Eurozone ministers urge Cyprus to shield small savers

 

Cypriots say they have been betrayed by Europe

Finance ministers from the eurozone have asked Cyprus to reduce the burden on small investors from a proposed levy on savings, linked to a bailout.

Plans for a one-off tax of 6.75% on savings up to 100,000 euros (£86,000; $130,000) have outraged Cypriots.

Banks in Cyprus are to remain closed until Thursday, as efforts to revise an international bailout package continue.

A parliamentary vote on the package has been repeatedly postponed, but is now expected on Tuesday.

The 10bn-euro bailout agreed with the EU and IMF demands that all bank customers pay a one-off levy.

Start Quote

Parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law. We refuse to subscribe to this”

End Quote Yiannakis Omirou Cyprus parliament speaker and leader of EDEK party

The government's efforts to shift more of the burden onto wealthier depositors enraged Russians, who form the bulk of overseas investors and have deposits worth billions of dollars in Cypriot banks.

Russian President Vladimir Putin called the proposed levy "unfair, unprofessional and dangerous", and Moscow has expressed frustration Russia was not included in European decision-making on Cyprus.

Threat to confidence

Under the currently agreed terms of the levy, depositors with less than 100,000 euros in Cyprus accounts would pay a one-off tax of 6.75%, while those with sums over that threshold would pay 9.9%.

But the move has outraged Cypriots and sparked heavy cash withdrawals from banks.

Since the start of the financial crisis there has been a guarantee that deposits under 100,000 euros in banks in the EU would be protected.

Many observers believe the Cypriot levy breaks the spirit of that agreement, and there is concern that it could also damage the confidence of depositors in other eurozone countries, reports the BBC's Chris Morris in Brussels.

Analysis

Cypriots will tell you they're a resilient nation. They bounced back from the war of 1974 and became a prosperous EU member three decades later.

But even they are feeling defeated by this shock tax. "Daylight robbery" is what many here call it.

"If Brussels insists on this, we should leave the EU altogether," one elderly gentleman told me in a Nicosia cafe.

And that is perhaps the lasting damage of this affair - a tiny yet proud EU member now feels bullied and blackmailed by the powerful, the old north-south division of Europe widening again.

Yet many argue Cyprus sleepwalked into this mess. For years it thrived as a tax haven, its banking sector eight times the size of its economy. The warning signs were there but few were willing to heed them.

Eurozone finance ministers - the Eurogroup - discussed the situation in a conference call on Monday evening.

Following the talks, its president Jeroen Dijsselbloem issued a statement saying the group "continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below 100,000 euros".

He said Cyprus would "introduce more progressivity in the one-off levy" - in other words, shift the burden away from small savers towards bigger depositors - provided that the same amount of funds, 5.8bn euros, was raised.

Mr Dijsselbloem urged "a swift decision by the Cypriot authorities and parliament to rapidly implement the agreed measures".

Vote 'close'

President Anastasiades has been holding talks with ministers and MPs at the parliament building in Nicosia, where hundreds of people noisily protested on Monday.

The BBC's Mark Lowen in Nicosia says there are suggestions Mr Anastasiades may want to lower the former rate to 3%, while raising the levy on the larger depositors to 12.5%.

The debate and vote in Cyprus' parliament is now scheduled for 18:00 local time (16:00 GMT) on Tuesday. It was to have been held on Sunday.

Levy graphic
  • Depositors with under 100,000 euros deposited must pay 6.75%
  • Those with more than 100,000 in their accounts must pay 9.9%
  • Depositors will be compensated with the equivalent amount in shares in their banks
  • The levy is a one-off measure

The president's Democratic Rally has 20 seats in the 56-member assembly and needs other parties' support to ratify the deal.

The vote remains too close to call, correspondents say.

Speaker Yiannakis Omirou, of the EDEK party, said: "Parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law. We refuse to subscribe to this."

Mr Anastasiades insists that without the bailout Cyprus could face bankruptcy and a possible exit from the eurozone - a fear echoed by European officials.

The US has called for a "responsible and fair" resolution.

Protesters in Cyprus have held up banners blaming Germany for the controversial bailout deal, but Germany says it always favoured protecting bank accounts with up to 100,000 euros, and insists it was the Cypriot government, European Commission and ECB that decided on the levy terms.

Earlier European Commission spokesman Simon O'Connor defended the group's actions, saying its original decision on the bailout was "taken by unanimity, all the member states of the eurozone, including Cyprus".

Stock markets in the US, Asia and Europe fell in early trading, though some of their losses were recouped later in the day. The euro also fell.

Cyprus may only be a tiny fraction of the eurozone economy, our Brussels correspondent says. But the sense of uncertainty surrounding it is sending shivers through the financial markets.

