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
    +33

    Comment number 64.

    Cyprus and others should follow the example of Iceland. Iceland didn't bail out the bankers. When declared bankrupt the citizens rose up, forcing the prime minister and government to resign.

    They then formed a new peoples government from citizens, wrote a new constitution, and arrested and prosecuted high level executives and bankers who had created and exploited the crash. Well done Iceland

  • rate this
    +2

    Comment number 63.

    I'd like to see one of the BBC's tame Europhiles put a positive spin on this one!

    Come on chaps - but be quick because the collapse is getting closer.

  • rate this
    +2

    Comment number 62.

    A few naive comments here.
    If you let the banks fail, it won't be 10% of your savings you will lose, it will be all of it minus what govts guarantee.
    I don't like this proposal and certainly don't support it, but there is a reason that governments are spending all this money on the banks, it's because we need them.

  • rate this
    -2

    Comment number 61.

    There's enough interest free balance transfers on credit cards - why dont the banks do that??

  • rate this
    +4

    Comment number 60.

    This sets a dangerous precedent, which if accepted will become the norm.

    In the short term, we could also see another run on the banks.

  • rate this
    +4

    Comment number 59.

    How is this a tax?? The money is not going to any government, it's going to straight to the ECB.

    The people who have been lucky enough to save are being punished for the incompetence of the bankers who we are supposed to be able to trust,

    I'm now firmly of the opinion that the only bank worth trusting is the Bank of Mattress.

  • rate this
    +3

    Comment number 58.

    Once again,the same as this country,it's the people at the bottom of the wood pile who pay the highest cost percentage wise.The rich, who caused the problem with their greed,will not hardly see, if any, difference to their standard of living. The highest percentage payed should be by the bankers who caused the problem. Yet again they will walk away with all their bonus and wages intact.

  • rate this
    +5

    Comment number 57.

    Why does the BBC keep referring to 'savers'; these are everyday current accounts that are being taxed. The account that your salary is paid in to and bills paid out of. My son took out a €50,000 loan to restore a derelict house for himself and his family, as he has kept it in the bank until each phase is done he stands to lose over £3,000 . This cannot be fair or just.

  • rate this
    +6

    Comment number 56.

    Banks rely on confidence and taking the money from savers will distroy confidence, so where does that leave their banks?

  • rate this
    +11

    Comment number 55.

    Come on Cyprus, show the idiotic EU finance ministers enough is enough by calling their bluff and voting their dictate out.

    The whole fiasco shows how out of touch the EU is with its 'Joe Public' population. A sign for the UK to flex its muscles too?

  • rate this
    +7

    Comment number 54.

    Banksters get £6,000,000 pay offs and small investors get hit with the cost of their mess and their pay offs.

    You honestly couldn't make it up.

  • rate this
    +7

    Comment number 53.

    Now they have shown us in Europe that they have some 'god given right' to rob you of your hard earned cash as well as taxing you to the hilt on everything, trust has been completely broken. No one in Europe will now trust their gvt and I for one have already removed my cash from my bank.

    It's MINE. I worked bloody hard for it and as far as I'm concerned, the gvt get more than their fair share

  • rate this
    +3

    Comment number 52.

    This is a fiasco. A room of village idiots wouldn't have come up with this. You need to put some money in the pot so you steal off your own people - you plunder their savings! Use what brain power you have in the EU and Cypriot government and come up with an alternative that isn't so damn lazy and fascist. Collect your overdue taxes, increase top rate tax, re-think what you spend but DON'T STEAL!!

  • rate this
    +3

    Comment number 51.

    A stepped levy is grossly unfair; it should be a straight percentage. A person with a 100Th will pay the same as someone with a 100M its so wrong.

    However, come Thursday the countries bank will collapse and who will invest in the country now. As for the EU they don’t care, so much for an alliance.

  • rate this
    +1

    Comment number 50.

    Of course, the only reason for raiding (sorry, "taxing") the small savers of Cyprus was because their banks were believed to be laundering money for the Russians.

    We're safe because banks in the UK don't practise money laundering... What's this? HSBC in new money laundering claims? Time for a run on the banks here before George gets any bright ideas!!!

  • rate this
    0

    Comment number 49.

    "Eurozone ministers urge Cyprus to shield small savers"
    ---
    Hang on a minute, surely it was the Eurozone ministers who came up with this idea in the first place ? Or was it Germany dictating to the rest of the EU as usual ?

  • rate this
    +1

    Comment number 48.

    This is another deterrent to savers - you lose 6.8 or 9.9% on your savings in one hit, negating any interest you may have earned in the last 2-3 years.
    As has been said below, it is a test of reaction and the result is that that reacton had been massively underestimated. EU leaders are right now thinking 'well that didn't work so well, we can't fleece the little people as easily as we thought'

  • rate this
    +3

    Comment number 47.

    Ponder on this.
    If I had £1000 in a bank account I would be earing less than 1% (after tax) interest after a year i.e. £10.
    However if I wake one morning and find that a tax of 10% has been leaved on MY savings then I would loose £100.
    Leaving it in a bank account currently leaves me exposed to a real reduction over the next ten years!
    Could it happen; ask the Cyprus savers!

  • rate this
    +12

    Comment number 46.

    If I put my possessions in storage to keep them safe, and then the storage company went bust, there is no way that I would be expected to pay their debts.

  • rate this
    -3

    Comment number 45.

    This will become the norm.Banks operate a fractional reserve system and banks are required to hold only a fraction (typically 12 percent) of the depositors' funds as cash reserves. When governments get desperate they can seize your "money" which is virtual in any case.

    So the banks can hold you to ransome. An excuse for a world bank that will control our money? and by default control us.

 

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