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
    +1

    Comment number 44.

    One could argue that the Cypriot Government is recooping the taxes its people have dodged.

  • rate this
    +2

    Comment number 43.

    This differs from inflation/quantitative easing how, exactly? If you can't make the currency less valuable in order to create governmental wealth... just go ahead and dip your hand in the pot. Same thing. Different mechanism. This will be a precedent for other euro nations - it's a limited test of a new idea.

  • rate this
    +5

    Comment number 42.

    @16
    "Who actually runs the Eu?"

    The EU has a political economy that is best described as "party rule". It's closest relative would have been the old soviet union.

    In both systems, party officials are appointed by the party secretariat, to fill government jobs. A token parliament (also party members) are elected, but hold no actual powers.

    The party secretariat are those who fund the party.

  • rate this
    +5

    Comment number 41.

    What has happened in Cyprus is a miniature version of Greece.
    The Germans thought that because it is smaller they could get away with encouraging this robbery but were wrong. Cyprus should do what Iceland did and let the banks go bust. On reflection we in Britain should have let the banks go bust as well at least it would have been a swift clear out of the financial cesspit we are now left with.

  • rate this
    +1

    Comment number 40.

    10. 1963Tiger

    "Better the country that is in a mess pays rather than another tax on Germany to pay all the losers."

    Fool. Germany colluded with France to create the Eurozone. Germany's exports have been kept artificially low in price because they are priced in Euros rather than the Mark. Why do you think your economy is so strong? You helped cause this crisis, so be prepared to pay for it.

  • rate this
    +1

    Comment number 39.

    So banks create a problem. Cause massive job losses. Than expect the people they destroyed to keep them afloat. Bankers are great.

  • rate this
    +1

    Comment number 38.

    Interesting point here and that is if they go ahead with this levee then we will probably see a distinct move of money out of the EU. Money which facilitated the EU boom will now assisted in its downfall. For we will not only see Russian money go but also that of the Chinese mot to mention that of the Arab nations. This could also have a dramatic affect on the property market as people pull out.

  • rate this
    +6

    Comment number 37.

    Surely after this theft, utter stupidity, incompetence, call it what you like, nobody in in their right mind would want the UK to remain in the EU.

  • rate this
    0

    Comment number 36.

    If there is so much dodgy Russian money passing through the Cypriot banks, perhaps Russia should bail-them out!

  • rate this
    0

    Comment number 35.

    Accounts in Cyprus were paying 6% interest tax free. Compare that to the UK, even ISA rates. If I had invested the same money in savings accounts in Cyprus over the last 4 years rather than in the UK with our much lower interest rates, I would be much better off.
    So come on, back date interest rates here to Cypriot levels and then apply the same tax on my savings. PLEASE!!!

  • rate this
    0

    Comment number 34.

    Governments take a lot more money from us than this all the time. This shows us why they try to stop taxes being transparent, and the dangers of governments being free to run up public debt.

    Force governments to look us in the eye as they take our money - as they have had to on this occasion. It would fix our democracies.

  • rate this
    +3

    Comment number 33.

    It's a disgrace what the gov is doing in Cyprus to individual bank accounts. It's mass theft. It's not the folk that have saved money that's got the country into financial problems, it's the gov.

  • rate this
    +1

    Comment number 32.

    What's been proposed in Cyprus if theft, plain and simple.

  • rate this
    0

    Comment number 31.

    21. You Kippers
    Let the banks fail. Don't punish savers.
    --
    So rather than lose 10% of their savings they lose 100%?

    At least in Greece their financial problems are not due to the banks. The govt spent far more on public services than it received in tax (and in part thats due to Greeks not paying their taxes)

  • rate this
    +2

    Comment number 30.

    The EU and Cypriot government cannot justify penalising bank account holders for the mess created by themselves, it`s immoral and criminally irresponsible. If they want to penalise anyone then it should be EU ministers and bankers paying for it.

  • rate this
    +2

    Comment number 29.

    Got to love it, banks just shut their doors, stop ppl withdrawing their own money while they rob it. DO we really need this bunch of corrupt, incompetent bankers. How long until the revolution?

  • rate this
    +2

    Comment number 28.

    I have sympathy for those who are working in Cyprus in the interests of Britain.
    I have less sympathy for those who choose to live in Cyprus as British Citizens, take UK Pensions, don't pay UK tax, don't contribute to the UK economy, yet vote in UK elections then bleat about how hard done by they are.
    The UK Government shouldn't bail out those who store capital there for Tax purposes either.

  • rate this
    +4

    Comment number 27.

    So once again the prudent people not responsible for the financial mess are the ones who get penalised for it. I suppose it would be just about tolerable if there was some plan for paying it back in the future with money taken from all the short-sighted fools who racked up all the debt but no chance of them ever doing anything to help fix the mess they created.

  • rate this
    +1

    Comment number 26.

    It certainly does not seem fair to penalise the careful saver and extremely arrogant to think they can just help themselves to your money. People will loose faith and wont be using banks to put there money, how will thew banks be able to lend money if people are not saving. A badly thought out idea.

  • rate this
    +11

    Comment number 25.

    So these gormless characters in Brussels now want to make a U-turn when they see civil unrest looming as a result of their failed European project.

    However, quantative easing is producing exactly the same result in the UK.

 

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