Cyprus: has the eurozone run out of road?

After the bank levy, citizens will lose confidence in the system and turn to extreme political alternatives.

The Eurogroup's decision on Friday to impose a one-off tax on depositors in Cyprus may mark a turning point in the euro crisis. Only, the single currency's decision makers might soon realise that in taking this particular turn, they also ran out of road.

Under pressure from several members of the eurozone – Germany in particular, if reports are accurate – the new Nicosia government agreed that deposits above 100,000 euros would be taxed 9.9 percent and those under 100,000 at a rate of 6.75 percent.

This is an unprecedented decision for a eurozone country. It is also one whose potential consequences reach much further than an island in the eastern Mediterranean. It threatens to cause the transmission system between the economic and financial sectors on one side and the political and social on the other to seize up. Without this, the euro cannot be propelled forward. It cannot function.

The choice to tax depositors has prompted an intense economic debate about whether it was the correct policy or not. Both sides have put forward points worth considering. Those arguing against the decision have pointed, for instance, to the risk of contagion in other eurozone countries that are facing economic problems. Those who defend the Eurogroup's stance say depositors in Cyprus earned high interest, which gave them profits over the last few years and carried a bigger risk.

Setting these arguments aside, the eurozone ignores at its peril the fact that these decisions do not happen in an economic or financial vacuum. They have political and social consequences that cannot be ignored if the single currency is to have a future. One need only look at the political changes that have taken place in Greece, Ireland, Portugal, Spain, Italy and elsewhere to realize that the euro area is running out of leaders who have the backing needed to implement the decisions being taken.

Cypriot President Nicos Anastasiades, elected just last month, has to clarify to his people why he is adopting a bank deposit tax when he told voters a few weeks ago that he was absolutely opposed to it. Even before Anastasiades had returned from Brussels, his political opponents were demanding a referendum on the deposit tax. Some were even calling for new elections or an exit from the euro.

Anastasiades also has to explain to Cypriots why small-time depositors have to pay a similar levy to the one some eurozone countries supposedly demanded so alleged Russian oligarchs would be forced to pay for bailing out the island's banking system. Furthermore, he has to inform them why the Cypriot government's pledge to guarantee deposits up to 100,000 euros – supposedly even in the most extreme circumstances – is not even worth the paper it was written on.

The implications for people's trust in their government and financial system are obvious. It would be remiss to think that this wariness will be contained just to Cyprus. While many will be watching next week for signs of financial contagion from the Cypriot decision in other parts of the eurozone, with Spaniards or Italians possibly withdrawing savings from their banks, there is a more insidious infection that could spread.

Cypriots will be given equity in their banks in return for the tax but what value will this have when they no longer have faith in the banking system? Cypriots will be told that the deposit tax will stave off further measures but they only have to look to Greece or Portugal to see that promises of no more taxes or cuts have little value. They will be told that there was no alternative but then they will hear about pressure from other single currency members and concerns about the upcoming German elections.

And, all the time, citizens in other troubled eurozone countries will watch and grow warier. They will interpret the policies advocated by the stronger members as punitive for the weaker. They will consider the hypocrisy of leaders who cry foul about money laundering in Cyprus but turn a blind eye if it is happening in Lichtenstein, Switzerland, Luxembourg, the City of London or anywhere else in Europe. They will realize that their government’s promises carry no value when measured against the ideas, motives or obsessions of the single currency’s big players.

This is the point at which the political and social sectors will experience a complete disconnect from the economic and financial. Restoring the connection will be an immense task.

Then, these same citizens will begin to ask themselves where their interests lie, what’s in the euro for them and whether other options would be better. And, as they are mulling over these thoughts, they will look to other parts of Europe and see people like them but also analysts and policy makers wondering what all the fuss is about. They will hear others who have not had to suffer any hardship or financial losses wonder why there is such a negative reaction to wages being slashed, taxes being hiked or deposits being taxed.

This is the point at which the links within the eurozone will begin to pop apart, when citizens will turn to Beppe Grillo-style solutions, to nationalists, extremists or to anyone who promises a different path.

This is the point at which the vehicle stops functioning and the road ends.

Nick Malkoutzis is deputy editor of the Greek English-language daily Kathimerini, where this post first appeared. He blogs at Inside Greece. Follow him on Twitter @NickMalkoutzis.

A souvenir shop in Nicosia, Cyprus, on 17 March. (Photo: Getty.)
Photo: Popperfoto
Show Hide image

How the Oval regained its shape: the famous cricket ground hosts its 100th Test

The challenge for Surrey is to ensure that the new fans drawn to the stadium in recent years keep coming.

