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
    +2

    Comment number 104.

    Could The Old Lady of Threadneedle Street be pulling a few 'threads' here?

  • rate this
    +1

    Comment number 103.

    Every option was unpalatable, that's why the politicians chose such a bad one. I think they should have guaranteed deposits up to 100,000 Euros, let depositors above that lose loads (30%-40%), made the senior bond holders take a hit and accepted the consequences. Probably this would have finished Cyprus as an offshore banking centre and still hurt ordinary Cypriots a lot.

  • rate this
    +2

    Comment number 102.

    when this was anounced my 15 yr old was able to see the pit falls - not just for cypruss for across the eu (esp spain and italy) - so why did the eu big wigs not spot them. Any way I'm off to look for a company that makes safes for home use, to invest in- Think their shares across the eu may just be on the up!

  • rate this
    +3

    Comment number 101.

    Some foundations are so poor that you may as well let the framework collapse. Let the banks fold and start again. Its working for iceland.

  • rate this
    +1

    Comment number 100.

    94. "A tax is when it is possible to avoid paying by changing circumstances – even income tax can be avoided by having no income."

    an interesting definition of taxation, quite heavy on the avoidance aspect... are you Russian?

  • rate this
    +1

    Comment number 99.

    Post37
    You are correct
    I was pro EU but now I despair, Farage is laughing all the way into Number 10 at the next election. He was correct about this fraudsters all along

  • rate this
    -1

    Comment number 98.

    We need to let businesses fail if they are not profitable, its a tough decision but will actually speed up the recovery around Europe and the UK. Banks should be the first to fail with all depositors guaranteed to receive their minimum compensation from the government.

    Also anyone who owes these organisations money will be free from the debt, meaning pain for many but less debt.....

  • rate this
    +3

    Comment number 97.

    UK citizens should thank the Eurosceptics for saving them from the Euro.

    If it hadn't been for the fact they would have persuaded a majority to vote against joining the Euro, every British government since its introduction would have taken us in.

  • rate this
    +4

    Comment number 96.

    This is just a test on a relatively small country within the EU. If they get away with it just watch the other countrys follow suit.

  • rate this
    -1

    Comment number 95.

    62.Bossuk

    They're going to go under whether you like it or not. It's a case of when, not if.

    If we'd let it happen four and a half years ago, I'd suggest we'd be on a better road to recovery than we are at present. All we're doing is just delaying the inevitable.

  • rate this
    0

    Comment number 94.

    Taking money from a bank account without the owner’s permission is theft. It is not a tax. A tax is when it is possible to avoid paying by changing circumstances – even income tax can be avoided by having no income. If the Cyprus bank theft goes ahead then nobody’s bank account will be safe – whether inside the euro zone or anywhere else.

  • rate this
    +1

    Comment number 93.

    Bad idea!!! If I had £100k in a Cyprus bank, asked to pay a "one off" levy (yeah believe you) of £9900 there is "N....F....C...." that I would leave the remaining £90100 in any Cyprus bank. And, neither will large investors.... i e from Russia. The exit from the Euro is imminent.

  • rate this
    -1

    Comment number 92.

    "Cyprus finance ministry now says bank depositors with savings of 20,000 euros or less would be exempt from a levy"

    If they keep changing their minds like this, i would think were watching and listening to our own Coalition Government U-Turns after U-Turns lol

  • rate this
    +2

    Comment number 91.

    You can see where they went wrong. The only way to steel this kind of money off people is by the back door. It worked fine in the UK.

  • rate this
    0

    Comment number 90.

    Cyprus doesn't have to accept the EU bail out, on the terms offered.
    It could ask the Chinese, Russians or Saudi for a loan & see if better terms are offered.
    Alternatively it might be better to 'face up to reality' & let Cyprus go bust, with a properly supervised & orderly 'wind down'.

  • rate this
    +2

    Comment number 89.

    @46 It is not like a storage facility. If you deposit money in a bank, it is not yours. You are lending it to them. That isn't generally recognised by the public because governments make false guarantees.

    Governments take MORE than this ALL the time. People are angry now purely because it has been taken nominally rather than via the usual avoidance tactics through the use of debt.

  • rate this
    -6

    Comment number 88.

    Typical Germany, and what sneaky little German ministers, NAUGHTY GERMAN MINISTERS and Bankers. Time the bankers started doing some porridge for there Fraud.

    Banks are too big to fail, act so irresponsible that we all have to pay for years to come, and everyone has to suffer. Taxing people with savings should never ever be considered. This is a very slippery slope! EU = Dictatorship by Germany

  • rate this
    +2

    Comment number 87.

    Interesting to note that this nonsense was formulated between Cypriot finance minsters the IMF and EU.
    So by default it got the green light from the European government.
    This presumably means that no one in Europe will be immune from having their bank account pillaged by unelected officials.
    What dungeon dimensions do these morons infect?
    So Euro street riots chaos & dark times! utterly insane!

  • rate this
    +3

    Comment number 86.

    Governments around the world must be rubbing their hands in glee as it's a new way to get even more money out of the people.The only way forward for people with savings is to literally put it under your mattress or bury it in a box in the garden.We live in a very sick society that continues to reward failure but continually hits those that have worked hard and saved.The way we save will now change

  • rate this
    +1

    Comment number 85.

    Coming soon to a bank near you.....

    Bankers started this mess and they are still getting bonuses?

    The governments we trust are robbing their own people because they are inept?

    What on earth is going on?

 

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