Cyprus: it's hard to imagine a neater way of undermining confidence in the banking sector.

A PR disaster.

I hold my hands up.  I could not have been more wrong if I had tried.

I did not believe that the banking powers-that-be (the European Union, European Central Bank and International Monetary Fund) would be so dumb as to sanction a levy on consumers savings to bail out banks.

It has been a PR disaster. It is hard to imagine a neater way of undermining confidence in the banking sector.

That the leading banks in Cyprus are in a mess is not in dispute. The sector is reckoned to need a bailout of €17 bn; that is probably a conservative estimate. But the proposal to raise €5.8 bn from depositors of Cypriot banks sets a dangerous precedent, in particular the notion that the levy apply to all savers.

There is, or rather there was, an EU-wide guarantee that small savers’ deposit balances up to €100,000 were protected. That assurance has been given to savers in Cyrus as elsewhere in the EU. That promise is now seen to be complete and utter bunkum. It gets worse. The EU and the European Central Bank are not merely allowing the authorities in Cyprus to rip up the €100,000 guarantee; the EU and ECB are the very bodies pressing Cyprus to levy a charge on all depositors.

The latest in this Cypriot pantomime is that the country’s president Nicos Anastasiades is considering a levy on deposits below €100,000 of 3 per cent. That, I suppose, is an improvement on a levy of 6.7 percent proposed over the weekend. The revised act of larceny would witness account holders with balances of between €100,000 and €500,000 forfeiting 10 percent, while deposit balances above €500,000 would be cut by 15 per cent.

It is no wonder that share prices have tumbled at the Eurozone’s largest banks. It can be argued that Cyprus is a special case as regards the size of its banking sector relative to the country’s GDP. It is not however far-fetched to imagine consumers in countries such as Spain, Greece and especially Italy fearing that their savings may be under threat in the future.

Just to add to the gloom, Jeroen Dijsselbloem, the Dutch president of the group of euro area ministers, on Saturday refused to rule out taxes on depositors in countries beyond Cyprus. There remains time for the Cyprus government and the EU authorities to re-work their sums in an attempt to rebuild trust among small depositors. They could, for example, apply a tax-free threshold of €100,000 while raising the threshold on savings above €100,000; it is the least the government ought to do.

A PR disaster for the IMF, ECB, and EU. Photograph: Getty Images

Douglas Blakey is the editor of Retail Banker International

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The global shipping slowdown hints at a recession around the corner

Instability in China and tumbling commodity prices have devastated the world’s freight providers – a strong indicator of trouble to come.

This is beginning to have the feel of 2008 all over again. Policy makers around the world are in denial once again as global stock markets dive. In 2008, the slowing of the world's biggest economy – the US – sent the global economy into a tailspin. The concern now is that the slowing of the second-largest economy, China, may well have similar global effects. Chinese growth, which averaged 10 per cent for three decades through to 2010, has decelerated for five straight years and in 2015 slowed to 6.9 per cent, its lowest rate in a quarter of a century. The IMF is forecasting that Chinese growth will slow further to 6.3 per cent in 2016 and 6 per cent in 2017, which may well be overly optimistic. There is already speculation that China’s banking system may see losses even larger than those suffered by US banks during the last crisis.

The bad news from China appears to have already spread to the US, which has seen GDP growth slowing sharply in the last quarter of 2015. US industrial production and core retail sales are both falling, and there have been marked contractions in core capital goods shipments and private non-residential construction. Business fixed investment declined nearly 2 per cent last quarter. Despite the bad news, last week Federal Reserve chair Janet Yellen astonishingly claimed that “the US economy is in many ways close to normal”. By contrast, Ruslan Bikbov from Bank of America Merrill Lynch calculates that there is a 64 per cent probability the US is already in recession. My expectation is the next move by the Fed will be to cut rates.

