Cyprus: has the eurozone run out of road?

After the bank levy, citizens will lose confidence in the system and turn to extreme political alternatives.

The Eurogroup's decision on Friday to impose a one-off tax on depositors in Cyprus may mark a turning point in the euro crisis. Only, the single currency's decision makers might soon realise that in taking this particular turn, they also ran out of road.

Under pressure from several members of the eurozone – Germany in particular, if reports are accurate – the new Nicosia government agreed that deposits above 100,000 euros would be taxed 9.9 percent and those under 100,000 at a rate of 6.75 percent.

This is an unprecedented decision for a eurozone country. It is also one whose potential consequences reach much further than an island in the eastern Mediterranean. It threatens to cause the transmission system between the economic and financial sectors on one side and the political and social on the other to seize up. Without this, the euro cannot be propelled forward. It cannot function.

The choice to tax depositors has prompted an intense economic debate about whether it was the correct policy or not. Both sides have put forward points worth considering. Those arguing against the decision have pointed, for instance, to the risk of contagion in other eurozone countries that are facing economic problems. Those who defend the Eurogroup's stance say depositors in Cyprus earned high interest, which gave them profits over the last few years and carried a bigger risk.

Setting these arguments aside, the eurozone ignores at its peril the fact that these decisions do not happen in an economic or financial vacuum. They have political and social consequences that cannot be ignored if the single currency is to have a future. One need only look at the political changes that have taken place in Greece, Ireland, Portugal, Spain, Italy and elsewhere to realize that the euro area is running out of leaders who have the backing needed to implement the decisions being taken.

Cypriot President Nicos Anastasiades, elected just last month, has to clarify to his people why he is adopting a bank deposit tax when he told voters a few weeks ago that he was absolutely opposed to it. Even before Anastasiades had returned from Brussels, his political opponents were demanding a referendum on the deposit tax. Some were even calling for new elections or an exit from the euro.

Anastasiades also has to explain to Cypriots why small-time depositors have to pay a similar levy to the one some eurozone countries supposedly demanded so alleged Russian oligarchs would be forced to pay for bailing out the island's banking system. Furthermore, he has to inform them why the Cypriot government's pledge to guarantee deposits up to 100,000 euros – supposedly even in the most extreme circumstances – is not even worth the paper it was written on.

The implications for people's trust in their government and financial system are obvious. It would be remiss to think that this wariness will be contained just to Cyprus. While many will be watching next week for signs of financial contagion from the Cypriot decision in other parts of the eurozone, with Spaniards or Italians possibly withdrawing savings from their banks, there is a more insidious infection that could spread.

Cypriots will be given equity in their banks in return for the tax but what value will this have when they no longer have faith in the banking system? Cypriots will be told that the deposit tax will stave off further measures but they only have to look to Greece or Portugal to see that promises of no more taxes or cuts have little value. They will be told that there was no alternative but then they will hear about pressure from other single currency members and concerns about the upcoming German elections.

And, all the time, citizens in other troubled eurozone countries will watch and grow warier. They will interpret the policies advocated by the stronger members as punitive for the weaker. They will consider the hypocrisy of leaders who cry foul about money laundering in Cyprus but turn a blind eye if it is happening in Lichtenstein, Switzerland, Luxembourg, the City of London or anywhere else in Europe. They will realize that their government’s promises carry no value when measured against the ideas, motives or obsessions of the single currency’s big players.

This is the point at which the political and social sectors will experience a complete disconnect from the economic and financial. Restoring the connection will be an immense task.

Then, these same citizens will begin to ask themselves where their interests lie, what’s in the euro for them and whether other options would be better. And, as they are mulling over these thoughts, they will look to other parts of Europe and see people like them but also analysts and policy makers wondering what all the fuss is about. They will hear others who have not had to suffer any hardship or financial losses wonder why there is such a negative reaction to wages being slashed, taxes being hiked or deposits being taxed.

This is the point at which the links within the eurozone will begin to pop apart, when citizens will turn to Beppe Grillo-style solutions, to nationalists, extremists or to anyone who promises a different path.

This is the point at which the vehicle stops functioning and the road ends.

Nick Malkoutzis is deputy editor of the Greek English-language daily Kathimerini, where this post first appeared. He blogs at Inside Greece. Follow him on Twitter @NickMalkoutzis.

A souvenir shop in Nicosia, Cyprus, on 17 March. (Photo: Getty.)
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The struggles of Huma Abedin

On the behind-the-scenes story of Hillary Clinton’s closest aide.

