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
    0

    Comment number 184.

    They will be taking money from people college/uni funds and retirement savings. So they are destroying the futures of Europeans for the sake of the future of Europeans, I don't get it. Am I being thick?

  • rate this
    0

    Comment number 183.

    @140.Dirk
    Stop blaming the EU! The national governments should be held to account. They are the ones overspending!

    & how was the Eurozone 3% SGP spending limit arrived at

    "t was a back of an envelope calculation, without any theoretical reflection"
    .."Mitterrand needed an easy rule that he could deploy".."We needed something simple. 3%? It was a good number" .."reminiscent of the Trinity"

  • rate this
    +3

    Comment number 182.

    "Eurozone ministers urge Cyprus to shield small savers"

    Britain needs to get well away from the EU and elect a government that shields OUR savers from these EU madmen.

    UKIP is the only party committed to this.

  • rate this
    +1

    Comment number 181.

    I hope the spend your way out of a crisis lot now see the unintended consequence = somebody has to pay, it will never be the banks as all Govt's of all shades are too spineless when IN power. The Cypriots, Greeks, Italians have had quite a nice time in the past 15+ years, low taxes, great pensions but all floated on an imaginary endless monetary supply..... stop whinging its pay your bill time

  • Comment number 180.

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

  • rate this
    0

    Comment number 179.

    so thats Portugal Italy Ireland Greece Spain now Cyprus who definitely hope they do not rack up points in Eurovision.

  • rate this
    +1

    Comment number 178.

    That the EU officials thought this was a good idea and that the Cypriot government was so supine as to go along with it simply proves the elite is not fit to govern. We should have let the banks go bust and had 2-3 years of pain but then with a clear path ahead for growth. Now the whole EU has decades of 0 or negative growth ahead, but the people that caused just get richer!

  • rate this
    -1

    Comment number 177.

    at 172

    then let me correct you: you missed the comma after banker:

    Sorry - but if you're a banker (insert comma here) you can't spell or punctuate - God help us.

    i had no spelling mistakes and i wouldnt bother to punctuate for a social board like this. are you just going to use ever opportunity to bash a banker? not all of us were involved in this mess. grow up.

  • rate this
    +2

    Comment number 176.

    The EU is atrocious. I hope our useless government does not have the same idea.
    UKIP for me now

  • rate this
    +1

    Comment number 175.

    @Fishonadish

    "It's our money but all Governments come along and steal it from us.".

    It's true, it started with Brown's raid on Pensions and continues with the "fairness"excuse, which Politicians use to justify taxing people to top up funds for their latest social experiment!

  • rate this
    +1

    Comment number 174.

    Banks only work when trust exists.We trust banks to hold our money (it does not belong to them or the government) and in return they get to lend it out. This action will only lead to mass withdrawals as trust has been destroyed. Whoever thought of this needs to go back to school.

  • rate this
    +3

    Comment number 173.

    @140.Dirk

    Stop blaming the EU! The national governments should be held to account. They are the ones overspending!
    ==
    What? The Euro was introduced by the EU. Loans were given to Cyprus by the EU which now can't be repaid. The EU's Euro is preventing Cyprus devaluing. The EU are demanding this act of theft.

    I think you need a lesson in economics & politics my friend.

  • rate this
    +3

    Comment number 172.

    162.Mac
    Sorry - but if you're a banker you can't spell or punctuate - God help us.

    We need to be aware that the common people are going to pay for bankers and government folly. How can we survive without banks - answers to Mr C and Mr O on a postcard please....

  • rate this
    0

    Comment number 171.

    another folly from ollie.

  • rate this
    +4

    Comment number 170.

    This is not so much a tax, as an appropriation of funds for the privately owned banks. If it were a tax it would be used to assist to run the country rather than bailing out banks.

  • rate this
    +4

    Comment number 169.

    Is Dirk @140 being ironic? Don't blame the EU? Is there no end to the blindness and stupidity of people? Where is the trust, integrity and honesty of EU politicians (and national ones at that) I know - hidden in the back pocket of EU Bankers!

  • rate this
    0

    Comment number 168.

    If Cyprus gets away with this it will be repeated at banks by Governments across the EU.
    With the new mood of press censorship we may even not be advised of this until you get your statement.

  • rate this
    +1

    Comment number 167.

    It's ridiculous, the deposit guarantee should be a guarantee and only deposits above it should be at any risk at all.

  • rate this
    0

    Comment number 166.

    How come Turkish Cyprus dosn't need a bailout from anyone?

    Including Turkey?

  • rate this
    0

    Comment number 165.

    160.OldWoodman
    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.
    ---
    Utter rubbish - So people who work and save should lose out while people who live on the money stolen from the workers get a free ride - as usual.

 

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