Cyprus is paying a painful price for bowing to international capital

Being controlled by global financial interests does not benefit ordinary people, their economy or democracy, writes the Jubilee Debt Campaign's Tim Jones.

A small country is being brought to its knees by a huge banking system which has recklessly been lent money from overseas. Controls on money leaving the country have had to be introduced. The size of the debts owed mean there is no way the government can simply bailout the banks. For Cyprus in 2013 read also Iceland in 2008.

Both small islands let themselves become home to casino banks many times the size of their actual economies. Banks borrowed money from overseas, lending it on again in even greater quantities. But when these loans could not be paid, the banks were bust, threatening the savings of all those with accounts in the banks, including normally Icelanders and Cypriots who had no idea their money was being put on a global roulette wheel.

In 2008, the Icelandic government could simply not afford to bailout its banks. Instead it sought to protect savings of domestic Icelanders, a limited bailout, whilst letting the reckless banks go bust to their foreign creditors. Iceland inevitably went through a crisis, but its economy is now growing, unemployment falling, and its experience measures favourably against that of Ireland, Spain and even the UK.

Iceland’s approach is a good lens through which to try to assess what is happening in Cyprus. The original plan of last week was madness, hitting domestic savers however small their savings. Now the deal rightly protects Cypriots who had been told by the EU that their deposits up-to €100,000 were safe.

Depositors over €100,000 will see their claims taken into a bad-bank, from which they could get back very little. Reckless lenders to banks via bonds will also take a hit on their loans, unlike under the original plan. This appears to be fair; there is no reason why Cypriot or other taxpayers should bailout reckless lenders such as rich Russians, hiding their money away in a secretive tax haven. In many ways it repeats the Icelandic experience. However, by hitting Cypriots as well as foreigners, it could have major ramifications for Cyprus’ businesses. It is also questionable whether the EU is only allowing this approach this time because it is rich Russians who are set to lose out, not German, French and British banks.

And so we come to the "help" from the EU through bailout loans. Cyprus’ government cannot afford to protect all the deposits under €100,000, even though the EU has brought in a collective rule to that effect. 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.

Cyprus is not Iceland. The single currency, and the failure to discriminate between domestic and foreign lenders to banks, means the crisis for the Cypriot people is set to be far worse. The EU should be giving real help to prevent the destruction of the economy and many peoples lives.

Much debate in Cyprus has seemed to be driven by the fear of what will happen if all the foreign financiers leave. But it is the very same people who have driven the country into crisis. The controls on moving money out of Cyprus need to be rigorously enforced to give some protection, just as they were in Iceland, and in Argentina following its default in 2001, and Malaysia during the Asian Financial Crisis. Thankfully the EU is turning a blind eye to the Lisbon treaty which prevents all regulations on the movement of money between countries. But the pity is that other such regulations were not used to prevent the reckless lending into the country in the first place.

Regulations on the movement of money between countries were common-place in the decades after the second world war, a period when there were hardly any debt crises. After they began to be removed in the 1970s, such crises have become common place, affecting every continent from Latin America and Europe, to East and Central Asia and now Europe today.

The crisis in Cyprus shows how damaging the banking industry can be when it gets too large, just as in Iceland, Ireland, Spain and the UK. For the country to emerge from this crisis, Cyprus, like so many other countries, needs to get control over its banks in order to get them to invest in productive industries, rather than being part of a global speculation and tax avoidance ring.

Being controlled by global financial interests does not benefit ordinary people, their economy or democracy. Whilst Cyprus is going someway to making reckless lenders share in the pain, the failure to truly discriminate between domestic and foreign debts, and the lack of real help from the EU, means much suffering lies ahead.

Photograph: Getty Images

Tim Jones is policy officer at Jubilee Debt Campaign. Jubilee Debt Campaign is part of a global movement demanding freedom from the slavery of unjust debts and a new financial system that puts people first.

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Forget the progressive alliance - it was the voters wot won it in Richmond

The Labour candidate on how voters have acted tactically for decades.

The Richmond Park by-election is both a triumph and a setback for the concept of an anti-Tory progressive alliance. As the Labour candidate, I was bombarded with emails and tweets saying I ought to stand down to prevent Zac Goldsmith being re-elected long after it was technically impossible for me to do so even if I had wanted to. I was harangued at a meeting organised by Compass, at which I found myself the lonely voice defending Labour's decision to put up a candidate.

I was slightly taken aback by the anger of some of those proposing the idea, but I did not stand for office expecting an easy ride. I told the meeting that while I liked the concept of a progressive alliance, I did not think that should mean standing down in favour of a completely unknown and inexperienced Lib Dem candidate, who had been selected without any reference to other parties. 

The Greens, relative newbies to the political scene, had less to lose than Labour, which still wants to be a national political party. Consequently, they told people to support the Lib Dems. This all passed off smoothly for a while, but when Caroline Lucas, the co-leader of the Greens came to Richmond to actively support the Lib Dems, it was more than some of her local party members could stomach. 

They wrote to the Guardian expressing support for my campaign, pointing out that I had a far better, long-established reputation as an environmentalist than the Lib Dem candidate. While clearly that ultimately did little to boost my vote, this episode highlighted one of the key problems about creating a progressive alliance. Keeping the various wings of the Labour party together, especially given the undisciplined approach of the leader who, as a backbencher, voted 428 times during the 13 years of Labour government in the 1990s and 2000s, is hard enough. Then consider trying to unite the left of the Greens with the right of the Lib Dems. That is not to include various others in this rainbow coalition such as nationalists and ultra-left groups. Herding cats seems easy by contrast.

In the end, however, the irony was that the people decided all by themselves. They left Labour in droves to vote out Goldsmith and express their opposition to Brexit. It was very noticeable in the last few days on the doorstep that the Lib Dems' relentless campaign was paying dividends. All credit to them for playing a good hand well. But it will not be easy for them to repeat this trick in other constituencies. 

The Lib Dems, therefore, did not need the progressive alliance. Labour supporters in Richmond have been voting tactically for decades. I lost count of the number of people who said to me that their instincts and values were to support Labour, but "around here it is a wasted vote". The most revealing statistic is that in the mayoral campaign, Sadiq Khan received 24 per cent of first preferences while Caroline Pidgeon, the Lib Dem candidate got just 7 per cent. If one discounts the fact that Khan was higher profile and had some personal support, this does still suggest that Labour’s real support in the area is around 20 per cent, enough to give the party second place in a good year and certainly to get some councillors elected.

There is also a complicating factor in the election process. I campaigned strongly on opposing Brexit and attacked Goldsmith over his support for welfare cuts, the bedroom tax and his outrageous mayoral campaign. By raising those issues, I helped undermine his support. If I had not stood for election, then perhaps a few voters may have kept on supporting him. One of my concerns about the idea of a progressive alliance is that it involves treating voters with disdain. The implication is that they are not clever enough to make up their mind or to understand the restrictions of the first past the post system. They are given less choice and less information, in a way that seems patronising, and smacks of the worst aspects of old-fashioned Fabianism.

Supporters of the progressive alliance will, therefore, have to overcome all these objections - in addition to practical ones such as negotiating the agreement of all the parties - before being able to implement the concept. 

Christian Wolmar is an award winning writer and broadcaster specialising in transport. He was shortlisted as a Labour mayoral candidate in the 2016 London election, and stood as Labour's candidate in the Richmond Park by-election in December 2016.