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 124.

    They can't keep the doors shut forever

    Once they do open again, it may not be too long before they will need to close them again permanently.

  • rate this
    0

    Comment number 123.

    Cypriot banks paid an average 4.45% on deposits of less than two years in Jan compared with 4.25% in 2008, according to the Central Bank of Cyprus. ECB slashed rates to 0.75% from % in the period and German banks lowered theirs to 1.5% from 4.01%.
    So perhaps Cypriot depositors could be given a choice, accept the new tax, or back date rates/interest to rates as in Germany. What would they choose?

  • Comment number 122.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    0

    Comment number 121.

    Please can someone tell me how I can get my salary paid in cash these days and keep it out of the banksters hands?

    Then I could also withold my taxes if I think the government are not doing a proper job...

    Pigs flying east I think.


    (Reading the comments here are we beginning to wake up? I hope so)

  • rate this
    +2

    Comment number 120.

    116: voted you up because you're right but sadly only in theory. Communism looks great on paper but it doesn't work, has been tried. Capitalism is a nasty piece of work run by even nastier pieces of work but it has [until 2008 that is] won the argument. Now it's a mess and no one has any idea. I'm all for busting capitalism [and I'm in the City, ssshh..] but what do you replace it with? debate.

  • rate this
    +2

    Comment number 119.

    This is all our faults collectively. There are so few of them (politicians and unelected bureaucrats) and so many of us (ordinary hard working people wit families) and yet all we ever do is complain about what they are doing to us and at the same time we sit back and let them! Iceland's already set the precedent. They have shown the way. The post war dream is becoming a nightmare. WAKE UP PEOPLE!

  • rate this
    +2

    Comment number 118.

    I don't believe it, but I'm sure I heard a cuckoo this morning. Strange thing was, it was building its own nest?

  • rate this
    -1

    Comment number 117.

    #62 I would imagine that the vast majority of a banks depositors (in any country) have less than the govts guarantee scheme so letting a bank fail will not affect the many but will affect the few big style. Didn't the money advisers here suggest splitting your desposits across many banks to protect yourself if you had over £85k.

    The banks have already failed and are only being propped up

  • rate this
    +4

    Comment number 116.

    This is daylight robbery, a limited tax of 10% for the top, which means workers again bailing out banks, why do we put up with capitalism, it would make far more sense and save a lot of agro if we simply take ownership of the means of production and abolish capitalism forever.

  • rate this
    +2

    Comment number 115.

    EU & IMF are owned by their biggest financiers ... the bankers lobbiest group. JPM, Goldman, HSBC, Citi and all the other banksters have their boys parked in posh offices across from HQ in Brussels and they line the pockets of the unelected wasters very handsomely with $m's. UBS have given their new head $26 million to start work !! They caused this mess, suck that instead.

  • rate this
    0

    Comment number 114.

    Why should the poor old banks pay let the public cash cow cough up.
    Here in the UK with QE money which has been given to the banks to lend to buissiness here which they have not they rather sit on it or spank it on derivatives heads they win tail we lose so the public have to pay for any risk yet again.

  • rate this
    0

    Comment number 113.

    89.Tim Putnam
    So true - your local high street bank does not keep your money - it is a virtual file on someone's computer and can be wiped out in a second if the government chooses.

    There must be a better way to live than us having to kowtow to the bankers and make "free" money for them

    I feel I'm working for the tax man, the banks and the government - not for my family or myself.

  • rate this
    +1

    Comment number 112.

    German/Fench taxpayers should pick up the bill for the tax haven of Cyprus. It should be them with their low savings interest rates and taxed interest, should subsidise those who have benefiited from Cyrpus's tax haven status which has enabled all Cypriot residents to have low taxes, high interest rates and no tax on interest for years.
    Well I think that seems to be what people here are saying?

  • rate this
    0

    Comment number 111.

    So governments have spent the last 5 years trying to restore confidence in the banking system ...


    ... and now they're tearing it apart.

  • rate this
    +2

    Comment number 110.

    Cyprus needs to take responsibility! You cannot create a tax heaven, enjoy the benefits and not pay the consequences when things turn bad. It's a shame the regular citizens are to pay for it but at the end of the day they had enjoyed low taxation for years. When voting, people become responsible for the actions of their governments.

  • rate this
    0

    Comment number 109.

    I find it telling that Northern EU politicians rarely speak of "Solidarity" these days. A principle they constantly accused the UK of lacking by not joining the "Euro" & engaging fully with all of their crackpot ideologies. No surprises then that when money is tight in the EU its principles get rather loose. And no prizes for anticipating the failure of the "European Project" in its current form.

  • rate this
    +1

    Comment number 108.

    jg @ 90: yeah, go for it. Since you are in the sport of asking for help from this lot, why not go begging to Iran? North Korea? Rumour has it that the Badalamenti and Reina families in Sicily are loaded and can lend you a few quid [life sentence for them but that's no big deal for you?]. Burma? Tell you what: Mugabe, here is the man who can save Cyprus. Do you gents have any dignity left, really?

  • rate this
    +2

    Comment number 107.

    I wonder who will pay for it in the end when Russia raises gas prices to compensate the relevant bank account owners....

  • rate this
    +3

    Comment number 106.

    No Country Is Safe NOW- time to leave Europe -They Try It once they try it again .

    Uk better off on its own

  • rate this
    +2

    Comment number 105.

    This would not have happened had the euro truly worked for the benefit of the many instead of the benefit of the very few.
    Either Germans have got to change their way of thinking or Cyprus - and Greece, Spain, Italy, Portugal and Eire - have got to change their currency.

 

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