In a dreary campaign, it was a moment that shone: Hillary Clinton, on the road to the caucus in Iowa, stopping at a Mexican fast-food restaurant to eat and somehow passing unrecognised. Americans of all political persuasions gleefully speculated over what her order – a chicken burrito bowl with guacamole – revealed about her frame of mind, while supporters gloated that the grainy security-camera footage seemed to show Clinton with her wallet out, paying for her own lunch. Here was not the former first lady, senator and secretary of state, known to people all over the world. This was someone’s unassuming grandmother, getting some food with her colleagues.

It might be unheard of for Clinton to go unrecognised but, for the woman next to her at the till, blending into the background is part of the job. Huma Abedin, often referred to as Clinton’s “shadow” by the US media, is now the vice-chair of her presidential campaign. She was Clinton’s deputy chief of staff at the state department and has been a personal aide since the late 1990s.

Abedin first met Clinton in 1996 when she was 19 and an intern at the White House, assigned to the first lady’s office. She was born in Michigan in 1976 to an Indian father and a Pakistani mother. When Abedin was two, they moved from the US to Saudi Arabia. She returned when she was 18 to study at George Washington University in Washington, DC. Her father was an Islamic scholar who specialised in interfaith reconciliation – he died when she was 17 – and her mother is a professor of sociology.

While the role of “political body woman” may once have been a kind of modern maid, there to provide a close physical presence and to juggle the luggage and logistics, this is no longer the case. During almost 20 years at Clinton’s side, Abedin has advised her boss on everything from how to set up a fax machine – “Just pick up the phone and hang it up. And leave it hung up” – to policy on the Middle East. When thousands of Clinton’s emails were made public (because she had used a private, rather than a government, server for official communication), we glimpsed just how close they are. In an email from 2009, Clinton tells her aide: “Just knock on the door to the bedroom if it’s closed.”

Abedin shares something else with Clinton, outside of their professional ties. They are both political wives who have weathered their husbands’ scandals. In what felt like a Lewinsky affair for the digital age, in 2011, Abedin’s congressman husband, Anthony Weiner, resigned from office after it emerged that he had shared pictures of his genitals with strangers on social media. A second similar scandal then destroyed his attempt to be elected mayor of New York in 2013. In an ironic twist, it was Bill Clinton who officiated at Abedin’s and Weiner’s wedding in 2010. At the time, Hillary is reported to have said: “I have one daughter. But if I had a second daughter, it would [be] Huma.” Like her boss, Abedin stood by her husband and now Weiner is a house husband, caring for their four-year-old son, Jordan, while his wife is on the road.

Ellie Foreman-Peck

A documentary filmed during Weiner’s abortive mayoral campaign has just been released in the US. Weiner shows Abedin at her husband’s side, curtailing his more chaotic tendencies, always flawless with her red lipstick in place. Speaking to the New York Observer in 2007, three years before their marriage, Weiner said of his future wife: “This notion that Senator Clinton is a cool customer – I mean, I don’t dispute it, but the coolest customer in that whole operation is Huma . . . In fact, I think there’s some dispute as to whether Huma’s actually human.” In the film, watching her preternatural calm under extraordinary pressure, you can see what he means.

In recent months, Abedin’s role has changed. She is still to be found at Clinton’s side – as the burrito photo showed – but she is gradually taking a more visible role in the organisation overall, as they pivot away from the primaries to focus on the national race. She meets with potential donors and endorsers on Clinton’s behalf and sets strategy. When a running mate is chosen, you can be sure that Abedin will have had her say on who it is. There’s a grim symmetry to the way politics looks in the US now: on one side, the Republican candidate Donald Trump is calling for a ban on Muslims entering the country; on the other, the presumptive Democratic nominee Hillary Clinton relies ever more on her long-time Muslim-American staffer.

Years before Trump, notable Republicans were trying to make unpleasant capital out of Abedin’s background. In 2012, Tea Party supporters alleged that she was linked to the Muslim Brotherhood and its attempt to gain access “to top Obama officials”. In her rare interviews, Abedin has spoken of how hurtful these baseless statements were to her family – her mother still lives in Saudi Arabia. Later, the senator and former Republican presidential candidate John McCain spoke up for her, saying that Abedin represented “what is best about America”.

Whether senior figures in his party would do the same now remains to be seen.

Caroline Crampton is web editor of the New Statesman.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad