Attack of the Economic Crisis That Would Not Go Away
So why is it that tiny little Cyprus and the their banks are causing such consternation and high blood pressure over in Europe and why should we care ? Richard Wolff gives a good explanation with this audio clip from an interview on KPFA that I grabbed and uploaded to my web site. You can hear the whole program here if you like.
The European Economic Community (EEC) was an international organisation created by the Treaty of Rome of 1957. aIts aim was to bring about economic integration, including a common market, among its six founding members: Belgium, France, Italy, Luxembourg, the Netherlands and West Germany. The EEC was also known as the Common Market in the English-speaking world and sometimes referred to as the European Community even before it was officially renamed as such in 1993.
It gained a common set of institutions along with the European Coal and Steel Community (ECSC) and the European Atomic Energy Community (EURATOM) as one of the European Communities under the 1965 Merger Treaty (Treaty of Brussels).
Upon the entry into force of the Maastricht Treaty in 1993, the EEC was renamed the European Community (EC) to reflect that it covered a wider range of policy. This was also when the three European Communities, including the EC, were collectively made to constitute the first of the three pillars of the European Union (EU), which the treaty also founded. The EC existed in this form until it was abolished by the 2009 Treaty of Lisbon, which merged the EU’s former pillars and provided that the EU would “replace and succeed the European Community.”
Whew. That’s is essentially how it began. To allow trade between the various countries that made it up to proceed with few hindrances and eventually to have a common currency. Sounds good in theory but it has a number of flaws. For one there is a central bank but no central government behind it. It has no real power except to print money. It cannot set policy of the member states. Nor can it set the policies of theses states banks. The states themselves remain autonomous. When the single currency was brought forth, it was – more or less – to replace each states currency on a one for one basis, even if the exchange rate at the times was wildly different.
All of this was in and of itself a prescription for disaster. As we all know the exuberance and risk taking by the banks both here and in Europe built up mounds of debt. Debt that eventually came due and the debtors could not pay.
So why all this fuss over Cyprus banks ? They could not be THAT big…or could they. Well as a matter of fact and as Richard Wolff explains in the interview they are. Far bigger that this tiny country with only tourism and some maritime shipping would ever generate on it’s own.
During the run up of the fantasy economic boom of the 1990s, they went to attract as much business as they could. They wanted a piece of the action, as it were. So they got big depositors from Russia and Europe and here in the US as well. And they also began to loan out money people and governments who eventually could not pay back. As well as betting on these loans, just like here.
So what we have there – like here – banks and businesses that made bad bets, took high risks and are now on the verge of folding. And nobody – no government, no bank, no business – is willing to bail them out so they are try of get those on the bottom to pay for the mistakes and flaws in capitalism.
But they have painted themselves into a corner. Locked themselves in a container that is filling up with water. For if they let the banks collapse and go under, the economy may collapse as well causing massive unemployment and massive social unrest and the depositors and bond holders would lose everything. If they keep shoveling money into this ever expanding sink whole it could cause massive inflation and devaluation of the Euro and there by killing trade. This would most significantly hurt Germany whose economy depends on exports.
But if they keep squeezing the little guy, consumption keeps falling and that also hurts trade.
So as Richard Wolff says it’s a crisis spinning out of control and nobody has an answer to it.
So they are trying one more thing and Cyprus is the test case. To directly take money from the depositors – the citizens of the countries and others with money in these banks – to try and stem the tide. But this has a very real risk of generating a run on the banks as people try to move their money to someplace where this is less likely to happen. There by causing these banks to fail not slowly but very, very rapidly.
So how would this effect us ? Well can’t you guess ? They already want to take away the social safety net, Medicare, Medicaid, Social Security. What else is left ? And if the banks there failed, what do you think would happen to the banks here that have money over there still ? And are still owed money by Greece and Italy and Spain and …….. And have investment in they stock markets and hold their bonds ?
It’s very much a Catch 22 situation.
Even if they manage to control the situation on Cyprus, who’s next ? As Richard Wolff says, the problem is the capitalistic system itself. Not some member of it.