Cyprus deal: takes and double takes

The next Cyprus will be Malta.

If there is one thing today's Eurogroup statement is keen to get across, it's that deposits below €100,000 are now safe. They'll be no tax or haircuts for anyone but uninsured depositors at Cyprus' two biggest banks. That's the good news. The bad news is that the economic pain has been transferred to the financial sector, from whence it will trickle down to everyone else. There probably won't be a bank run, but there will be bank shrinkage which won't be good for Cypriots in the long term. Political contagion throughout the Eurozone will also be a big problem. And as I wrote last week, the damage to depositor trust was done the minute the 6.75 per cent tax was announced.

As Citi's Steven Englander says (my emphasis):

It makes the euro zone more susceptible to bank deposit runs in the event that banks come under question. This may make any future bank-related crisis more intense. The fact that deposit insurance was called into question so casually will make other depositors wary of policymaker assurances that they would not behave similarly. It told depositors that policymakers could act that way if they wanted to. The German FM’s comments that deposit insurance does not apply to levies and is only as good as the sovereign backing the insurance will be remembered at the next crisis. So now we have a deal that does not involve repudiating deposit insurance or imposing a levy on deposits  -- yet is has managed to raise fears of deposit insurance repudiation and deposit levies down the road.

Here's UBS’s Reinhard Cluse on what Eurozone policy-makers might do to try and restore it this trust (my emphasis):

A good aspect of today’s decision, compared with the rejected decision from 16 March, is that deposits below €100,000 will not be bailed in. In our view, European policymakers clearly realized that they had made a mistake by originally signing off the 6.75% haircut, as this arguably increased the risk of future bank runs in other periphery countries with troubled banking sectors. European policymakers where therefore keen to reverse this decision, and this was also stressed in subsequent Eurogoup statements. Nevertheless, the ‘credibility’ of the EU’s €100,000 deposit guarantee benchmark has been damaged. We therefore expect Eurozone policymakers to come out with a strong statement in due course, stressing that the €100,000 limit will be secure in the EU in the future and that this will also be written into the EU’s future bank resolution framework in the context of the European banking union project. 2.They will hope that this sends a strong signal to depositors in other troubled Eurozone countries (above all Greece, Spain) where depositors might react a lot more nervously in the future.

Marc Ostwald at Monument Securities on where to look for the next Cyprus - which will be Malta, he thinks:

Returning to Cyprus, outside of the colossal damage to the Cyrpiot economy, the other issues to consider are the precedents that this set: in the first instance, it keeps alive Mario Draghi’s promise to do “whatever it is possible” to save the Euro very much alive, though the price that the citizens of whatever country requires assistance will always need to be prepared for the principles of law and democracy to be bulldozed, and per se to be treated with the utmost disdain and contempt. To be sure, the Cypriot economic model, or rather banking model was always doomed to failure, as had already witnessed in Iceland and Ireland, and one has to ask why there was not more effort expended in addressing this, given the Icelandic collapse was now 6 years ago – this is not to say that it would have been successful, but to highlight that policymakers have been dilettante voyeurs at this particular car crash. Eminently one needs to look at other economies which are vulnerable to such a collapse, Malta to some extent, and one has to wonder a) where Russian offshore deposits will now be re-directed to – Hong Kong and Singapore look to be the most obvious beneficiaries, especially given the much closer ties that are being forged between Beijing and Moscow, for which Germany, traditionally a very close confidante of the Moscow political elite (of whatever type), may suffer, and b) the fall-out in terms of deposit outflows in the Eurozone at any point where a crisis appears to be emerging.

 

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Excitement, hatred and belonging: why terrorists do it

A new book by Richard English suggests that killing can bring its own rewards.

Like most questions about terrorism, why large numbers of people join terrorist organisations can only be answered in political terms. However terrorism may be defined – and disputes about what counts as terrorism are largely political in their own right – we will be ­unable to understand how terrorist groups ­attract members if we don’t consider the politics of the societies in which the groups are active. But terrorism’s appeal is not ­always political for everyone involved in it. Richard English, in his wide-ranging new book, highlights some of what he calls the “inherent rewards” of terrorism gained by members of the Provisional Irish Republican Army (PIRA). According to some former members, involvement in PIRA operations brought adventure, excitement, celebrity in local communities and sometimes sexual opportunities.

Terrorist activity also brought other intrinsic benefits. As one Belfast ex-PIRA man put it, “You just felt deep comradeship.” Or as another said, regarding involvement in the Provos: “Now I felt I was one of the boys.” Yet another reflected tellingly: “Although I was ideologically committed to the cause, for me, in many ways, being in the IRA was almost the objective rather than the means”; conspiratorial “belonging” and “comradeship” were, in themselves, rich rewards. Friendship, belief, belonging, purpose, community and meaning. One ex-Provo described his PIRA years as “days of certainty, comradeship and absolute commitment”. A bonus was that PIRA members’ actions could gain them influence and standing in their own communities; one ex-PIRA man reflected on how he saw himself after having joined the PIRA, in the simple words: “I felt important.”

English is a professor of politics and director of the Handa Centre for the Study of Terrorism and Political Violence at the University of St Andrews. He has studied political violence in Northern Ireland for many years and, for him, these inherent benefits are one of four ways in which terrorism can “work”. The other three comprise strategic victory in the achievement of a central or primary goal or goals; partial strategic victory, which includes determining the agenda of conflict; and tactical success, which may lead to strengthening the organisation and gaining or maintaining control over a population.

Understanding terrorism, English writes, requires taking it seriously: “treating it as the product of motivations and arguments which deserve serious, respectful engagement; and also assessing it as something worthy of honest, Popperian interrogation”. He is sanguine – surprisingly so, given the conflicts with which he is concerned – regarding the practical results such an inquiry might bring. Finding out how far and in what ways terrorism works has “practical significance” – indeed, its importance may be “huge”. As English makes clear, he “is not arguing that if we understood more fully the extent to which terrorism worked, then everything would have been fine in the post-9/11 effort to reduce terrorist violence”. He is convinced, however, that understanding how far terrorism works can greatly improve the struggle against it. “It does seem to me strongly possible that if states more fully knew how far and in what ways terrorism worked (and does not work, and why), then they would be able to respond much more effectively to it in practice.”

With all its caveats, this is a strikingly bold claim. It assumes that the failures of the post-9/11 “war on terror”, which no one can reasonably deny, were largely due to intellectual errors. But was it a lack of understanding that rendered these programmes ineffectual or counterproductive? Or was it that some of the West’s allies – Saudi Arabia, Pakistan and, more recently, Turkey – have been less than unequivocal in taking a stand against terrorism or may even have had some complicity with it? If so, it was the geopolitical commitments of Western governments that prevented them from taking effective action. Again, much of the current wave of terrorism can be traced back to the 2003 invasion of Iraq. Voicing a long-familiar consensual view, English criticises the US-led occupation for being “ill-planned”, leading to the destabilisation of the Iraqi security situation. But it is not clear that more forethought could have prevented this result.

If Western leaders had thought more carefully about the likely consequences of the invasion, it would probably not have been launched. With the regime and the state so closely intertwined, topping Saddam Hussein always risked creating a power vacuum. It was this that enabled al-Qaeda and then Isis and its affiliates to emerge, gain control in parts of the country and then project their operations into Europe.

Errors of analysis may have played a contributory role in this grisly fiasco. When British forces were despatched to Basra, it may have been assumed that they could implement something like the pacification that was eventually achieved in Northern Ireland. But the kinds of allies that Britain made in Belfast – and before that in the successful counterterrorist campaign in Malaya in the 1950s – did not exist in that part of Iraq. Like the overall programme of pacifying a country whose governing institutions had been dismantled abruptly, the mission was essentially unachievable. But this was not accepted by either the US administration or the British government. The invasion was based in ideological conviction rather than an empirical assessment of risks and consequences. In this case, too, high-level political decisions were far more important in unleashing terrorism than any failures in understanding it.

As has become the usual way in books on terrorism, English begins with his own definition of the phenomenon:

Terrorism involves heterogeneous violence used and threatened with a political aim; it can involve a variety of acts, of targets and actors; it possesses an important psychological dimension, producing terror or fear among a directly threatened group and also a wider implied audience in the hope of maximising political communication and achievement; it embodies the exerting and implementing of power, and the attempted redressing of power relations; it represents a subspecies of warfare, and as such can form part of a wider campaign of violent and non-violent attempts at political leverage.

This is a torturous formulation, not untypical of the academic literature on the subject. English tells us that his book is intended for readers in “all walks of life”. But the style throughout is that of a prototypical academic text, densely fortified with references to “majority scholarly opinion” and buttressed with over 50 pages of footnotes fending off critics. As a storehouse of facts and sources, the book will be a valuable resource for scholars, but its usefulness to the general reader is more doubtful.

The most interesting and informative of the book’s four main sections – on jihadism and al-Qaeda; Ireland and the IRA; Hamas and Palestinian terrorism; and Basque terrorism – is the one on Ireland, where English’s knowledge is deepest. Extensive interviews with people who had been involved in terrorist campaigns in the province led him to what is perhaps his most instructive generalisation: those who engage in and support terrorism “tend to display the same levels of rationality as do other people . . . they tend to be psychologically normal rather than abnormal . . . they are not generally characterised by mental illness or psychopathology . . . the emergence and sustenance of terrorism centrally rely on the fact that perfectly normal people at certain times consider it to be the most effective way of achieving necessary goals”. Terrorists are no more irrational than the rest of us, and there is no such thing as “the terrorist mind”. In many contexts, terrorism has functioned principally as an effective way of waging war.

