Cyprus counterintuition part two: "Britain's next"

Are we heading down the same road?

I've already touched on one counterintuitive claim about Cyprus – that, far from being the Germans crushing the little guy, a wealth tax is actually the most progressive way out of the hole – but here's another one: Cyprus isn't that unique at all.

The Independent's Ben Chu turns against the prevailing trend, which is to argue that Cyprus, with its massive influx of questionable foreign funds, extended and deliberate exposure to Greek banks, tiny and inflexible economy, and a currency which it has no say in, is one-of-a-kind. Instead, Chu argues, there's someone who should be watching carefully: us.

We’ve nothing to be smug about here in Britain.

This chart (below) from Albert Gallo, an analyst at RBS, shows that we’re not that far behind. Despite all the deleveraging of recent years our banking sector still has assets and liabilities equal to 450% of our GDP.

Remember this next time you hear from one of the banking industry lobbyists how vital it is for the UK’s economic future to have a massive banking sector. Remember Cyprus.

Chu is slightly channeling Osborne, there (which isn't a nice thing to say of anyone, and I'm sorry). Our Chancellor made one of the earlier comments comparing Britain to Cyprus, and was pilloried for it. To be fair to Chu, Osborne's claim, that Cyprus is "what happens if you don’t show the world that you can pay your way" and is why Britain has "got to retain the confidence of world markets", is utter nonsense, while Chu's point is more interesting.

The problems in Cyprus have literally nothing to do with retaining the confidence of the world markets. Instead, have to do with buying a crapload of Greek debt in 2007, and then having a banking sector which owes billions in a currency Cyprus doesn't control.

On the face of it, that's not a circumstance which applies to Britain either. But the other aspect of the Cypriot problem is that the size of the country's banks is completely out of proportion two the size of the country's economy, and, yes, the UK's banking sector is similarly bloated – though still only half the size of Cyprus's as a proportion of GDP. I made a similar comparison in the heady days of 2011, pointing out that the UK is more similar to pre-crisis Iceland than Greece.

But the comparison just doesn't hold water beyond that. Because Cyprus's problem isn't just a bloated banking sector – it's also all those stupid moves its banking sector made, and the fact that Cyprus doesn't actually control the currency it now needs to recapitalise the banks into. (It's also, more technically, the fact that most of Cyprus's domestic law bonds are held by the Cypriot banks, which renders a partial default counter-productive). As a result, the real comparison between the UK and Cyprus is this one, from the FT's Joseph Cotterill:

That's the cost of fixing the banks' mistakes as a proportion of GDP. Cyprus is having to spend 60 per cent of its GDP on that. For comparison, that is roughly equal to America having to spend $9trn, almost 400 times the cost of TARP.

Cyprus is in a uniquely shitty situation. It's a cautionary tale for having banking debt's seven times higher than GDP, but it's more a cautionary tale about not being Cyprus.

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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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.