Cyprus isn't something happening "over there"

Europe – and that includes Britain – is unavoidably connected.

In case anyone thought that the bank and sovereign debt crisis that has engulfed certain parts of the eurozone has produced all its dramatic twists, events this weekend came as a rude awakener.

Eurozone leaders agreed early on Saturday morning a deal to bailout and restructure the Cypriot banking sector.

The most controversial part of the deal sees a tax levied on depositors to raise about 5.8 billion euros, to add to the €10 billion committed by the Eurozone and (probably) IMF. A 9.9 per cent levy will be imposed to deposits over 100.000, while deposits below 100.000 will face a levy of 6.75 per cent.

So for the first time depositors, who were considered sacrosanct until now, are forced to share the cost of a bail-out.

A lot has been said about how this decision was reached. The blame shifts depending who one talks to, but the Financial Times give a good account. It seems that considerations about the future of Cyprus as an off-shore financial centre played a role when deciding how widely to spread the pain among depositors in Cypriot banks. It was feared that taxing only non-resident depositors would scare investors away.

So the main bone of contention (in an overall contentious decision) is that smaller depositors are put on the firing line, in a move that is seen as unfair and dangerous. Asking working people and pensioners to sacrifice their savings in the service of a failed banking sector is indeed cruel. But WSJ’s Simon Dixon makes a fair point, there is an element of fairness when asking locals to contribute to the bail out of their country’s banking sector, especially when that sector represents such a huge part of the country’s economy.

Many argue that it should not have come to this at all, that depositors should have been spared all together. But as Hugo Dixon of Reuters argues the Eurozone and the Cypriot government had very little choice. Imposing a haircut on government debt, like it was done in Greece’s case, was not possible because most of the country’s sovereign debt is held under English law (making a Greek-style restructuring hard) and the remaining is held by Cypriot banks, making a hair-cut self-defeating.

Hence the decision to impose a tax on depositors, many of whom are non-resident, predominately Russian and in many cases suspect of money-laundering. It would have been a hard task politically to explain to taxpayers across the Eurozone why they should contribute more to a bail-out that would have, to some extent, helped Russian oligarchs.

The most important thing that one should consider is what would be the cost of an alternative. In the absence of a bail-out deal (one that the Cypriot government had delayed long enough) Cypriot banks (which are already under ECB life-support) would collapse, taking the Cypriot economy with them. Lest we forget that the banking sector in Cyprus is more than 5 times the Cypriot economy.

The one good thing that can come out of this is the de facto reduction of Cyprus’ banking sector to a size closer to the EU average, as the Eurogroup statement, that followed the bailout agreement, calls for. As we have seen in other European countries like Ireland and the UK, an oversized financial sector holds huge risks for the host country, especially for one whose economy is as small as that of Cyprus. To a large extent this is a banking crisis, rather than a “euro-crisis” and no matter what the structural inefficiencies of Eurozone’s governance (and European politicians inability so far to separate bank from sovereign debt) what Cyprus is faced with is the collapse of a banking sector that grew too big for its own good and made far too many bad decisions.

There is still a lot to play for, not least a parliamentary vote to approve the bail-out deal. Until then there is time and room to reconsider how the burden will be spread among depositors, and there are many proposals on the table on how to shield small depositors and reduce their contribution to the bail-out pot of money. Some reports talk about reducing to 3 per cent the levy imposed to deposits up to €100.000.

One last thing. The situation in Cyprus shows that in an interconnected world we are not immune to what happens “over there”. Capital as well as people are mobile, the banking sector interconnected and as a result banks and people’s savings are affected, irrespectively whether we are part of the Eurozone or not. The fact that British citizens who live and hold deposits in Cyprus will have to be part of the bail-out levy shows how important it is for the British government to be as involved as possible in Eurozone governance and EU-wide efforts to address the systemic faults of Europe’s financial sector.

Photograph: Getty Images

Petros Fassoulas is the chairman of European Movement UK

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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

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Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.