Company profits are tumbling as commodity and oil prices decline. BP reported a $3.3bn fourth-quarter loss last year while Exxon Mobil reported a 58 per cent fall in its quarterly profit. It isn’t just oil companies. Last week, Rio Tinto – the world's second biggest mining company – reported profits down 51 per cent after commodity prices collapsed amid slowing growth from China. Company profits are also suffering due to a big decline in the amount of freight being moved, especially to and from China. Moeller-Maersk, the Danish conglomerate and the world’s biggest container-ship operator by capacity, last week reported a fourth-quarter net loss of $2.51bn.  

DP World, one of the world’s biggest port operators, also says that global volume has slowed sharply. It reported that volumes at its ports rose by 2.4 per cent last year, compared with 8 per cent growth in 2014. Data provider Container Trades Statistics said this week that Asia-to-Europe trade fell nearly 4 per cent last year. Freight rates in 2015 averaged $620 per container on the Asia-to-Europe trade route. Typically, ship operators need more than $1,000 to break even. In February, the cost of moving a container from Shanghai to Rotterdam fell to $431, barely covering fuel costs. Figures released by the Shanghai Shipping Exchange show that the country’s 20 largest container ports grew by 3.7 per cent over 2014, compared to 5.5 per cent the previous year. The Hong Kong Port Development Council reported that throughput at the port of Hong Kong fell by 9.5 per cent in 2015.  

The Baltic Dry Index (BDIY) – an index of the price for shipping dry goods such as iron ore and coal (oil is wet) as shown in the chart below – is at a record low of 290. It is down 75 per cent since its recent peak in 2015 and down 98 per cent from its peak of 11,793 points in May 2008. The collapse to 772 by 5 September 2008 (a week before Lehman Brothers failed) presaged the global recession and it is falling again. Capesize vessels, which are too big to get through the Suez or Panama canals, had an average daily hire last week of $1,484, compared with a peak of $233,988 in June 2008. Even though there is an oversupply of ships, global demand is collapsing.

The International Air Transport Association (IATA) released figures for global air freight, showing cargo volumes expanded 2.2 per cent in 2015 compared to 2014. This was a slower pace of growth than the 5 per cent recorded in 2014. This weakness apparently reflects sluggish trade growth in Europe and Asia-Pacific. “2015 was another very difficult year for air cargo,” said Tony Tyler, IATA’s Director General and CEO. “Growth has slowed and revenue is falling. In 2011 air cargo revenue peaked at $67bn. In 2016 we are not expecting revenue to exceed $51bn.”

The current contraction in rail freight is apparently reminiscent of the drop that started at the end of 2008 and carried on into 2009. China's rail freight volumes fell by a significant amount last year. According to the National Development and Reform Commission (NDRC), volumes fell by 11.9 per cent, a further increase on the 2014 slowdown, when traffic declined by 3.9 per cent.

In the western US farm belt, grain trains are so abundant you can’t give one away. Since the middle of last March, carloads of agricultural products, chemicals, coal, metals, autos and other goods have declined every week. Shipments of US coal, the biggest commodity moved by rail, declined 12 per cent in 2015, according to the Association of American Railroads. The cost of carrying spring wheat from North Dakota to the Pacific coast has dropped by a third in the past two years. In early 2014, grain companies with a train to spare could command $6,000 per car above the official railway tariff, traders say. Today, to avoid hefty contract cancellation fees, they are paying others to use their unwanted trains.

Manufacturing output in the UK fell for each of the last three months and is down 1.7 per cent over the year. The overly optimistic Monetary Policy Committee is forecasting GDP growth of 2.2 per cent (2.4 per cent) in 2016; 2.4 per cent (2.5 per cent) in 2017 and 2.5 per cent (2.4 per cent) in 2018 (the latest, broadly similar, OBR forecasts in parentheses).

So all is well then? Probably not. Mark Carney has run out of ammunition with the Bank Rate at 0.5 per cent, compared with 5.5 per cent in 2008, and has little room to manoeuvre. Negative rates and more quantitative easing, here we come. George Osborne has never explained what he would have done differently in 2008 – his plans for a budget surplus are already in disarray as the economy slows. I am not saying a recession is going to happen any time soon, but it well might.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire