Cyprus Ill

Another month, another financial crisis… This time it’s Cyprus. At this remove, I’m no longer entirely sure what’s going on. The island is divided between Greeks and Turks since the Turks invaded in 1974 following a Greek Cypriot coup, set up by the army junta that then ruled Greece.

Like Iceland before the crash, it’s a small country with a banking sector far bigger than you’d expect. As with Bahrain, it benefitted from the financial service exodus that followed the Lebanese civil war of 1975 to 1990. Over the same time-frame it also sucked in many hot Russian and Greek billions and holding companies. So the financial comings and goings are, to put it mildly, utterly out of proportion to the size of the State.
It’s messy. Financial services there have grown fat and complacent and lots of jobs are tied to the hot billions. The same is true of the country’s economy. That’s why the decision to expropriate a percentage of deposits was such a shock. Basically, it has the appearance of cutting the whole thing off at the knees. The Russkies didn’t like it one bit. And the people liked it even less.
We can’t point any fingers here. Ireland is a byword internationally as a place where the shadows are long. Search for “The Double Irish” and you’ll see what I mean. And we tax bank deposits. And our Government has expropriated pension funds.
But once again, listening to – and exhausted by! – the explanations and declamations, you might be forgiven for thinking that ordinary Cypriots and expats have been going hog wild, borrowing and spending like there’s no tomorrow. It’s the same as was said about Iceland and Ireland and Spain and Portugal.
That’s how the ordinary footslogging taxpayers of these countries wind up paying off the debts run up by irresponsible bankers who had paid themselves and their shareholders grossly bloated salaries and bonuses and dividends. You wouldn’t think it from phrases like “we all partied too much”, but the mad boom began with gross irresponsibility among lenders in America and the UK in particular. Our boys proved quick learners, leading the pack into the free-for-all. Except, as we know now, it wasn’t free for all, it was just free for the bankers.
Remember when all this was new? When the first stones started to roll down the mountain? We all wondered about Lehman Brothers and sub-prime mortgages and chuckled at Fannie Mae and Freddie Mac… until the trickle of stones turned into an avalanche. Nobody’s chuckling now.
Just how did we all come to be paying for these bozos’ gross irresponsibility, stupidity and, in some instances, criminality?
Let’s not forget that in other jurisdictions bankers have been tried, convicted and jailed. Last month the Bank of Scotland paid a fine of £390 million and admitted criminal price-fixing. Meanwhile, at least ten authorities around the world are investigating more than twenty of the world’s biggest financial institutions for rigging the Libor (the London Interbank Offered Rate). Barclay’s bank made a settlement of $450 million last June.
At first glance you might think, well that’s good, the hoors are being made to pay. But there’s the rub. Our banks are insolvent. That’s why they were bailed out and in many cases nationalised. Get it? There’s nobody who can pay. If we fine them, we fine ourselves...
It’s galling beyond words. Yes, I appreciate that the bank issue is separate from the cuts and extra taxes and indeed many of these are necessary adjustments. But at the same time, the huge demands on the State to pay for the banks means that the State lacks critical capacity to adapt to the changed circumstances of the world economy.
The Government – and indeed the troika – may be lulling themselves into a false sense of security. For example, people may pay the property tax but in due course they will make the Government pay, especially in the urban areas. Those with long memories will know the phrase “It’s payback time”. There’s terrible pain out there. There’s despair. And there’s resentment.
So, what’s happening in Cyprus is just the latest link in a long chain. Ordinary taxpayers are forced to bail out the financial system and the financial services carry on regardless. If you doubt it, look at the bonuses that are still being paid at the top (and, as ever, the ordinary footsoldiers are first in the firing line and last in the bonus line)…
Well, a word to the wise: compliance should never be confused with acquiescence or acceptance. This story isn’t even half over.