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 164.

    #162 Mac - 'this is morally wrong' - 'to be honest' - which bank do you work for? don't let your boss see these quotes they'll sack you lol

  • rate this
    +1

    Comment number 163.

    Cyprus banks have been paying 2% more interest than UK banks. So the 6.5% levy is less than the amount savers have got in this extra 2% over the past four years. It was a very bad mistake of the EU authorities to have presented this as a loss of capital particularly for savers with under 100,000 Euro. The challenges for the Euro are big enough without really stupid mistakes being made.

  • rate this
    +4

    Comment number 162.

    i'm a banker, but i dont agree with this. this is morally wrong in so many ways....to be honest, its pretty much theft with a warning....i understand the country needs money, but not this way :/

  • rate this
    +5

    Comment number 161.

    now here's an idea. How about an extraordinary tax on politicians and bankers salaries and savings. Why not also force them to sell their houses at the same time. After all, this mess was caused by them.

  • rate this
    -5

    Comment number 160.

    Dont see what is wrong with it myself. Beats taking money off people who have none to start with which is our governments 'big idea' it seems.

  • rate this
    0

    Comment number 159.

    There are European Elections next year. All of us need to unite with the Cypriot people and stand up to this flagrant abuse of power in Cyprus. This is State robbery nothing else, no matter if you are a small or a large saver.

    Mass abstentions in 2014.

  • rate this
    +1

    Comment number 158.

    Another stupid political idea NOT thought through...

    If it happens it could be in the courts for decades....

    Lots of people have others money in their accounts, eg: businesses, property buyers, family members helping others travelling, the list is endless...

  • rate this
    +1

    Comment number 157.

    So the 'poor' cypriots have a very high interest rate, and pensioners pay a high rate of tax, ONLY 5%! No Wonder they are in financial trouble. No pity I am afraid.

  • rate this
    0

    Comment number 156.

    #147 And that is the problem of a monetary system built on debt

  • rate this
    0

    Comment number 155.

    The EU! Legalised robbery! Who do they think they are to dictate to the public in such a way? I thought the EuroZone was a terrible idea before it actually took shape!
    44.Blackarrow - that may be the case in Greece, not in Cyprus!
    This is Gemany & Frances doings!

  • rate this
    +1

    Comment number 154.

    What a comb. Poorish country/poor regulation of banks (like ours)/potentially corrupt depositers. Where do you start? Not by hitting ordinary Cyprians thats where. Call putin's bluff.

  • rate this
    +2

    Comment number 153.

    BBC, Why allow us to have a say on this article if you're just going to hide it?

    Are the public more informed than you would like?

    Once the banks reopen on Thursday, the run on the banks will be unparalleled and will open the door for the same thing to happen anywhere else.

  • rate this
    0

    Comment number 152.

    Thought so -

    And it's still an "in plain sight" bank robbery to set a precedent.
    Money is worthless and can be manipulated and used to control us.

  • rate this
    +4

    Comment number 151.

    @140Dirk

    I very much doubt you will be saying the same when it comes to YOUR bank

  • rate this
    0

    Comment number 150.

    I don't remember having any say either when the UK government at the time spent my taxes on propping up the banking culture. I consider this to be a similar (albeit more visible) tactic. As in the UK, they'll just have to wait for the money to filter back down into the economy from the banks (via champagne bars and ferrari dealerships).

  • rate this
    +2

    Comment number 149.

    A run on the banks, what a surprise !

    Having said that it is only right that Europe should put so much in to the deal, and the Cypriots something in too. You can't expect the Germans to bail out the whole universe on their own. Their own economy is looking a little shakey.

  • rate this
    +4

    Comment number 148.

    This is yet another example of greedy bankers, failed regulation and ignorant politicians. They all expect the public to bail them out. The problem with that idea is that nobody can bail the public out.

    What is the point in allowing any consideration to bankers, politicians and regulators when they keep demanding sacrifices from the people? The state has failed along with the banks.

  • rate this
    +1

    Comment number 147.

    117. toonmickey
    You may have less than the govt guarantee level, but if the banks go under the govt needs to come up with the money to keep that guarantee.
    Also,if the banks go under, pensions would all go with them. No one would have the savings to buy homes and companies would not have money to invest in staff, leading to mass redundancies.
    We would all be in a much worse state than we are now.

  • rate this
    +1

    Comment number 146.

    Clearly those European taxpayers in non-tax havens should pay with their much lower taxed interest thay get in their own countries so that Cypriots depositors should not lose any of far greater untaxed interest, which they have all had courtesy of being a tax haven. Of course maybe Cypriots could have kept their money off-shore from Cyprus, maybe in a German/French/UK bank and pay tax on interest

  • rate this
    +2

    Comment number 145.

    This week it's Cyprus. Who will it be next week? Greece, Spain, Ireland - or the United Kingdom?

    I wonder what would happen if all EU citizens were to withdraw their savings from all EU banks next week?

 

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