•The rich so cherish the poor: they do everything to keep them in that condition
During mass last week, the Pope Francis appealed for protection of the weak and poor. The new pontiff seems a humble person committed to humanity. Hopefully, he will sweep the stale air and crooked ways from the Vatican so the Catholic Church can be a church again. Not only Catholics but the world can stand to have a pontiff who wears common, plain robes but speaks in words touched by the spirit of divinity. For too long, we suffered religious leaders who wore divine robes only to speak in the spirit of what is common and worldly. May Francis be more than fine ritual and liturgy. May he be real and compassionate. Even at that, he will face hard opposition and sour disappointment. His counsel to protect the weak and poor was condign but it was only hortatory. Save for public attention, a pope commands little these days. Those in positions of power and wealth to make good his counsel paid him as little heed as they do the poor and weak of whom the new pontiff so touchingly spoke. In many ways, it is not an outmoded perspective to think of the world as a perpetual battle of good versus its opposite.
A subtle global struggle is underway. The outcome will determine the course of nations and the welfare of billions of people. Hundreds of millions of lives will be made long or cut short depending on how the conflict unfolds. As long as man has existed, the rich and power have taken more from the weak and poor than they have given the humble masses. In prior ages, this dynamic assumed several names that highlight the foul play of which man is capable in pursuit of high affluence and great power. Slavery, serfdom, and indentured servitude are but the poor man’s basement view of the grand historic procession of the divine right of kings, noble aristocracy, manifest destiny, and the white man’s burden.
Today’s struggle is the latest manifestation of elite man’s penchant for polishing his boot against the neck of the lowly. This time is has little to do with birthright or pedigree. It has taken centuries but science has largely shorn us of the myths of innate superiority of any race, people or class. This time the struggle is distilled to the most durable and persistence of social myths: the supreme worth of money. This myth has been sustained by that ever present thing called human greed. It has been legitimized by the advent of perverse social science known as classical economics. It has been made catholic by the advance of technologies permitting the transmission of information or money in the form of electronic pulses moving at the speed of light. Economic life has been globalized. With globalization comes uniformity. What might have been the way of a few nations and their allies has become the way of the world.
On a universal scale, Money Power and its enabling philosophy, financialism, seek to place the rest of us under the lash. Thus far, they are winning because people were so deceived they believed no option existed but to accept their fate. Things are now changing. People are beginning to understand that few economic policies are objectively inevitable. Policies result from subjective preferences. To accept the policies espoused by the rich and powerful is to relegate most people debt peonage and reduce poor nations to colonial outposts of international finance in the same manner much of Asia and Africa were subjected to ownership by royal corporations in days of yore when imperial aspirations and discrimination against purportedly lesser civilizations were considered virtues to be nurtured and extolled.
During the last one hundred years, global wars have been military in nature, i.e., the two world wars and the resultant Cold War. In the 21st century, the first war of global dimension is the purported fight against terror. Terrorism is a serious matter. Nigeria well knows the harsh costs incurred when terrorism takes residence. However, the alleged global nature of the war on terrorism is more in hyperbole than fact. Most people and areas are unaffected. In truth, the first global war of the 21st century is financial in nature. It is a battle where rich and powerful nations, instigated by their largest financial houses, seek to control the destiny of other nations by whittling their economic sovereignty so that the lesser nations become vulnerable to further machinations by the more powerful economies. It is this war, not the one against terrorism, that affects all of us. This war’s outcome will determine whether modern technology joins with humane social knowledge and understanding to forge a better world where poverty is less jarring and wealth more equitably shared. Or will technology be perverted by twisted ambition to bring hardship that is severe and disconnected from the world’s actual productive capacity? If the latter, then we have entered a period as doleful as the entrance into the Dark Ages. A thick, heavy cloud would have descended over the vast swath of mankind for no reason other than to sate the greed of a powerful few.
