Cyprus deal: takes and double takes

The next Cyprus will be Malta.

If there is one thing today's Eurogroup statement is keen to get across, it's that deposits below €100,000 are now safe. They'll be no tax or haircuts for anyone but uninsured depositors at Cyprus' two biggest banks. That's the good news. The bad news is that the economic pain has been transferred to the financial sector, from whence it will trickle down to everyone else. There probably won't be a bank run, but there will be bank shrinkage which won't be good for Cypriots in the long term. Political contagion throughout the Eurozone will also be a big problem. And as I wrote last week, the damage to depositor trust was done the minute the 6.75 per cent tax was announced.

As Citi's Steven Englander says (my emphasis):

It makes the euro zone more susceptible to bank deposit runs in the event that banks come under question. This may make any future bank-related crisis more intense. The fact that deposit insurance was called into question so casually will make other depositors wary of policymaker assurances that they would not behave similarly. It told depositors that policymakers could act that way if they wanted to. The German FM’s comments that deposit insurance does not apply to levies and is only as good as the sovereign backing the insurance will be remembered at the next crisis. So now we have a deal that does not involve repudiating deposit insurance or imposing a levy on deposits  -- yet is has managed to raise fears of deposit insurance repudiation and deposit levies down the road.

Here's UBS’s Reinhard Cluse on what Eurozone policy-makers might do to try and restore it this trust (my emphasis):

A good aspect of today’s decision, compared with the rejected decision from 16 March, is that deposits below €100,000 will not be bailed in. In our view, European policymakers clearly realized that they had made a mistake by originally signing off the 6.75% haircut, as this arguably increased the risk of future bank runs in other periphery countries with troubled banking sectors. European policymakers where therefore keen to reverse this decision, and this was also stressed in subsequent Eurogoup statements. Nevertheless, the ‘credibility’ of the EU’s €100,000 deposit guarantee benchmark has been damaged. We therefore expect Eurozone policymakers to come out with a strong statement in due course, stressing that the €100,000 limit will be secure in the EU in the future and that this will also be written into the EU’s future bank resolution framework in the context of the European banking union project. 2.They will hope that this sends a strong signal to depositors in other troubled Eurozone countries (above all Greece, Spain) where depositors might react a lot more nervously in the future.

Marc Ostwald at Monument Securities on where to look for the next Cyprus - which will be Malta, he thinks:

Returning to Cyprus, outside of the colossal damage to the Cyrpiot economy, the other issues to consider are the precedents that this set: in the first instance, it keeps alive Mario Draghi’s promise to do “whatever it is possible” to save the Euro very much alive, though the price that the citizens of whatever country requires assistance will always need to be prepared for the principles of law and democracy to be bulldozed, and per se to be treated with the utmost disdain and contempt. To be sure, the Cypriot economic model, or rather banking model was always doomed to failure, as had already witnessed in Iceland and Ireland, and one has to ask why there was not more effort expended in addressing this, given the Icelandic collapse was now 6 years ago – this is not to say that it would have been successful, but to highlight that policymakers have been dilettante voyeurs at this particular car crash. Eminently one needs to look at other economies which are vulnerable to such a collapse, Malta to some extent, and one has to wonder a) where Russian offshore deposits will now be re-directed to – Hong Kong and Singapore look to be the most obvious beneficiaries, especially given the much closer ties that are being forged between Beijing and Moscow, for which Germany, traditionally a very close confidante of the Moscow political elite (of whatever type), may suffer, and b) the fall-out in terms of deposit outflows in the Eurozone at any point where a crisis appears to be emerging.

 

Photograph: Getty Images
Photo: Getty
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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

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

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