Few stadiums have as rich a sporting history as the Oval. After opening its gates in 1845, it hosted England’s first home football international, the first FA Cup final, and Ireland’s inaugural rugby Test.

Though it took 35 years before a cricket Test match – the first ever in England – was played at the ground in Kennington, south London, it was worth waiting for. WG Grace scored 152 runs, setting the tone for many memorable performances  at the Oval. Among the highlights: Len Hutton’s 364 in 1938, still the highest Test score by an England batsman; Viv Richards’s double century and Michael Holding’s 14 wickets for the West Indies before an ecstatic crowd in 1976; England’s Ashes-clinching match in 2005, when a skunk-haired Kevin Pietersen thrashed the Australian attack.

But just five years later, in 2010, the Oval and its host club Surrey were in a bad way. For the first time since 1986, the first day of the annual Oval Test was not a sell-out, and attendances for county games were down. Finances were so stretched that Surrey made a dozen administrative staff redundant, and there was talk of insolvency. The club, which is owned by its 10,000 members and is a tenant of the Duchy of Cornwall, was “very close to a substantial crisis”, Paul Sheldon, then chief executive, said at the time.

Today that seems far away. On 27 July, the Oval hosted its 100th Test, the third match of the series between England and South Africa. The first day was sold out. And Surrey are now the richest first-class county, with £12m of reserves. In 2019, work will begin on a redevelopment scheme that will increase the Oval’s capacity from 25,000 to 40,000, making it the biggest cricket ground in England. (Lord’s, the Oval’s more illustrious rival, can seat 28,000 people.)

“We are in a good place,” said Richard Gould, the current chief executive, one recent afternoon in his grandstand office overlooking the pitch, where a big group of local schoolchildren ran around in the sun.

How did the Oval regain its shape? Gould, whose father Bobby played football for Arsenal and was manager of Wimbledon when the team won the FA Cup in 1988, lists several factors. The first is a greater focus on non-cricketing revenue, taking advantage of the club’s historic facilities. In 2011, when Gould joined Surrey after stints at Bristol City football and Somerset cricket clubs, revenue from corporate events and conferences was £1.3m. This year the projected income is £4.6m.

The second factor is the surge in popularity of the T20 competition played by the 18 first class counties in England and Wales. Unlike Tests, which last for five days, a T20 Blast match takes just three hours. The frenetic format has attracted many people to games who have never previously followed cricket. Surrey, which like Lord’s-based Middlesex have the advantage of being in London, have been especially successful in marketing its home games. Advance sell-outs are common. Surrey reckon they will account for one in six T20 tickets bought in the UK this season, with gate receipts of £4m, four times more than in 2010.

Whereas Test and even one-day international spectators tend to be regulars – and male – Gould estimates that up to 70 per cent of those who attend T20 games at the Oval are first-timers. Women, and children under 16, typically constitute a quarter of the crowd, a higher percentage than at football and rugby matches and a healthy trend for the game and the club.

The strong domestic T20 sales encouraged the Oval’s management to focus more on the county than on the national team. Until a few years ago, Surrey never seriously marketed its own merchandise, unlike professional football clubs, which have done so successfully for decades.

“When I came here, everything around the ground was focused on England,” Gould said. “We needed to put our team first. In the past, county cricket did not make you money. With T20, there’s a commercial business case.”

To raise its profile and pull in the crowds, Surrey have signed some of the biggest international stars in recent years, including Australia’s Ricky Ponting, South Africa’s Hashim Amla, Sri Lanka’s Kumar Sangakkara and Kevin Pietersen, who is now mainly a T20 franchise player. For the players, as with the counties, it’s where the money is.

The challenge for Surrey is to ensure that the new fans drawn to the Oval in recent years keep coming. In common with many businesses today, customer data is crucial. The club has 375,000 names on its marketing database, of which 160,000 are Surrey supporters. But since the average T20 purchaser buys six tickets, many people who attend games at the Oval remain unknown to the club. One way Surrey are trying to identify them is through a service that allows one person to book tickets for a group of friends, who then each pay the club directly. Another method is through offering free, fast Wi-Fi at the ground, which anyone can use as long as they register their email address.

For all the focus on T20, Gould is keen to stress that England internationals, especially Test matches, are a crucial part of the Oval’s future – even if the business model may have to be tweaked.

“We always want to be one of the main Test venues. The problem we have is: will countries still put aside enough time to come to play Tests here? In many countries domestic T20 now takes precedence over international cricket. It may be that we may have to start to pay countries to play at the Oval.” 

Xan Rice is Features Editor at the New Statesman.

This article first appeared in the 27 July 2017 issue of the New Statesman, Summer double issue