"It must realise its current business model is dead"

Merkel on Cyprus.

Merkel summed up the situation earlier this morning in Cyprus, via Reuters.

She's right - when Cyprus gave in to political pressure and decided to ditch the levy on small savers, it also said goodbye to its economic structure. If it had taxed under $100,000 depositors, it may have been able to maintain its weird, top-heavy banking sector fuelled by Russian oligarchs. It's too late now though. Cyprus's solutions are falling away fast - today's news was that Russia is really, really unlikely to come to Cyprus's aid.

Cyprus's banking system is odd though. At times it has done well - back before the financial crisis, Cyprus was described by the International Monetary Fund as going through a "long period of high growth, low unemployment, and sound public finances" - but it this wasn't sustainable. Here's the Telegraph's Rachel Cooper on what happened next:

By 2011, the IMF reported that the assets of Cypriot banks were equivalent to 835pc of annual national income. Some of that was down to investment by foreign-owned banks, but most was Cypriot.

This imbalance might have been sustainable had the country’s two largest banks not made loans to the Greek government worth 160pc of Cypriot GDP.

When the value of the debts owed by the Greek state was cut by 75pc, the Cypriot banks were hit hard. Cyprus became stuck in a familiar negative cycle: already weak government finances were further ravaged by slow economic growth and the turmoil in the eurozone.

It will be painful, but in the long run the dismantling of Cyprus's financial foundations may be no bad thing.

Angela Merkel. Photograph: Getty Images
Grant Shapps on the campaign trail. Photo: Getty
Show Hide image

Grant Shapps resigns over Tory youth wing bullying scandal

The minister, formerly party chairman, has resigned over allegations of bullying and blackmail made against a Tory activist. 

Grant Shapps, who was a key figure in the Tory general election campaign, has resigned following allegations about a bullying scandal among Conservative activists.

Shapps was formerly party chairman, but was demoted to international development minister after May. His formal statement is expected shortly.

The resignation follows lurid claims about bullying and blackmail among Tory activists. One, Mark Clarke, has been accused of putting pressure on a fellow activist who complained about his behaviour to withdraw the allegation. The complainant, Elliot Johnson, later killed himself.

The junior Treasury minister Robert Halfon also revealed that he had an affair with a young activist after being warned that Clarke planned to blackmail him over the relationship. Former Tory chair Sayeedi Warsi says that she was targeted by Clarke on Twitter, where he tried to portray her as an anti-semite. 

Shapps appointed Mark Clarke to run RoadTrip 2015, where young Tory activists toured key marginals on a bus before the general election. 

Today, the Guardian published an emotional interview with the parents of 21-year-old Elliot Johnson, the activist who killed himself, in which they called for Shapps to consider his position. Ray Johnson also spoke to BBC's Newsnight:


The Johnson family claimed that Shapps and co-chair Andrew Feldman had failed to act on complaints made against Clarke. Feldman says he did not hear of the bullying claims until August. 

Asked about the case at a conference in Malta, David Cameron pointedly refused to offer Shapps his full backing, saying a statement would be released. “I think it is important that on the tragic case that took place that the coroner’s inquiry is allowed to proceed properly," he added. “I feel deeply for his parents, It is an appalling loss to suffer and that is why it is so important there is a proper coroner’s inquiry. In terms of what the Conservative party should do, there should be and there is a proper inquiry that asks all the questions as people come forward. That will take place. It is a tragic loss of a talented young life and it is not something any parent should go through and I feel for them deeply.” 

Mark Clarke denies any wrongdoing.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.