A Prophetic Voice: It is difficult to imagine a more profound breach of trust between the State and its citizens than for it to reach into their bank accounts and steal their savings. The political and financial crisis gripping Cyprus, precipitated by the IMF and the European Central Bank, will have a profound effect on ordinary peoples' political expectations all around the world.
THE CYPRIOT MATRIARCH who hid her life savings under the mattress doesn’t look quite so silly now – does she?
It’s difficult to conceive of a bigger betrayal of trust than the one unfolding before our eyes on the Mediterranean island of Cyprus.
We are told as children that the safest place for our money is in the bank. More than that, the building up of personal savings is encouraged by politicians and bankers as the mature and responsible course that all good citizens should follow.
Imagine the consternation, then, when the Cypriot Government announced that it was about to reach into the savings accounts of its citizens and commandeer a portion of them to meet the demands of the International Monetary Fund and the European Central Bank.
Failure to oblige these all-powerful financial institutions will see the multi-billion-Euro loan Cyprus so desperately needs to stave off bankruptcy withheld.
Upon hearing this incredible news, Cypriots immediately rushed to the nearest ATM to empty their accounts – only to discover that the banks had shut the machines down.
The Cypriot Government then poured even more fuel onto its citizens already blazing fury by announcing a “bank holiday” until the Cypriot Parliament – called into emergency session – was ready to pass legislation legitimising the IMF/ECB-sponsored bank heist.
Astoundingly, the European Union Summit, held in Brussels just days before the crisis broke, was so sanguine about the outcome of the Cyprus bail-out negotiations that it hadn’t even included them on the main agenda. According to a Bloomberg report, they would be dealt with “at a separate meeting of euro-area Finance Ministers.”
As news of the Cyprus bank raid spread across other debt-stricken European nations, and stock markets around the world registered the shock, the arrogant unwisdom of assuming innocent citizens would supinely acquiesce in their government’s garnishing of their life savings quickly became evident.
Apparently not one of the European leaders gathered at Brussels had thought to review the last occasion that ATMs were switched off and a government informed the world that it was messing with its citizens own money.
Argentina in 2001 experienced a similar debt and banking crisis. The outcome was the largest default ($US132 billion) on a sovereign debt in modern history – the very nightmare that European Union leaders most fear.
Not that Cyprus is large enough, in either political or economic terms, to bring the EU to its knees all by itself. But what those Finance Ministers apparently did not consider was the demonstration effect of the IMF/ECB-sanctioned Cypriot raid on the citizens of those EU nations also facing debt and banking difficulties.
A Spaniard, or an Italian, or a Portuguese, with his or her life savings deposited one of their country’s leading banks will now be asking themselves: “What if the situation turns critical here? What if the IMF and the ECB demand something similar from our own government? Doesn’t it make more sense for me to put my money somewhere else? Somewhere safe? Somewhere my government can’t get its hands on it?
The Cypriot bail-out “deal” was as ill-considered as it was high-handed. God knows what the “end-game” is.
And, just before you mentally congratulate yourself on being born a New Zealander, take a look at what Finance Minister, Bill English, and the Reserve Bank Governor, Graeme Wheeler, are cooking-up.
It’s something called Open Bank Resolution (OPR) and the National-led Government reckons it’s the best solution on offer to a major bank failure.
Under OPR, if a bank fails, all its depositors will have their savings reduced to fund the institution’s financial recovery. In other words, if the men and women who run the major New Zealand banks decide to follow the example set by American and European financial institutions, and sail themselves into waters they can’t sail out of, you and I will be on the hook to bail them out.
And, according to Bill English, we’ll have nobody to blame but ourselves. Apparently, it’s up to us to scrutinise the performance of the banks in which we have money deposited – and act accordingly. Never mind that, as the Greens’ Russel Norman objected in his press release: “Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming.”
That’s true. But the world has seen what’s coming to the people of Cyprus.
We have been warned.
This essay was originally published in The Waikato Times, The Taranaki Daily News, The Timaru Herald, The Otago Daily Times and The Greymouth Star of Friday, 22 March 2013.