Bank levy in Cyprus and dynamic of sub-capitalism

        Bank levy in Cyprus and dynamic of sub-capitalism

One of the most important recipes of economic disaster is to create a banking system much larger than the real economy. The banking system in Cyprus is much bigger than the real economy of this country. The European Central Bank estimated the value of Cyprus’s bank assets at 126.4 billion euros ($164 billion), but the size the economy is 18 billion euros. Bank assets in this country are 7 times bigger than the real economy. With less than ½% of the euro-zone economy, Cyprus is not the only Western country in this situation of excessive leverage. In USA, assets of the 5 biggest banks: JPMorgan Chase & Co, Bank of America, Citigroup, Wells Fargo and Goldman Sachs represented 43% of the US economy in 2007. In 2011, it increases to 56% ($8.5 trillion). This is a paradox of the sub-prime crisis: acquisition of more assets by the banks. But, total banking system in USA represent 117% of the country GDP. In France it is 421%, UK: 373%, Germany 332% and the G7 average is 258%. (1). In Switzerland, the total assets of UBS and Credit Suisse is almost 600% of the country's GDP (2). Last year global bank assets for all publicly‐traded banks reach $99 trillion, much more than world GDP estimated at $72 trillion (3).

Sovereign debt crisis in Cyprus is another moment of definition and inefficiency of financial Capitalism or sub-capitalism. The unprecedented levy on bank deposits is a punishment of taxpayers and transfer of banks excessive risk to the people. Cyprus’s parliament rejection of this bank levy put new light on the possibility of break up of European monetary union and sovereign default. The plan to tax 6.75 % on all of savers deposits under 100,000 euros and 9.9% above that amount, was initiated to back up 5.8 billion-euro ($7.5 b.) needed to obtain 10 billion euros loan from the troika. Cyprus Total bank deposit is 30 billion euros, the equivalent of $39 billion. (4) This plan was order by European finance ministers on March 16, with strong backing of Germany. Wolfgang Schaeuble, the Finance Minister of Germany said: “Naturally, the Cypriot president tried to find a way around it, but there was none”. He defended the lack of alternative by supporting the following thesis: “levy doesn’t violate deposit guarantees, because such protections are “only as good as a state’s solvency.”  The German finance minister position is totally incorrect; it is an expression of total ignorance. Bank deposits from citizen of a nation should not be use to paid bankers debt. This levy is a total disruption of Cyprus national economy. The same type of opinion was supported by Hans Michelbach (lawmaker from Germany Christian Democratic bloc) when he stated: “Cyprus has rebuffed the outstretched hand” and he called the vote “an act of collective unreason” and finished by the following declaration “the people of Cyprus must now pay a high price.” The statements of the two German leaders are an expression of domination of the euro zone by Germany. Domination implies submission and rebellion. This political and economic really is one of the most important weaknesses of the European monetary union.

The thinking of the 2 German leaders is contrary to the political, economic and cultural spirit of the European project. This spirit was founded on Unity of Europeans nations and citizens in wealth creation, industrialization and expansion of European economic and cultural power. But, these statements and decision of the troika demonstrated that we are very far from the spirit and objective of European Union. The euro zone is now an economic zone of wealth extraction from the population, excessive debt creation and high unemployment. Europe will not have a healthy economy, if decisions of policy makers are centered on excessive debt creation and development of new “privileges” for bankers. It is not possible to solve Europe structural problem with protection of private investors interests. In 2011, Cyprus three biggest listed lenders (Hellenic Bank, Bank of Cyprus, Cyprus Popular Bank) lost 6.5 billion euros in Greece bond deal. This is almost the same amount the country would like to raise with bank levy.

 The crisis in Cyprus is a challenge to the safety of bank deposits in the Eurozone and an erosion of confidence to the European Monetary Union. Today, the euro advanced 0.6% to $1.2954, after sliding to $1.2844 yesterday, March 19^th (Bloomberg). It should not be a surprise if the euros fall below absolutely key levels for euro-dollar: $1.2872, $1.2874 and $1.2876. The strength of the common currency does not reflect the economic reality of Europe. Iceland is a perfect model to follow, Cyprus should exit of the euro zone and create a national currency. Capitalism is a development of equilibrium between private and public interests with abundance of wealth creation. Bank levy in Cyprus is the lowest level of this equilibrium, source of the dynamic of sub-capitalism fuel by excessive debt creation.

Aboubacar Sissoko

1-The Clearing House: Scale to serve, The role of commercial banks in the US economy, July 2012.

2- zerohedge, 02/17/2010

3- Milken Institute: Breaking Banks Up is Hard to Do: New Perspective on Too Big To Fail- James R. Barth , Apanard (Penny) Prabha-December 3, 2012)

4-Bloomberg: Cyprus’s Four Options to Avoid Banking Collapse

by Megan Greene, Mar 20, 2013.