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.

Picture: ANDRÉ CARRILHO
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Leader: Boris Johnson, a liar and a charlatan

The Foreign Secretary demeans a great office of state with his carelessness and posturing. 

Boris Johnson is a liar, a charlatan and a narcissist. In 1988, when he was a reporter at the Times, he fabricated a quotation from his godfather, an eminent historian, which duly appeared in a news story on the front page. He was sacked. (We might pause here to acknowledge the advantage to a young journalist of having a godfather whose opinions were deemed worthy of appearing in a national newspaper.) Three decades later, his character has not improved.

On 17 September, Mr Johnson wrote a lengthy, hyperbolic article for the Daily Telegraph laying out his “vision” for Brexit – in terms calculated to provoke and undermine the Prime Minister (who was scheduled to give a speech on Brexit in Florence, Italy, as we went to press). Extracts of his “article”, which reads more like a speech, appeared while a terror suspect was on the loose and the country’s threat level was at “critical”, leading the Scottish Conservative leader, Ruth Davidson, to remark: “On the day of a terror attack where Britons were maimed, just hours after the threat level is raised, our only thoughts should be on service.”

Three other facets of this story are noteworthy. First, the article was published alongside other pieces echoing and praising its conclusions, indicating that the Telegraph is now operating as a subsidiary of the Johnson for PM campaign. Second, Theresa May did not respond by immediately sacking her disloyal Foreign Secretary – a measure of how much the botched election campaign has weakened her authority. Finally, it is remarkable that Mr Johnson’s article repeated the most egregious – and most effective – lie of the EU referendum campaign. “Once we have settled our accounts, we will take back control of roughly £350m per week,” the Foreign Secretary claimed. “It would be a fine thing, as many of us have pointed out, if a lot of that money went on the NHS.”

This was the promise of Brexit laid out by the official Vote Leave team: we send £350m to Brussels, and after leaving the EU, that money can be spent on public services. Yet the £350m figure includes the rebate secured by Margaret Thatcher – so just under a third of the sum never leaves the country. Also, any plausible deal will involve paying significant amounts to the EU budget in return for continued participation in science and security agreements. To continue to invoke this figure is shameless. That is not a partisan sentiment: the head of the UK Statistics Authority, Sir David Norgrove, denounced Mr Johnson’s “clear misuse of official statistics”.

In the days that followed, the chief strategist of Vote Leave, Dominic Cummings – who, as Simon Heffer writes in this week's New Statesman, is widely suspected of involvement in Mr Johnson’s article – added his voice. Brexit was a “shambles” so far, he claimed, because of the ineptitude of the civil service and the government’s decision to invoke Article 50 before outlining its own detailed demands.

There is a fine Yiddish word to describe this – chutzpah. Mr Johnson, like all the other senior members of Vote Leave in parliament, voted to trigger Article 50 in March. If he and his allies had concerns about this process, the time to speak up was then.

It has been clear for some time that Mr Johnson has no ideological attachment to Brexit. (During the referendum campaign, he wrote articles arguing both the Leave and Remain case, before deciding which one to publish – in the Telegraph, naturally.) However, every day brings fresh evidence that he and his allies are not interested in the tough, detailed negotiations required for such an epic undertaking. They will brush aside any concerns about our readiness for such a huge challenge by insisting that Brexit would be a success if only they were in charge of it.

This is unlikely. Constant reports emerge of how lightly Mr Johnson treats his current role. At a summit aiming to tackle the grotesque humanitarian crisis in Yemen, he is said to have astounded diplomats by joking: “With friends like these, who needs Yemenis?” The Foreign Secretary demeans a great office of state with his carelessness and posturing. By extension, he demeans our politics. 

This article first appeared in the 21 September 2017 issue of the New Statesman, The revenge of the left