Cyprus may backtrack over the deal - but the damage has been done

Savers will be thoroughly spooked.

It's a shock to everyone - Cyprus stumbles, and Europe cuts the cord.

The Cyprus deal could be in the process of renegotiation, according to Reuters, but here it is as it stands: Cyprus has imposed a tax on all depositors down to the smallest - with a levy of 6.75 per cent on savings up to €100,000, and 9.9 per cent for those over-€100k. This may be legal, but it goes violently against the spirit of the new banking system everyone has been striving for since the 2008 financial crisis - where those with no responsibility are protected from the losses of those who take risks. These ideas were based on solid reason - if a gamble doesn't pay off, the gambler should pay - a principle that should result in banks controlling their own risks. To fly in the face of this seems like a backward step.

For Cypriot savers, it's too late for action  - you can withdraw as much money as you like, but charges are now fixed. This will be particularly galling for those with deposits up to €100,000 which were guaranteed under EU law, should the bank go under. The fact that the new deal is presented as a tax on these savings will be seen as a sneaky manipulation of a loophole in the law.

Another slap in the face to ordinary investors comes from President Nicos Anastasiades - who claimed yesterday that there was no alternative to hitting small depositors. This is not true - as there could simply be larger cuts over the €100,000 threshold. The 6.75 per cent:9.9 per cent ratio seems terrifyingly arbitrary.

This was the choice European leaders had over Cyprus: sovereign restructuring or losses for bank creditors. The second course was chosen - but it has been done in the worst possible way. They will not restructure the banks immediately, nor will it bail in unsecured senior bondholders. They will however damage the savings of ordinary people in a way that is not only immoral but also unwise - how keen will people be to deposit money in the bank now?

And there is the other problem. While the actual tax hit to ordinary people is much smaller than other hits resulting from bank bailouts, (British savers have been relieved of more than £43bn since the beginning of the financial crisis, which was used to prop up struggling financial institutions) it is the raid-like way this has been managed that is so psychologically damaging to Cypriot depositors. Even if, as Reuters suggests, the deal is changed so that small depositors (under €100,000) are not hit, the risk that come Tuesday a mob will descend on the banks and withdraw every last euro from their accounts is considerable.

The other undo-able damage of course will be political - the credibility of policymakers in the IMF and eurozone is getting ever closer to zero.

Photograph: Getty Images

Martha Gill writes the weekly Irrational Animals column. You can follow her on Twitter here: @Martha_Gill.

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Commons Confidential: Gaffe-tastic Johnson, a missing Osborne, and a bit of May-hem

Plus rumours that Sir Keir “Call Me Mr” Starmer will throw his flat cap into the next Labour Party leadership contest.

Unlike Theresa May, the gaffe-tastic Boris Johnson is sackable. The blond bumbler did himself no favours by upsetting British Sikhs with his gurdwara “clinky” booze talk in a mock Indian accent, or foreshadowing the social care switch before his Downing Street line manager executed the humiliating manifesto manoeuvre.

May-hem’s position is assured as Prime Minister should the Tories win the election, but not so Johnson’s as Foreign Secretary. I hear that Johnson, too often the cause of chaos in the Conservative Party coalition, has made a dangerous enemy in Team May. Nick Timothy, May’s joint chief of staff, is said to be agitating for BoJo to be reshuffled ahead of the Brexit negotiations. Tick-tock.

Unless he has slipped into the building under cover of night, George Osborne hasn’t been seen at BlackRock’s London HQ since signing a £650,000 contract earlier this year, whispers my snout. Perhaps the former Tory chancellor is too busy, work on the London Evening Standard free sheet leaving an editor training on the job looking distinctly jaded. With BlackRock’s speculators nervous about divulging secrets to a budding journalist, the rapacious New York-based capitalist citadel would be forgiven if it wondered whether Boy George is value for money.

He is the son of a toolmaker and a nurse and is named after the Labour socialist Keir Hardie, and his energetic election campaign is fuelling speculation that Sir Keir “Call Me Mr” Starmer will throw his flat cap into the next party leadership contest. A Unite trade union fan of Starmer (yes, they exist) insisted that Camden doesn’t carry the negative Islington baggage of the incumbent. (Starmer represents Holborn and St Pancras, a leaflet’s throw from Corbyn’s constituency.) It may also help that Starmer has fallen out with Peter Mandelson, mastermind of the Blairite counter-revolution. The Prince of Darkness angrily judges the shadow Brexit secretary to be insufficiently Euroenthusiastic. If only the electorate felt the same.

Labour’s deputy and Unite old boy, Tom Watson, has joined the GMB trade union. Sounds like a smart insurance policy when he’s fallen out badly with Len McCluskey. Everybody needs employment protection.

No gushing One Show party political broadcasts for Labour. Jeremy Corbyn and his wife, Laura Alvarez, are declining to follow Theresa and Philip May in discussing boy and girl jobs on BBC1. Corbyn is fiercely protective of his family’s privacy. The other reason, I’m told, is a fear that the Mexican Alvarez’s slight Spanish lilt might reinforce suspicions among some of Labour’s more old-school supporters that he’s a member of the London metropolitan elite.

Kevin Maguire is Associate Editor (Politics) on the Daily Mirror and author of our Commons Confidential column on the high politics and low life in Westminster. An award-winning journalist, he is in frequent demand on television and radio and co-authored a book on great parliamentary scandals. He was formerly Chief Reporter on the Guardian and Labour Correspondent on the Daily Telegraph.

This article first appeared in the 25 May 2017 issue of the New Statesman, Why Islamic State targets Britain

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