Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Wednesday, April 17, 2013

‘EU’s policy of fighting offshore banking has a touch of double-standard’

There is certain hypocrisy in the European Union’s policy of fighting offshore banking, Russia's former Minister of Finance and Deputy PM Aleksey Kudrin told RT.

The interview also touched on the issue of the economic crisis with Kudrin fearing it may still escalate and Europe will be at the center of it.

RT: Thank you very much for joining us today. The first question is – the peak of the crisis in Cyprus seems to be over, and it's certainly underscored huge problems in the European Union: from the instability in the Eurozone to the sort of tough approach that we have seen the regulators take when it comes to trying to solve the  financial crisis there. For you - was this crisis unexpected?

Aleksey Kudrin: It was the severity of the crisis that was unexpected. I had assumed that banks may have trouble getting capitalized, but as you know, those problems started once the Greek debt was written off, and Cypriot banks suffered more from that than anyone else. I had assumed that in such an event, the European Union should be expected to assist Cyprus with everything it could do in order to mitigate the fallout from writing down the Greek debt - after all, the write-down was a collective decision taken by the EU. But it did come as something of a surprise when the EU declined to bail out Cyprus to the extent that it had earlier rescued Greece. I believe this course of action was not entirely consistent, and that is why I said that the European Union was fully responsible for the state of the Cypriot banking system, considering that Cyprus is part of the Union and of the Eurozone. I have also argued that there might be a spillover effect from Cyprus to the banking systems of EU neighbor states.

I don’t believe the crisis is over. Far from that, it is presently at its peak, and we don’t know where it will eventually get us. Its outcome may prove to be better than expected, or it could be worse. Cyprus has not yet allowed depositors to withdraw their money from Cypriot banks, especially from the biggest ones, such as Bank of Cyprus. So far, there is no way of telling what those depositors and investors will do: will they all decide to pull out their money and walk, or will some of them choose to stay?

So the outcome is so far unclear. If it happens to be worse than everyone is expecting, it will dramatically aggravate the situation for Europe’s southern economies. In other words, we cannot be certain that the crisis will not spill over onto other countries.

RT: Right now there is a debate going on in terms of which country is going to be hit next: Malta? Luxembourg? Spain? Italy? What's your projection?

AK: It is difficult for me to say. Slovenia may be having it the hardest at the moment, but at least a crisis there would be relatively easy to contain, while in some other countries it would be far harder to deal with. That is why everybody is more concerned about Portugal, Spain and Italy. These economies are presently in a tight spot. They are also getting more support than others, as the European Central Bank is committing the bulk of its resources to bailing out these three countries. However, this support may prove to be ill-timed, or come at a high cost. We can say that economies both great and small are still facing risks.

RT: Do you think it's appropriate to talk about a certain hypocrisy when it comes to the European Union considering they’re fighting offshore banking right now - yet have territories such as Cyprus and the British Virgin Islands?

AK: It does have a touch of a double-standard policy about it. If those nations had an opportunity for shutting down those offshore havens, they certainly should have done so.

RT: Who do you think is primarily responsible for the fact that offshore schemes are being conducted right in front of the regulators' eyes? Do you think it's the regulators themselves, the banks?

AK: The scale and scope of the 2007-2008 crisis in the context of a globalized world was impossible to predict. The magnitude of the crisis took everyone by surprise. The crisis has taken its toll on every economy. The US is presently struggling with a budget deficit, the UK is saddled with an enormous deficit, complete with negative economic growth. None of those countries had anticipated that these economic ills would overlap in such a way that it would inflict such a severe downturn on them. One could argue that it was economists who had failed to give us an early warning, or that it was the regulators who had failed to account for all the risks. Or maybe - and I think that is the case - it was politicians who had allowed a boost in spending without securing revenues, driven as they often are by populist rationale. As a result, those economies were essentially living on credit. I believe that one of the major precursors to the crisis had been exactly the fact that politicians oversaw an accumulation of debt back when their economies were enjoying positive economic growth. Growth periods should normally be used to reduce debt. When the crisis broke out, those economies found themselves ridden with debt, with no reserves to use as a safety cushion. Therefore, I think politicians are primarily responsible for the fallout.

RT: A rather direct question now. What happened in Cyprus, can we describe this as an action to expropriate Russian money. And in general - how much money did Russia lose out on this or do you agree with President Vladimir Putin saying that what happened there is going to make investors more inclined to keep their money in Russia?

AK: I wouldn't call it an action to expropriate Russian money, since there were not too many options to choose from. This is a very unpleasant way to deal with the problem, may be even the worst possible plan, but at least this is some kind of solution. There was a better way to deal with the situation though. I think that the EU should have given more money to Cyprus. However, the EU also depends on the politics of its member countries. They didn't want to cover the losses of investors from other countries. Most of the investors were from Russia and the UK. German tax payers don't care much about Russian or UK investors. That's why the choices were limited. But again - the EU had enough resources to solve this problem and be done with it. They didn't have to go with the worst case scenario. I think there was a better choice. Cutting investors' money is always the worst solution. It's the worst case scenario that set a bad precedent, which can cause crises in banking systems of less developed European countries. Everybody knows now that this scenario can be used in other countries as well.

RT: In general the crisis in Cyprus and the off-shore leak scandal, the fact that they more or less come at the same time - is this a coincidence?

AK: Some say that it may not be a coincidence. And there are some facts that support this view. As we know, there was a major smear campaign in European countries - there was a discussion of illegal Russian money hidden in this zone. As a result, the public had a negative view of Russian bank accounts in Cyprus.

I can't really tell if Russia was targeted specifically for this punishment, but there are some facts that support this idea.

RT: Now there’s currently a pretty strong anti-offshore campaign ongoing, including a campaign against tax evasion, which the Organisation for Economic Cooperation and Development has become involved in. Why do you think it is that for decades everyone seemed to be fine with offshore banking and now it really seems to be kind of the main cancer in the European economy?

AK: That is a perpetual issue. When there is enough money, there is a feeling that it’s okay to spend more, or to increase taxes for your taxpayers. Finding money doesn’t seem such a problem. But once the current crisis broke out, the G20 was the first to come up with a list of offshore financial centers that were to be placed under regulatory oversight. I was present at that meeting, some three years ago. It was France which initially brought up this issue, since France has been exposed to rampant capital flight to offshore banks for purposes of tax avoidance. When economies find themselves in a fix and there is no more room for the government to raise taxes, that is when they go looking for runaway capital to tax it. So the crisis has supposedly made it a pressing issue.

RT: There is a certain impression that problems in the European Union and the United States here seem to be piling up and not being dealt with - debt, unemployment, dealing with the financial sector. Do you think there is really some kind of gentle way of getting out of these problems or do you think that the crisis will show its face yet again?

AK: This is the biggest question, which everybody is concerned with at the moment. As Central Banks adopt policies to mitigate the crisis, and governments raise taxes or reduce them in order to stimulate the economy, everyone is wondering whether we are actually solving the problem or merely deferring it. Maybe we are just biding time to reform our banking system, but either our reforms are difficult to implement, or there is not enough time. Undoubtedly, there are fears that the crisis may still escalate. We are already witnessing a double-dip recession in Europe. Europe is probably looking at another year in recession that springs from the meltdown of 2008, which means it is being hit by a second wave of the crisis. And everyone is wondering whether double-dip recession will prove a worldwide phenomenon. So far, it is difficult to predict anything with a degree of confidence, but since all of the inefficiencies and imbalances remain unresolved to date, there is a chance of a global second wave.

RT: Now a more general question: do you think people living in developed countries are prepared to change their model of consumption, their lifestyles? Are they ready for something like that?

AK: This is a good question. Politically, I think no one is ready. It’s very hard to make such a decision whether personally or politically as to cut healthcare, education, and road infrastructure expenses. It’s very hard to decide to restrain oneself, and it’s difficult for people to agree to such measures. This isn’t something they would want to do yet it is something that they’ll have to do at some point. Those countries that come to terms with it quicker will probably get an additional chance of becoming more competitive in the future.

RT: Now a question more about you. Would you be attracted by the opportunity of working in the Russian government again?

AK: I’ve answered this question a number of times before. It’s not up to me to decide whether I should work there or not. It’s the government that should be appointing people to work there. But I strongly disagree with the present government’s policy, which was actually the reason I stopped working there. I would be interested in implementing a different policy though. But this isn’t an option at the moment, so I am not striving to work in the government right now.

RT: Elvira Nabiullina should become the head of Russia’s Central Bank soon. Is it setting a new trend of women in finances, or will it still be a man’s world after all?

AK: I think it will be a trend but a slowly growing one. Generally, women will be expanding their role in society due to emancipation and more equal rights in all areas of life. In this sense, the role of women has been underdeveloped and undeservedly lessened. There were many reasons for it such as traditional views and other difficulties that stopped women from being just as equally independent and committed to work. But this will be changing over time, so I believe this is a long-term yet slowly progressing trend.

RT: Aleksey Kudrin, thank you very much for your time with us today.

AK: Thank you.

Original Article
Source: rt.com
Author: --

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