As irony would have it, the epicenter of this fight is Europe much the same as Europe was the center of last century’s world wars. What Hitler could not accomplish through racial hatred and by strong bayonet, modern Germany now attempts to do through the manipulation of government and bank balance sheets. Germany seeks nothing less than to bring the rest of Europe to heel economically. Instead of the military blitzkrieg, Germany seeks to dominate Europe by brusque financial intimidation. It seems national tendencies don’t easily fade. When it comes to attempting to dominate others, the Germans dispense with subtlety. Bullying becomes the order of the day. Over the past two years, the euro zone has been a battlefield of rich versus struggling European nations. On one hand, Germany, using the European Central Bank (ECB) as proxy, has battled the southern tier of Europe. One by one, it has subdued these nations like a conquering invader. Greece, Spain, Portugal and Italy have fallen down the maw of austerity. Toss in Ireland for a measure of geographic diversity. One by one, these nations plummeted into recession.
Now, enter the most unlikely hero at the most unlikely moment. If this chapter in history has a benign conclusion, the small island nation of Cyprus may well be the proximate cause.
Buffeted by the Greek meltdown, the Cypriot banking system is in crisis. The island’s second largest bank is overexposed to potential Greek default. If that bank goes down, the other Cypriot banks go with it. Thus, Cyprus needs a bank bailout of 16 billion euros in short order. It turned to the European bank for help. In effect, this was tantamount to requesting the financially martinet Germans for assistance. Viewing the Cypriots as profligate wastrels living beyond their means, the Germans conditioned help on the Cypriots donning a skin-piercing hair shirt. The Germans demanded Cyprus pay for the bailout, in part, by imposing a ten percent tax on bank deposits. This was a brusque and unusually draconian move.
Germany and the ECB had strong-armed and intimidated relatively large nations such as Italy, Spain and Greece, to the extent of causing the Greek government to fold during the height of that crisis. German officials and European bureaucrats blithely thought they could steamroll tiny Cyprus which represented a fraction of one percent of the euro zone GDP. In their arrogance, they miscalculated.
The move sent shocks through the world banking system. The highbrows in Berlin and Frankfurt (the latter being the home of the ECB) had stepped too far to grab too much. In order to stop bank runs, governments have insured private bank deposits since the Great Depression. This has been a totem of modern banking. The innovation strengthened depositor confidence and encouraged savings. In one swoop, the equation changed in Cyprus. The Euro giants were demanding the Cypriot government to shift from guaranteeing deposits to confiscating them for no compelling reason. Worse, roughly one-third of bank deposits were expatriate, mostly Russian. Thus, the euro giants were poking a finger in the Russian eye by essentially demanding that Russians involuntarily fund the Cypriot bailout. Clearly, European officials knew of this Russian presence in the banking system. Penalizing Russia also gave motive to this harsh tactic.
News of the proposal predictably ignited a bank run which was only stopped when banks used various tricks and methods to dishonor depositor withdrawal requests. Those who thought the euro zone had exited crisis better thing again. If people in other troubled nations believe the medicine foisted on Cyprus may soon come their way, we will witness depositor withdrawals and bank runs in these nations the likes of which the world has not seen since the scythe of economic depression mowed down the European banking system seventy years ago.
Yet, something peculiar happened in the Cypriot capital, Nicosia. Parliament balked at passing the confiscatory deposit law. With this, they rejected the German-originated bailout plan. Germany thought they had Cyprus trapped. Without the bailout, a major bank collapses and a national banking crisis becomes imminent. With the bailout’s confiscatory tithe on bank deposits and its fiscal austerity measures, the economy will lose its place as a preferred international banking center and will deflate due to lessened government expenditure. Similar to Greece, the bailout may avert rapid financial calamity by replacing it with a slower yet inexorable long-term diminution approaching acute recession or depression.
Cyprus was being asked to select the means of its execution, either by gunshot or slow but sure poison. Banking on the risk-adverse nature common to most politicians, the euro bullies figured Cypriot parliamentarians would pass the legislation, thus avoiding an immediate financial showdown in favor of creeping disaster. The proud Cypriot lawmakers did what their colleagues in larger Spain, Italy and Greece lacked the spine to do. If they were to sink, they shall do so on their own terms, not according to commands from Berlin or Frankfurt. Finally, the euro giants had encountered resistance through this act of desperate courage. Given the smallness of the Cypriot economy, this was the wrong nation to take the stand but at least a stand was finally taken. Now electorates in Spain, Italy and Greece are irate that their lawmakers were not possessed of such nationalist courage when their moment to stand or fold came. As the winter becomes spring and weather moderates, expect street protests and political realignment in these nations as the people bristle under the harsh weight of unnecessary austerity.
Despite the courage shown, Cyprus is still in dire trouble. It must devise a rescue package by Monday or the ECB pulls the plug on the vulnerable bank. Then collapse would no longer be imminent. It would have begun. The last time someone in this part of the Mediterranean survived such a predicament was when Odysseus navigated past the monster Scylla and Charybdis, the whirlpool. Yet, this offers the Cypriots no consolation. This feat took place several millennia ago and is the stuff of myth. The Cypriots must face the pressure of modern financialism which places little premium on national heroism.
In the end, Cyprus will likely bend. It is too small and the pressure too great upon it. Being in the euro zone, the gallant island does not print its own currency. If it had a sovereign currency, the nation would have more policy space in which to maneuver. To a degree, it could inflate its way out of immediate crisis. This has problems but not as severe as those now faced. Cyprus has run to Moscow in search of kinder bailout assistance. The Russians will not do enough. Moscow will use Cyprus as a pawn in the grand game of geopolitics it plays against the European Union and NATO. Simply put, the island was ripe for the plucking. Exposure to Greece made frail the banking system. That it has untapped gas reserves makes the island a more attractive prey. “Cripple the economy, then take assets and resources on the cheap.” This is the new leitmotif of economic cooperation among nations bound as allies in an economic treaty and monetary union.
The crisis should sound a caution to African nations. By all means safeguard your currency sovereignty. Any nation that uses the currency of another or pegs its currency to the value of another, has shifted too much of its financial decision-making to another nation. That other nation will exploit the unintended gift; it will not act with altruism. Consequently, Nigeria must discourage the growing practice of conducting domestic transactions in dollars. While this might benefit individuals, it saps the overall economy.
West Africa must closely reexamine its pursuit of a monetary union that is partially based on the flawed European model. If the flaws are not resolved in this architecture, the union not only might cause imbalances between its members, it could make their economies more vulnerable to manipulation by foreign powers. Last, Nigeria and Ghana especially must be wary of the renewed flow of speculative hot money. Since the 2008 meltdown, western financial houses have largely been made whole by massive doses of government subvention. They are flush with cash. Due to the structural uncertainty of the euro zone and the low rates of return throughout the developed world, they do not have many places at home to park this money to earn handsome returns. Their eyes bulge as they look at the high interest rates in West Africa. They rush to temporarily park money here to profit from the high rates. We should be concerned. Lest we forget, a similar inflow helped foster the Nigerian banking bubble years ago. A subsequent outflow of the same money precipitated the banking collapse of 2008-9. This sudden and steep crash checkmated the banking system, almost crumpled the entire economy and obliterated the savings of hordes of forlorn investors. We must not allow a repeat so soon thereafter. We would be wise to impose capital and currency controls to prevent a repeat of this speculative roller coaster ride and its concomitant crash into the hard wall of financial reality.
To safeguard African economies from the fate of Cyprus, we must unlearn the mainstream economics we have been taught. Mainstream economics preaches that sovereignty matters little. It says go for the most lucrative deal. The lesson of the euro zone is that the most lucrative deal today might not be the best deal for posterity. Joining the euro zone was clearly against the national interests of Greece, Spain and Cyprus. Perhaps Cyprus might escape but with difficulty. The best way to escape such a trap is never to enter it. No nation with a large population base has ever reached durable, broad-based prosperity without maintaining its currency sovereignty. To relinquish sovereignty is to relinquish your right to grow as you deem fit. In such a mean, ungracious era of human history, no wise nation will place its fate in the hands of a competitor. Enough said!
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