[Marxism] Monetary crisis in Cyprus and the ghost of 1931 (Critique of Crisis Theory)

Mike Treen mike at unite.org.nz
Mon Apr 15 02:30:22 MDT 2013

Latest installment from the Critique of crisis theory blog

"In recent weeks, a financial, banking-monetary and political crisis
erupted on the small Mediterranean island country of Cyprus. Here I am
interested in examining only one aspect of this complex crisis, the banking
and monetary aspect.

"The Cyprus banking crisis was largely caused by the fact that Cypriot
banks invested heavily in Greek government bonds. Government bonds appeared
to be a safe investment in a period of crisis-depression. But then these
bonds fell sharply in value due to Greece’s partial default in 2012—the
so-called “haircut” that the holders of Greek government bonds were forced
to take in order to avoid a full-scale default. The Cyprus banking and
financial crisis is therefore an extension of the Greek crisis. However, in
Cyprus the banking crisis went one stage beyond what has occurred so far in
either the U.S. or Europe.

"The European Union, the European Central Bank and the IMF imposed an
agreement on Cyprus that involved massive losses for the owners of large
bank deposits, over 100,000 euros. Mass protests by workers in Cyprus
forced the European Union and the European Central Bank to retreat from
their original plans to have small depositors take losses as well.

"Since the late 19th century, central banks, like the Bank of England, have
gone out of their way when they wind up the affairs of failing banks to do
so in ways that preserve the currency value of bank deposits for their
owners. The officials charged with regulating the banks prefer instead to
wipe out the stockholders and sometimes the bondholders.

"Why are the central banks and other governmental regulatory organs—like
the U.S. Federal Deposit Insurance Agency, which was created under the New
Deal in hopes of avoiding bank runs in the United States—so eager to
preserve the value of bank deposits, even at the expense of bank
stockholders and bondholders?"

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