'Years of Suffering' for Cyprus as New Bailout Deal Escalates 'Austerity Economics'

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Common Dreams

'Years of Suffering' for Cyprus as New Bailout Deal Escalates 'Austerity Economics'

"The near future will be very difficult for the country and its people."

by
Andrea Germanos, staff writer

Nicosia, Cyprus, protest outside the EUoffices, 24March 2013. (Photo: Reuters/Yannis Behrakis)

Cyprus has reached a last minute, draconian bailout deal on Monday that some analysts are saying will bring "years of suffering" to the Mediterranean island nation.

The Independent describes the "punishing deal" with the troika of the IMF, the European Central Bank and the European Union:

Under the new agreement, all bank deposits under €100,000 will be secured and guaranteed by the state. The country's second-biggest bank, The Popular Bank of Cyprus – known as Laiki – will be closed whilst holders of deposits of more than €100,000 face big losses.

Many of those holders of larger deposits are wealthy Russians, who used Cyprus as a tax haven.

But, as the Toronto Star's Tanya Talaga reports,

Pensioners, businesses and regular Cypriots who have large bank balances, could lose between 20 to 40 per cent of their money in a one-time tax meant to bail out the broke banks and structure them more to resemble their European partners.

The Guardian adds:

The bailout deal does not need approval from the Cypriot parliament because it has been achieved by restructuring the country's two largest banks, rather than levying a new tax on citizens.

Negotiations got under way on Sunday amid a hardening of stance by the IMF and Germany, which insisted that depositors must take the hit for bailing out the eurozone's latest crisis economy.

That the deal was made circumventing the Parliament has been widely criticized, as the Guardian's Helena Smith reports:

Across the board, politicians, trade unionists, analysts and business people decried the manner in which the agreement had been sealed. In the confusion of a deal whose details remained elusive, many complained that, once again, democracy had been circumvented – with Nicosia's 56-member parliament having no say over an agreement that had ultimately been drawn up in Brussels.

"It is illegal and undemocratic," said Christos Tombazos, general secretary of the Pancyprian Federation of Labour. "We're talking about massive changes to the banking system. It should go to referendum for the Cypriot people to decide."

Cyprus' President Nicos Anastasiades defended the bailout conditions in a televised address.  "The agreement reached is painful one but under the circumstances the best we could secure. We have overcome the risk of bankruptcy of Cyprus and prevented tragic consequences for the economy and society," he said. 

"Under the circumstances there were no easy solutions. I was obliged to take tough, painful and bold decisions to ensure a manageable tomorrow," said Anastasiades.

Agence France-Presse explains that the ordinary people of Cyprus can expect to feel the brunt of the deal immediately:

The fallout will begin immediately with food and medicine shortages likely in coming weeks as businesses struggle with a lack of cash in Cypriot banks, which were hammered by the agreement, said economic experts. [...]

Among the expected outcomes is soaring unemployment.

"Unemployment was already 15 percent. With Laiki it will instantly be 17.5 percent. It will be 20 percent within three months and 26 percent within a year," AFP quotes Fiona Mullen, an economist specialising in Cyprus, as saying. 

Cypriots will feel the price, the Jubilee Debt Campaign's Tim Jones writes, and adds that "Being controlled by global financial interests does not benefit ordinary people, their economy or democracy." He continues:

Not having its own currency, Cyprus has no ability to bring in inventive policies to keep money moving round the economy. But by taking €10 billion of loans from the EU and IMF, Cyprus is taking on a further debt of 60 per cent of national income, on top of the over 60 per cent already owed, and with national income set to crash. These loans are not payable, yet as with Greece, Portugal and Ireland today, or Africa and Latin America in the 1980s and 1990s, huge suffering is about to be imposed in the name of trying to pay.

True assistance from the EU would be to provide this support as grants, a policy which would be fair given that it is to protect the EU wide deposit protection policy, and necessary because of the existence of the single-currency. The European Central Bank could create the one-off money to do so, with no visible impact anywhere else.

Economics professor and author Richard D. Wolff told Democracy Now! this morning that the deal in Cyprus marked "an escalation in austerity economics." The approach in Cyprus, Wolff explains, is to "go into the bank accounts of citizens... and snatch money out of their accounts," and is an approach that avoids taxing the wealthy or corporations.

"Cyprus has suffered a big hit and our standard of living will spiral downward, although the economy maybe able to recover in two to three years our standard of living will take at least 10 years to return," Former Cyprus central bank governor Afxentis Afxentiou told state radio.

Greek Cypriot singer and composer Alkinoos Ioannidis, in the left-of-center independent blog tvxs said,  "We Cypriots are becoming refugees again, in our own homeland. Losing again our life as we built it, as we think we chose it, as we thought it was ours."

Olli Rehn, Europe's economics commissioner, stated bluntly, "The near future will be very difficult for the country and its people."

While many Cypriots expressed anger at the troika for bailout terms, others blamed the "banksters" for creating the crisis in the first place.

"A collective punishment has been inflicted on the people of Cyprus and not the bankers whose criminal decisions brought us here," said Giorgos Doulouka, spokesman for the communist party Akel. "Transforming the banking system could have been done in an alternative way, on a long-term basis, and not through shock therapy which will be disastrous for the economy and the people of Cyprus."

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