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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Has Arlene Foster saved power-sharing in Northern Ireland?

The DUP leader's decision to attend Martin McGuinness' funeral was much more than symbolic. But is Gerry Adams willing to make a deal?

After some prevarication, DUP leader Arlene Foster chose to attend the funeral of Martin McGuinness in Derry today. Her decision to do so cannot have been an easy one.

A substantial part of her loyalist base has noisily resisted attempts to memorialise the late deputy first minister as anything other than an inveterate killer. Foster herself notes in today’s Belfast Telegraph that the former IRA commander was responsible for the deaths of “many neighbours and friends”. And in 1979 – aged just eight – she bore witness to the bloody aftermath of an IRA attack in her own home: her father, a reservist police officer, was shot in the head by a gunman later eulogised by McGuinness.

Her attendance at today’s funeral is thus noteworthy and has been the subject of due praise. She was twice applauded by the congregation: as she took her seat, and after Bill Clinton singled her out in his eulogy. It is, however, much more than the symbolic gesture it might appear.

Last month’s election, which saw the DUP lose 10 seats and unionist parties lose their Stormont majority for the first time in nearly a century, proved Foster to be damaged goods. She was – and remains – tarnished by the RHI scandal but also by her crass behaviour towards the nationalist community, particularly on Irish language issues.

Her carelessly won reputation as a truculent bigot will therefore not be easily lost. Her departure remains a red line for Sinn Fein. But with just four days until the deadline for a new devolution settlement, Foster’s presence at McGuinness’ funeral is the clearest indication yet of the DUP’s carefully calculated strategy. It isn’t quite a resignation, but is nonetheless indicative of the new manner in which Foster has carried herself since her party’s chastening collapse.

She has demonstrated some contrition and offered tacit acknowledgement that her election shtick was misjudged and incendiary. Her statement on McGuinness’ death was delicately pitched and made only oblique reference to his IRA past. In the absence of a willingness to allow Foster to step down, the decision instead has been taken to detoxify her brand.

The conciliatory Foster the DUP will nominate for First Minister on Monday will as such at least appear to be apart from the dogwhistling Foster who fought the election – and her attendance today is the superlative indication of that careful transition. There has been talk that this increases the chance of a deal on a new executive. This is premature – not least because the onus is now almost entirely on Sinn Fein.

Theirs is just as much a mandate to reject Stormont as we know it as it is to return and right the DUP’s wrongs. Gerry Adams, the last member of the Armalite generation standing, has made this abundantly clear – and has hardened his line just as Foster has made sure to be seen magnanimously softening hers. He said last night that he would not tolerate any extension of power-sharing talks beyond Monday’s deadline, and called on Dublin to prevent the UK government from re-instating direct rule.

Though Adams also maintained a deal was still possible in the coming days, his statement augurs badly. As the former UUP leader Lord Empey told me on the day McGuinness died, the Sinn Fein president – the ideologue to McGuinness’ Stormont pragmatist – is now entirely without equal within his party. Though he has set the transition to a new generation of female leaders in train, he remains in total control. His demand for Dublin’s involvement is also telling: as the leader of the third-biggest party in the Dail, his is an all-Ireland long game. Enda Kenny will soon depart, offering Fianna Fail – riding high in the polls – a useful pretext to renegotiate or scrap their confidence and supply arrangement with his minority government. Sinn Fein are on course to make gains, but implementing Brexit and austerity as partners in a Stormont executive would undermine their populist anti-austerity platform.

As such, Empey predicted McGuinness’ death would allow Adams to exert a disruptive influence on the talks to come. “I don’t think it’ll be positive because for all his faults, Martin was actually committed to making the institutions work,” he said. “I don’t think Gerry Adams is as committed – and it was obvious from the latter part of last year that Gerry was reinstating his significant influence in the party. For that reason I think it will make matters more difficult.  I hope I’m wrong, but that’s my sense.”

He is not alone. There was, earlier this week, growing confidence in Westminster that some fudge could be reached on the most contentious issues. It isn't impossible - but Adams’ renewed dominance and rejection of the extended timeframe such negotiations would undoubtedly require suggests a new executive is as unlikely a prospect as it has ever been. With Foster quietly reinventing herself, the DUP could be the big winners come the next election (which could come this year and reinstate a unionist majority) – and the resurgent republicans might well rue the day they squandered their big chance.

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.