Monday, April 08, 2013

Cyprus and the double dilemma of the euro trap

As I've mentioned more than once here, Slavoj Žižek may be generally considered one of Europe's leading philosophers today. But he's also a clown who makes outrageous comments to catch people's attention and then seemingly contradicts himself, in ways that make me wonder how seriously we can take anything he says.

But in The Cyprus crisis is a symptom of what is rotten in the EU Guardian 04/08/2013, he does manage to focus pretty well on a key aspect of the crisis in the eurozone:

There is a well-known joke from the last decade of the Soviet Union about Rabinovitch, a Jewish man who wants to emigrate. The bureaucrat at the emigration office asks him why, and Rabinovitch answers: "There are two reasons. The first is that I'm afraid that in the Soviet Union, the communists will lose power, and the new power will put all the blame for communist crimes on us, Jews – there will again be anti-Jewish pogroms …" "But", interrupts the bureaucrat, "this is pure nonsense, nothing can change in the Soviet Union, the power of the communists will last forever!" "Well," responds Rabinovitch calmly, "that's my second reason."

It is easy to imagine a similar conversation between an EU financial administrator and a Cypriot Rabinovitch today. Rabinovitch complains: "There are two reasons why we are in a panic here. First, we are afraid that the EU will simply abandon Cyprus and let our economy collapse…" The EU administrator interrupts him: "But you can trust us, we will not abandon you, we will tightly control you and advise you what to do!" "Well," responds Rabinovitch calmly, "that's my second reason."

This is the deadlock at the core of Cyprus's predicament: it cannot survive in prosperity without Europe, but nor can it with Europe – both options are worse, as Stalin would have put it. What we can see emerging on the horizon are the contours of a divided Europe: its southern part will be increasingly reduced to a zone with a cheaper labour force, outside the safety network of the welfare state, a domain appropriate for outsourcing and tourism. In short, the gap between the developed world and those lagging behind will now exist within Europe itself. [my emphasis]
He focuses here on the immediate economic bind without discussing the democracy problem that goes along with it.

And he goes on to suggest that the only way he sees to solve the current problem is "some kind of socialisation of the banks," though he's unsurprisingly vague on what he may mean by that. Presumably, if he had meant "nationalization," or "expropriation," he would have said so. But with Žižek, it's hard to be sure.

There may be larger reasons for having state-run banks. But a eurozone-wide system of banking regulation and insurance could have prevented the current disaster or mitigated it without the destructive economic and democratic consequences that actually developed. That wouldn't have meant that the banks had to be nationalized, although it would have had to include resolution authority that would allow some governmental agency to take over bankrupt institutions and reorganize them, which is currently happening to Laiki Bank in Cyprus on the national level.

I use that past perfect conditional (if I have my grammatical terms right) to reflect my sense that it's too late. If the EU had moved forward aggressively after their agreement to create some kind of banking union, they might have had a chance to fix things before the eurozone gets to the point of no return and begins breaking up. That's exceptionally unlikely to happen now, from what I can see.

A Deutsche Welle English report from 03/29/2013, Is the eurozone irrevocably divided?

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