The ‘troika’ deal, with the European Central Bank, the International Monetary Fund and the European Union, will see wealthy depositors in Cypriot banks lose up to 60% of their savings.
In addition to this, Cyprus will decrease the size of its banking sector, increase taxes and reduce the public sector workforce, with the country also being forced to privatize some state-owned businesses.
Officials in Cyprus warn of a forthcoming default by the end of April amid the escalating financial crisis. If the deal is not approved by 24 April then President Nicos Anastasiades’ administration will be unable to pay state salaries and pensions on the cash-strapped island nation.
Cypriot Finance Minister Harris Georgiades told parliament’s finance committee: “Public funds will have reached their limit by the end of the month. It’s time to pay the bill. We can only spend what is in our pocket. There is no other option.”
The minister said the country’s faltering economy is at a crossroads and that Nicosia must secure EU bailout funding.
Meanwhile, Cyprus Accountant General Rea Georgiou has stated that at least €75m is needed to pay its bills this month. “The cash deficit for April is €160m. The €85m in reserve is not enough and we need a similar amount to avoid a default,” Georgiou said.
The overnight transition of Cyprus from prosperity to near financial meltdown has grasped the attention of the international community. Many fear that Cyprus will become the ‘guinea pig’ for an economic experiment. That is, permitting international creditors to raid the savings of a country’s citizens to pay for the banking sector’s failures.
Thousands of bank workers took to Nicosia’s streets recently to voice their fear that their pension funds would be lost, as many jobs in the once thriving financial sector will disappear.
The Cyprus crisis is not a one-off problem encountered by a small marginal country; it is a symptom of the entire problematic EU system. Cyprus cannot repay its debt, while the EU cannot simply go on throwing money to fill the Cypriot financial void.
From this, there is a possibility that the crisis will create a division in Europe, between the north and south. The south will become an area with a cheap labour force, free from the welfare state, an area appropriate for outsourcing and tourism. The gap between the developed and developing worlds will now exist within the EU itself.
The lesson of the worldwide crashes after the 2008 collapse of Lehmann Brothers is clear. The unfathomable web of financial funds and transactions, from individual deposits and retirement funds to the functioning of derivatives, will no longer do. In essence, it must be made much simpler and brought under regulated social control.
There exists a fear of the international banking system itself, and distrust of these financial institutions has spread globally. The institutions wield so much power that they can force our governments to take money from our personal account without permission. If it can happen to European citizens, under the so-called protective blanket of the EU, then is it only a matter of time, now that the precedent has been set, before it becomes standard practice?
It is well known that the control of wealth and power go hand in hand, so maybe it is time for the ordinary people to stand up and take control of the wealth that they actually create.