Cyprus feeling the effects of world economic crisis

As is widely known, the present financial crisis, a crisis of the system itself, has hit parts of Europe particularly hard. The nations of Greece, Italy, Spain, Ireland and Portugal come particularly to mind, although, in the words of European Commission representative, Verveik Maarten, “The main problems, regarding the causes of the crisis, lie in the decisions of the banks.”

Leaders, rather than restraining those banks, are using the crisis as an excuse to attack the gains of labor and the living standards of working people.

Now this crisis is hitting the south European island nation of Cyprus, forcing it to apply for “bail out” money from the EU. The fact is that as of the third quarter of 2012, ten of the 17 EU countries were in recession. In the words of General Secretary Andros Kyprianou of Cyprus’s Progressive Party of the Working People, (AKEL), “How could Cyprus escape?”

The devastating effects of the crisis on the people of Greece have become particularly well known. Right now Greece suffers 25 percent unemployment – higher among youth and, emblematic of the breadth and depth of the situation, people have taken to cutting down trees to heat their homes.

The economy of Cyprus is closely tied to that of Greece, and the problems in Cyprus have been greatly exacerbated by the rampant speculation of the Cypriot banking sector, which is in Greek hands.

The problems in Cyprus first arose in the fall of 2011 with the “haircut” of Greek bonds. Cyprus was unable to dictate terms that would be favorable to itself and, as a consequence, Cypriot banks suffered significant losses. Because the banks had exposed Cyprus to the Greek economy in this way the government was compelled to turn to the European Union for a bailout.

For political reasons opposition political parties in Cyprus, notably the right-leaning DISY party, have tried to sow confusion over the particulars of the bailout. But, evidently some 0 billion euros are needed for the banking sector and 1.5 billion are needed to cover budget deficits.

The fact that Cyprus has had to apply for a “bailout” has allowed what is known as the “Troika,” comprised of representatives of the International Monetary Fund, the European Central Bank and the European Commission, to dictate certain conditions to Cyprus, the all to familiar “remedy” of harsh austerity and neo-liberalism.

Although all across Europe it can be seen that austerity policies have failed, EU hardliners, led by Germany’s Merkel, are demanding measures that they call “structural reforms. Demanded are such things as the privatization of state resources and cuts in pensions, health care, housing, and support for education: In short, a reduction in the general standard of living of the workers of Cyprus. In particular the privatization of such public or semi-public entities as the electricity, telecommunications and ports authorities are being demanded. Specific attacks on the working people include such demands as that of increasing the retirement age to 67 and an across-the-board reduction in social benefits by 15 percent.

Despite these demands the government of Cyprus, under the leadership of President Demetris Christofias, is seeking to safeguard fundamental social principles and to protect public wealth by resisting privatizations of public concerns.

Towards this end, in 2011 the Christofias government was able to secure a loan from Russia, which allowed for some breathing room. Currently the prospects of such a loan that would be, in itself, large enough to preclude the need for Cyprus to resort to the bail out, or European Stability Mechanism, is not in the cards, however. The Russian loan, combined with money from the European Stabilization Mechanism, would free Cyprus from having to bow totally to the dictates of the “Troika.”

In any event, the first round Presidential elections, to be held Feb. 17, may have critical consequences regarding the way the crisis affects Cyprus. The contenders in the election include independent candidates Stavros Malas, who is supported by AKEL, Giorgios Lillikas and Nikos Anastasiades of the DISY party. Of these Malas likely offers the best hope for continuing the present negotiations to secure a Russian loan. It is uncertain whether any of the other candidates would be able, or willing to secure such a loan.

Anastasiades, the candidate of the right-leaning DISY party, would likely be unable to and, in any event, has called for austerity measures and cuts in social benefits that go beyond even those demanded by the “Troika,” – an extra 60 million euros in cuts.

Photo: The economy in Cyprus, closely tied to the economy in Greece, is also in a state of crisis now. In this photo, protesters march in front of the Greek Parliament.   Dimitri Messinis/AP


Gary Bono
Gary Bono

Gary Bono is an activist and retired transit worker writing from New York.