Euro Zone finance ministers meet on Friday to finalize a bailout for the island amid news that the country needs much more money than first thought. The meeting in Dublin will review how Cyprus can raise its contribution to the bailout being put together by the European Union and IMF. The cost of the rescue has risen to 23bn euros ($30bn; £19.5bn) from 17.5bn euros, according to Cyprus’ creditors. Meanwhile, Cyprus has loosened the capital controls it imposed last month. In order to secure 10bn euros from the EU and International Monetary Fund (IMF), Cyprus will have to find the remaining 13bn euros, about 6bn euros more than previously thought. Late on Thursday, a Cypriot government spokesman confirmed that one fundraising option being considered was the sale of some of the country’s gold reserves. ”The Cypriot government put various options forward, including this,” Christos Stylianides told a news conference.
On the other hand, it is clear that there are no winners from the Cyprus agreement:
That is one of the critical conclusions being drawn as the dust settles from last month’s bailout. Negotiating rescue packages for bankrupt governments is never easy. But in the wake of the chaotic talks and confidence-damaging proposals, it has become clear that all of those involved were losers. This may matter for the future. The institutions involved—the European Central Bank, the International Monetary Fund, the European Commission and the governments of the euro zone—must continue to work together to manage countries in existing bailout programs and any future rescue packages. The bruising experience of the Cyprus—where for the first time in the euro zone‘s financial crisis depositors took losses—won’t make that task easier. ”There are absolutely no winners from the agreement. Every major country and institutional constituency has been hurt, creating the potential for even more toxic and difficult negotiations going forward,” said Mujtaba Rahman, director at Eurasia Group in New York.
More importantly, the European Commission’s draft bailout for the island, suggest the selling of some 10 tonnes of gold, from the island’s reserves, the biggest in the Euro Zone since 2009:
Nicosia has been warned it must sell its excess gold reserves to raise 400 million euros needed to help finance its EU bailout. The stark assessment by the European Commission will come as another huge blow for the tiny country as it battles to save its stricken economy. One of the euro zone’s smallest economies, Cyprus has already been forced to wind down one of its largest banks and slapped losses on uninsured deposits in order to qualify for a 10billion euro lifeline from the European Union and the International Monetary Fund. The European Commission’s draft assessment set out plans for the sale of some 10 tonnes of gold, the biggest euro zone bullion sale in four years. The assessment also said that the small island economy would raise 10.6 billion euros from the winding down of Laiki Bank and the losses imposed on junior bondholders and the deposit-for-equity swap for uninsured deposits in the Bank of Cyprus. Nicosia would get a further 600 million euros over three years from higher corporate income taxes and a rise in the capital gains tax rate. Of the total Cypriot financing needs of 23 billion euros between the second quarter of 2013 and the first quarter of 2016, the euro zone bailout fund will provide nine billion euros, the International Monetary Fund one billion euros and the island itself will generate 13 billion euros, the assessment said. Cyprus’s total bullion reserves stood at 13.9 tonnes at the end of February, according to data from the World Gold Council.
On the other hand, it is understandable that the bailout in Cyprus, has opened a new way of dealing with the Euro Zone crisis, with clear banking and geopolitical characteristics, and as real consequences remain unpredictable:
Fifty-five years after the founding of the European Economic Community in 1958, the project of unifying Europe and bringing it lasting prosperity on a capitalist basis has been irrevocably shattered by the global capitalist crisis. With the recent bailout of Cyprus and new austerity measures announced against Greece and Portugal, the European Union (EU) is emerging nakedly as an instrument for crushing workers’ social rights, as competing ruling elites ruthlessly fight for dominance in Europe. The bailout of Cyprus was predicated on stealing money from Cypriot depositors—freezing and partially confiscating all bank deposits over 100,000 euros—in order to smash the country’s banking sector. The bailout had nothing to do with a socialist expropriation of the bourgeoisie by the working class, which in Cyprus protested the bailout on the streets of Nicosia. The bailout aimed to eliminate a rival of major European banks and precipitate an economic collapse facilitating attacks on the working class. In Cyprus, the economy is expected to decline by 25 percent in the coming years as a result of the bailout. The EU is insisting that the Cypriot government implement the type of mass layoffs, wage cuts and privatization which have already led to a social catastrophe in Greece. The broader aim of such bailouts, as Greek EU Commissioner Maria Damanaki recently said, is to cut wages and working conditions in Europe in line with levels in the most exploited countries of Eastern Europe and Asia. All the social rights formally enshrined in law after World War II—when the European bourgeoisie felt it had to make social compromises to prevent a resurgence of the kind of mass revolutionary struggles that followed the October Revolution in Russia—are being smashed. Driven by the world crisis, the bourgeoisie is tearing up its own laws and the social gains of an earlier period, aiming to throw the working class back decades.
Finally, it is unclear what is going to happen with the big players in the Euro Zone crisis, and especially with Italy and Spain. Is it possible for them to have a Cyprus type bailout or bailin agreement..?