As English notes, there is nothing new in the claim that terrorism is a variety of asymmetric warfare. The practice of suicide bombing has very often been analysed in cost-benefit terms and found to be highly efficient. The expenditure of resources involved is modest and the supply of bombers large; if the mission is successful the operative cannot be interrogated. The bombers gain status; their families may receive financial reward. (Religious beliefs about an afterlife are not a necessary part of suicide bombing, which has been practised by Marxist-Leninists of the Tamil Tiger movement and in Lebanon.) An enormous literature exists in which asymmetric warfare has been interpreted as demonstrating “the power of the weak”: the capacity of militarily inferior groups using unconventional methods to prevail against states with much greater firepower at their disposal. Understood in these terms, there can be no doubt that terrorism can be a rational strategy.

Yet there is a problem with understanding terrorism on this basis, and it lies in the slippery word “rational”, with which English juggles throughout the book. Terrorists are not always rational, he says; they are prone to overestimate the impact of their activities, and they make mistakes. Even so, what they do can be understood as rational strategies, and in these terms terrorism often works, if only partly. Here, English is invoking a straightforwardly instrumental view of reason. What terrorists do is rational, in this sense, if there is an intelligible connection between the ends they aim to achieve and the means they adopt to achieve them.

This means/end type of rationality typifies much terrorist activity, English maintains. But some of the ends achieved by terrorism are internal to the actual practice. “Inherent rewards from al-Qaeda terrorism might potentially include aspects of religious piety; the catharsis produced by revenge and the expression of complicatedly generated rage; and the remedying of shame and humiliation.” In this case, “hitting back  violently and punishingly at them [the US and its military allies] has offered significant rewards in terms not merely of political instrumentalism but also of valuable retaliation in itself”.

The inherent rewards of terrorism also include the expression of hatred. “The vengeful, terrorising punishment of people whom one hates, or with whom one exists in a state of deep enmity,” English writes, “might be one of the less attractive aspects of terrorist ambition. But it might also (perhaps) be one in which we find terrorists repeatedly succeeding fairly well . . .” Here, he may have understated his case. Killing cartoonists, customers queuing at a Jewish bakery in Paris and families celebrating Bastille Day in Nice will be a rational act as long as it succeeds in venting the terrorists’ hatred. Even if the operation is somehow aborted, the attempt to inflict mass death and injury may still serve as a type of therapy for those who make the attempt. If “hitting back at people whom one holds to be (literally or representatively) responsible for prior wrongs” can be rational on account of the emotional satisfaction it brings the terrorist, how can terrorism fail to work?

Clearly something has gone badly wrong here. Without mentioning the fact, or perhaps without noticing it, English has switched from one conception of rationality to another. Much of what human beings do isn’t the result of a calculation of con­sequences, but more an expression of their sense of identity. Philosophers describe this as expressive rationality, an idea they use to explain why voting in circumstances where you know your vote can make no practical difference can still be in accordance with reason. But is expressive rationality beyond rational criticism? In order to understand terrorism in Israel-Palestine, Ireland and Spain, English tells us, we need to understand the national context in which the terrorists act. This doesn’t imply “a comfortable acceptance of any single national narrative”, given that various terrorist groups “have done much to open such narratives to a very brutal interrogation”.

But is the terrorist narrative exempt from questioning? The reader might think so, as there is nothing in English’s account that fundamentally challenges the narrative of Hamas, for example. There is no discussion of the endorsement in the Hamas Charter of The Protocols of the Elders of Zion, and no examination of the influence on Hamas’s policies of the delusional world-view that this infamous anti-Semitic forgery articulates. If this is a Popperian interrogation of terrorism, it falls short of the impartial critical rationalism that Karl Popper recommended.

An analysis of the intrinsic rewards of terrorism may be useful in considering the outbreak of Isis-affiliated ­terrorism in Europe. In contrast to that of the IRA, including its ultra-violent Provisional wing, this cannot easily be understood in terms of instrumental rationality. Even when compared with its predecessor al-Qaeda, Isis has been notable for making very few concrete demands. No doubt the present outbreak is partly a reaction to the jihadist group losing ground in Iraq and Syria. But as English suggests, we need to ask for whom terrorism works, and why. When we do this in relation to Isis, the answers we receive are not reassuring.

Nothing in human conflict is entirely new. There are some clear affinities between anarchist terrorist attacks around the end of the 19th century and jihadist “spectaculars” at the start of the 20th. However, there are also certain discomforting differences. Anarchists at that time made public officials, not ordinary civilians, their primary targets; they attacked state power rather than an entire society; and they never acquired a mass base of supporters and sympathisers. Bestowing identity and significance on dislocated individuals and enabling them to discharge their resentment against a hated way of life, terrorism by Isis is of another kind. Against the background of deep divisions in European societies, these rewards could become an increasingly powerful source of the group’s appeal.

John Gray is the New Statesman’s lead book reviewer. His latest book is “The Soul of the Marionette: a Short Inquiry Into Human Freedom” (Allen Lane)

John Gray is the New Statesman’s lead book reviewer. His latest book is The Soul of the Marionette: A Short Enquiry into Human Freedom.

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue