Cypriot counterintution part one: "It was a good thing"

Should we be cheering one of the first wealth taxes of this millennium?

As the Cyprus saga continues, the interesting counterintuitive takes are starting to bubble up. Obviously there's a tendency, when so many people agree on the broad strokes of the news – that Cyprus is in a crap position, that the tax is pretty stupid, and that there's not a whole amount of other options – to go against the grain for the sake of it, but each of these arguments have merit to them.

First up is Philip Inman in the Guardian, who argues that we should ignore the "hysterical reaction" to the tax, because "it is a wealth tax – and about time too." Inman writes:

A wealth tax on bank deposits, where most wealth is held, is consequently a practical solution that also fulfils a basic economic need, which is to shift taxes away from income to wealth. Poorer citizens need to feed themselves, and a tax on incomes, especially for those with no savings, is the worst outcome.

It mimics an argument that was going around Twitter yesterday, pointing out that "a 1 [percentage point] rise in Sales Tax would be way more regressive and not even raise an eyebrow." Of course, it's questionable whether that increase increase in sales tax could raise quite as much as the tax on deposits, but that's even more of an argument in favour of the deposit tax.

The real hope for all of this, in fact, is that the Cypriot government will struggle through the negotiations and come out the other side with a deposit tax which applies entirely to deposits over €100,000. As Ben Hammersley tweeted:

 

 

Given that many of the wealthier depositors in Cypriot banks are engaged in questionable financial practices – and even outright money laundering, it seems – it's not a terrible thing to ask that the entire weight of the bailout be put on their shoulders. Of course, even if they weren't, it still wouldn't be that bad an idea, because putting the greatest burden on the broadest shoulders is almost the definition of a progressive tax system.

Except, of course, for the fact that the Cypriot economy benefits from its status as a financial haven. A rebalancing of the economy may still be a good thing for poorer Cypriots, but it's not clear that the hit the country is taking to pay off the ECB is bigger than the hit it would take if it scared away its questionably legal golden goose.

Interestingly, it seems that Cyprus agrees. France has confirmed, and credible reports indicate Germany and Finland back it up, that the negotiations with the Cypriot government only required it to implement a tax on deposits over the insurance threshold of €100,000. Insured deposits were considered sacrosanct to the Troika, but not to the Cypriot government, which needed to "spread the pain".

But the big reason why Inman's counterintuitive take is likely to remain counterintuitive is that a bank run for deposits above €100,000 – or even a bank stroll – is still a bank run. Deposit insurance lessens the chance of people trying to take all their money out, but it still happens, and it does nothing for the money you have above that value.

The chance of contagion is looking slim – although it is still the case that if you're a Portuguese depositor you're likely to be sitting markedly less comfortably than you were last week – but the situation in Cyprus itself is by no means solved yet. If the trust in the country's banks and politicians isn't restored, there will be worse ahead.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The UK must reflect on its own role in stoking tension over North Korea

World powers should follow the conciliatory approach of South Korea, not its tempestuous neighbour. 

South Korea’s president Moon Jae-in has done something which took enormous bravery. As US and North Korean leaders rattle their respective nuclear sabres at one another, Jae-in called for negotiations and a peaceful resolution, rejecting the kind of nationalist and populist response preferred by Trump and Kim Jong-un.

In making this call, Jae-in has chosen the path of most resistance. It is always much easier to call for one party in a conflict to do X or Y than to sit round a table and thrash through the issues at hand. So far the British response has sided largely with the former approach: Theresa May has called on China to clean up the mess while the foreign secretary Boris Johnson has slammed North Korea as “reckless”.

China undoubtedly has a crucial role to play in any solution to the North and South Korean conflict, and addressing the mounting tensions between Pyongyang and Washington but China cannot do it alone. And whilst North Korea’s actions throughout this crisis have indeed been reckless and hugely provocative, the fact that the US has flown nuclear capable bombers close to the North Korean border must also be condemned. We should also acknowledge and reflect on the UK’s own role in stoking the fires of tension: last year the British government sent four Typhoon fighter jets to take part in joint military exercises in the East and South China seas with Japan. On the scale of provocation, that has to rate pretty highly too.

Without being prepared to roll up our sleeves and get involved in complex multilateral negotiations there will never be an end to these international crises. No longer can the US, Britain, France, and Russia attempt to play world police, carving up nations and creating deals behind closed doors as they please. That might have worked in the Cold War era but it’s anachronistic and ineffective now. Any 21st century foreign policy has to take account of all the actors and interests involved.

Our first priority must be to defuse tension. I urge PM May to pledge that she will not send British armed forces to the region, a move that will only inflame relations. We also need to see her use her influence to press both Trump and Jong-un to stop throwing insults at one another across the Pacific Ocean, heightening tensions on both sides.

For this to happen they will both need to see that serious action - as opposed to just words - is being taken by the international community to reach a peaceful solution. Britain can play a major role in achieving this. As a member of the UN Security Council, it can use its position to push for the recommencing of the six party nuclear disarmament talks involving North and South Korea, the US, China, Russia, and Japan. We must also show moral and practical leadership by signing up to and working to enforce the new UN ban on nuclear weapons, ratified on 7 July this year and voted for by 122 nations, and that has to involve putting our own house in order by committing to the decommissioning of Trident whilst making plans now for a post-Trident defence policy. It’s impossible to argue for world peace sat on top of a pile of nuclear weapons. And we need to talk to activists in North and South Korea and the US who are trying to find a peaceful solution to the current conflict and work with them to achieve that goal.

Just as those who lived through the second half of the 20th century grew accustomed to the threat of a nuclear war between the US and Russia, so those of us living in the 21st know that a nuclear strike from the US, North Korea, Iran, or Russia can never be ruled out. If we want to move away from these cyclical crises we have to think and act differently. President Jae-in’s leadership needs to be now be followed by others in the international community. Failure to do so will leave us trapped, subject to repeating crises that leave us vulnerable to all-out nuclear war: a future that is possible and frightening in equal measure.

Caroline Lucas is the MP for Brighton Pavilion.