Highcharts graph
 

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  • rate this
    +4

    Comment number 24.

    People are saying this tax is Government theft.

    It is, but so is Income Tax, VAT, Capital Gains Tax and any other tax you can think of.

    It's our money but all Governments come along and steal it from us.

  • rate this
    +5

    Comment number 23.

    Another bailout!! When are those 'leaders' in Brussels going to understand that this approach is not working!! The criminals at the top of these banks NEED to be held to account and let the business go to the wall!! If they continue with bailouts it will never end.
    Take a look at HSBC. ANOTHER money laundering implication. Was anyone put in prison for the first one?...i rest my case

  • rate this
    +1

    Comment number 22.

    It is a slightly less polite alternative to reducing interest rates, QE, wage 'restraint', raising taxes, reclassifying tax entitlements, etc etc etc
    But it is a more honest one, and it looks like Russian dodgy money is going to subsidise it, unlike our dodgy Cayman money

  • rate this
    0

    Comment number 21.

    Let the banks fail. Don't punish savers.

  • rate this
    +1

    Comment number 20.

    Interesting the reaction from the Eurozone ministers now that the worms are beginning to turn. The idea that they could rob small savers in a tiny economy with little reaction appears to be a misconception. All over Europe the ordinary citizens are wondering which country's elite will be next to "dip their beaks".

  • rate this
    +1

    Comment number 19.

    Whats fair about the banks helping themselves to your money?

    Let them fail. Let them fall to pieces, for destroying the economy and lets start again, without the bonuses for cock ups. . . . . .It would be a long awaited 'wake up' call.

    If i mess up with my finances, It's my mess and my issue to sort out, NOT the rest of the country

  • rate this
    0

    Comment number 18.

    Nothing wrong with a wealth tax, especially in the national interest. It just needs to be applied to those who are wealthy.

  • rate this
    0

    Comment number 17.

    PLease Please Please no more bank bailouts.

    Let the banks go and honour the 100,000 euro deposit scheme

  • rate this
    0

    Comment number 16.

    Who actually runs the Eu?

  • rate this
    +17

    Comment number 15.

    What is happening in Cyprus is a warning to us all, if governments feel they can just levy a "tax" on your bank accounts they will. This must be resisted at all costs

  • rate this
    +12

    Comment number 14.

    The error the finance ministers made in Cyprus is that they made the ordinary people responsible for the mistakes made by the banks. If that were applied EU wide there'd be a backlash which would see both the finance chiefs and the bankers behind bars.
    They forget that the Global Financial Meltdown was caused by the banks and the lack of effective ministerial oversight - not the ordinary people.

  • rate this
    0

    Comment number 13.

    Cyprus wanted to be in the Euro and this is the cost. Ive not got one bit of sympathy for them.

  • rate this
    0

    Comment number 12.

    Cyprus should never have been a member of the Euro group and now all the dodgy deals to ensure entry have come home to roost and it looks like the rest of Europe have to save this little island. I feel really sorry for all those who wanted to retire and have a quiet life but it seems that their savings are going to be plundered - let this be a warning for anyone else thinking about coming here.

  • rate this
    +3

    Comment number 11.

    The idea is worth discussing if it targets depositors with over £85000 or 100,000 Euros and issues stock for any money taken.

  • rate this
    -1

    Comment number 10.

    Better the country that is in a mess pays rather than another tax on Germany to pay all the losers. What was proposed in Cyprus has been happening indirectly in Germany to cover Greece, Ireland, Portugal etc. Guess Merkel realizes if she wants to be reelected she needs to stop screwing the population

  • rate this
    +4

    Comment number 9.

    How did banking reforms translate to penalising a country's own citizens?

    Surely the BANKS themselves should be sorting out this complete mess!?

    Your life savings, the results of YOUR hard work being dipped into to fix an organisations woeful judgement. Ludicrous.

  • rate this
    +8

    Comment number 8.

    So those who have been sensible are being punished? If they are doing that then they should also ensure those who caused the problems in the first place have to pay that back with significant interest.

  • rate this
    +3

    Comment number 7.

    So - they have removed the rescue tax for those with less than 20,000 euros saved but still keep the same rate for 20,000-100,000 and over 100,000. Whilst this helps a little, the message is still 'we will punish those who have saved and help those who have not'
    This stands a high and dangerous chance of setting a precident for future recoveries

  • rate this
    +14

    Comment number 6.

    Worst scenario:-
    Every Cypriot takes his money out of the bank. The banks collapse and the Eurozone suffers a domino effect.

  • rate this
    -2

    Comment number 5.

    Do not spend...one penny...of my taxes...bailing out...Russian mafia deposits...in Cypriot banks...

    Oh...sorry...I thought this was a democracy....my mistake...

 

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