, incompetent, clueless Greeks or Cypriots or Portuguese or Spaniards, such solutions would truly be unacceptable.

Tue Mar 26, 2013 at  1:25 AM PT: Typo: the amount of back taxes allegedly owed by Hochtief to the Greek state is €600 million, not €600 billion.


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