Ernest Hemingway pieced together the quintessence of the Spanish Civil War in his captivating novel “For whom the bell tolls?” The novel’s protagonist, a young American, gets embroiled in the war while serving in the International Brigade, chronicling senseless inhumanity of man to man as society’s fabric is shredded.
One of the most memorable passages of the novel is “For what are we born if not to aid one another?” The novel has many themes, and one is the dependency of society’s individuals on each other.
The European Union finance ministers would have been well advised to have read this novel and learned from it before handing down Cyprus adversity because of the country’s financial crisis.
Suppression occurs when the central authority in power can forcefully silence the opposition voices. Civil war breaks out when the authority cannot do that. So far, the EU has been able to suppress Cyprus in an attempt to contain the financial crisis in the country’s banking system from spreading. Let’s hope this will remain suppression, and not a prelude to financial civil war within the EU.
Right after the Cyprus crisis started, Larry Summers, former treasury secretary of the U.S. and director of the National Economic Council, appeared on the BBC. He was asked why so much attention was being paid to the third smallest economy in the eurozone? In his response, Summers drew parallels to the start of World War I, by saying that Sarajevo was a small town in the Balkans. One shot in that small town created a global war.
The Cyprus crisis has sadly the potential of getting out of hand and engulfing the region and beyond.
The amount of the bailout given to Cyprus, 10 billion euros, is pocket change for Europe’s large economies. It nevertheless presented the EU powerhouses an opportunity to discipline the weak so that others in the block take note. Cyprus had no choice but to accept the bailout and its terms, or begin danse macabre of bankruptcy.
The bailout breaches some of the most sacred pillars of capitalism. It ignores the sanctity of private property. The government permits itself to take away the citizens’ savings, violating the fundamental rights to ownership, security, and privacy. Partial nationalization of citizens’ savings is no longer a taboo subject.
Those who planned the union of Europe that came into being in November 1993 envisaged prosperity, not paucity. They thought the union would bring harmony to the continent, and relative equality of wealth to the member nations. Furthermore, as one market the union could compete better with the U.S., let alone overshadowing the Asian fragmented economic landscape.
What they didn’t foresee was crises disproportionate to the economies in which those crises would brew. For a long time, the cheap supply of credit coupled with rosy economic outlook outpaced the caution and prudence to control accelerating governmental spending.
Also not in the cards since 1993 in Brussels has been a credible and robust crisis management mechanism. Frequent meetings at the ministerial level, or even by the heads of the states, substituted any logical process to contain calamities. Processes gave way to procedures, exactly at the moment the reverse was needed.
Stopping Cyprus from becoming a new safe-haven for the riches of Russia’s nouveau riche, is surely the result of this bailout. Whether that was by design or a side-effect remains to be known.
One major spot to park capital incognito has been Europe’s heartland, and the other the Caribbean that for the most part continues to be controlled by the Europeans. The global banking system has a timorous relation with the banks in the two spots, as those banks carry the genuine fortunes of industrialists and financiers worldwide, as well as the ill-gotten beauties of felons.
Those traditional safe-haven banks are enormously profitable, contributing massively to the economies of the host countries and the continent.
Cyprus was becoming a game-changer in that eco-system of safe-haven banking. The country presents whatever the Caribbean and European banks have to offer combined. Done right, there would be no need to look elsewhere but a short flight from Russia for the fleeing capital, along with enjoying the beauty of Cyprus in the Mediterranean.
That value proposition was too much for the European powers to put up with, and when the opportunity came, Cyprus was decisively dealt with so that it could no longer operate as a safe-haven. Foreign capital has started running away from Cyprus, back to the traditional safe-havens.
The 1997 Asian financial crisis started in Thailand, but quickly became a financial contagion. It resulted in the lack of confidence in Asia’s banking system and for the capital to escape the region.
The severity of the crisis required outside intervention, mostly in a series of “rescue packages” engineered by the International Monetary Fund. In a region with a long history of colonialism, this financial intervention was often viewed as neocolonialism.
President of Cyprus, Nicos Anastasiades, reportedly offered his resignation to the EU negotiators as the terms of the rescue package were given to him. Neocolonialism is not the right word for the case of Cyprus, but one can only mull over it with bewilderment.
By Jahan Alamzad
Jahan Alamzad is managing principal of CA Advisors, a management consulting firm in San Carlos, California, the United States. ― Ed.