Cyprus MPs reject EU-IMF bailout tax on bank depositors


The BBC's Gavin Hewitt says there has been a people's revolt

Cyprus' parliament has rejected a controversial levy on bank deposits, proposed as part of an EU-IMF 10bn-euro (£8.7bn; $13bn) bailout package.

No MPs voted for the bill, with 36 voting against and 19 abstaining.

The finance ministry had modified the package, proposing an exemption for savers with smaller deposits, but opposition had remained fierce.

Thousands of protesters who had filled the streets outside parliament reacted with joy to the news of the vote.

EU finance ministers had previously warned that Cyprus' two biggest banks would collapse if the deal failed to go through in some form.

But after the vote the European Central Bank (ECB) moved quickly to announce it would continue to provide support for struggling Cypriot banks "as needed within the existing rules".

German Finance Minister Wolfgang Schauble said he "regretted" the vote and that Cypriots must understand ECB aid was contingent on a reform programme.

"There's a danger that they won't be able to open the banks again at all," he said. "Two big Cypriot banks are insolvent if there are no emergency funds from the European Central Bank."

The bailout deal, announced after 10 hours of talks on Saturday, prompted widespread outrage on the island at the prospect of ordinary savers being forced to pay a levy of 6.75%

The Cypriot finance ministry announced a change in the plan on Tuesday morning, to exempt savers with less than 20,000 euros (£17,000), while those over 100,000 euros would still be charged at 9.9%. However, this was not enough to placate critics.

Levy basics

  • Depositors with 20,000 - 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
  • Eurozone wants Cyprus to get 5.8bn euros from deposits, in exchange for a 10bn-euro EU/IMF loan
  • Total of about 68bn euros on deposit in Cypriot banks, foreigners hold about 40% - most of them Russians

The plan to tax bigger deposits at a higher rate has angered Russia, as Russian nationals hold many of those larger deposits.

Meanwhile, the UK ministry of defence said a plane carrying 1m euros had arrived in Cyprus as a contingency measure to provide military personnel and their families with emergency loans.

The money is to be used for British personnel and their families if cash machines and debit cards stop working.

'Against the interests of Cyprus'

Several MPs during the parliament debate on Tuesday evening denounced the proposed plan as "blackmail" and not a single lawmaker backed the deal.

The BBC's Mark Lowen in Nicosia said the vote had left the bailout in turmoil, sending a clear message to Brussels that the strategy needed a drastic rethink.

President Nicos Anastasiades had urged all parties to back the bailout, saying Cyprus would be bankrupt if the deal did not go ahead. However, he was aware that they were likely to reject the levy, regardless of the modifications.

"They feel and they think it's unjust and that it is against the interests of Cyprus at large. But I have to admit that it was something which was not expected by the troika and by our friends, the Eurogroup."

He has called an emergency meeting of political party leaders on Wednesday morning to discuss the way forward.

The president of the Eurogroup of eurozone finance ministers, Dutch Finance Minister Jeroen Dijsselbloem, said he "took note" of the parliament's decision and that the Eurogroup stood "ready to assist Cyprus in its reform efforts".

Mr Dijsselbloem had earlier emphasised that no other eurozone country would be forced to impose such a levy.

The Cyprus central bank chief, Panicos Demetriades, warned that scrapping the tax on small savers would scupper the plan to raise 5.8bn euros in total from bank deposits. He also predicted account holders could suddenly withdraw 10% or more of the total in Cypriot banks if the levy was imposed.

Opposition MP Pambos Papageorgiou says any tax on savers will be rejected by parliament

Fearing a run on accounts, Cyprus has shut its banks until at least Thursday. The local stock exchange also remains closed.

Cyprus' banks were badly exposed to Greece, which has itself been the recipient of two huge bailouts.

Russian anger

Mr Demetriades said that he favoured imposing the levy only on deposits larger than 100,000 euros, with eurozone finance ministers also suggesting such a move.

Instead, they argue that wealthier savers should pay the levy at a higher rate - losing more than 15% of their investments, correspondents say.

Start Quote

It would help if the European authorities could explain more clearly why this will not set a precedent for the future”

End Quote

Of the estimated 68bn euros in total held in Cypriot bank accounts about 40% belongs to foreigners - most of them thought to be Russians.

The government fears a higher levy on these larger deposits would prompt many large investors to withdraw from the island and would effectively destroy its financial sector.

Russia has also said it may reconsider the terms of a 2.5bn-euro loan it made to Cyprus in 2011, which was separate from the proposed eurozone bailout.

Cypriot Finance Minister Michalis Sarris arrived in Moscow on Tuesday to see if the repayment on that loan could be delayed until 2020, and whether the interest rate could be reduced. As his visit began, he denied rumours that he had submitted his resignation.

Officials said he would also be looking for "further investment" in his country, correspondents report, with some speculating this might mean Russian access to Cyprus' large undeveloped gas deposits.


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  • rate this

    Comment number 1104.

    ***Here is a scientific picture for the evolution of the Bankster Species:

    1089. philjer
    We don't need taxes. But is a separate topic.
    Let's enjoy our alliance against the Banksters.

    1100. TheTakeley
    I do believe it. Marx never worked a day in his life, and sponged of his wealthy benefactor, Engels.

  • rate this

    Comment number 1103.

    I think we should ll by metal lined storage beds although DC will do nothing to harm the City and this type of action would close it down for ever.

  • rate this

    Comment number 1102.

    I'm amazed that people here seem to think that savers haven't lost money already due to problems in the financial systems, and that's not just with low saving rates. In Spain many savers lost out as they were told their savings were in secure saving products but were actually sold "preferential shares" in the banks such as Bankia. When these banks were bailed out these unwilling shareholders lost.

  • rate this

    Comment number 1101.

    Credit to the Cypriots for actually doing something......they gave a clear message to their politicians and the politicians took fright.

    Lets hope that form of contagion...guts....starts to spread through the EU...that will really worry the bankers and their political friends!

  • rate this

    Comment number 1100.

    LOL now you don't even believe that yourself.
    All you're advocating is a collective pressing of the RESET button to start Capitalism all over again.The last time it was done was after World War 2.
    As Karl Marx has been proven right over and over again the economy of surplus will always dictate that Capitalism will just run it's course again and again into the same dead end.

  • rate this

    Comment number 1099.

    Politics is dead as is democracy. The whole kit and boodle is now about "take money off someone else but please don't take it off me". We need to rethink the whole one person, one vote system. It is no longer fit for anything but semi-legalised theft.

  • rate this

    Comment number 1098.

    Its becoming far easier to pin the blame and where it lies.Its the people and institutes that ignore what is happening.But why is that exactly?

  • rate this

    Comment number 1097.

    The Cypriot police should be out arresting every banker they can find. Every penny ever paid to these guys should be forfeit. Why are the banks broke? Bad bankers. Where did the money go? Big bonuses, salaries, yachts, etc. Take it all back.

  • rate this

    Comment number 1096.

    The bigger they are (Spain, Italy and so on) the harder they fall used to be the saying lol not so the smaller they are the harder they get hit, got to love the fact that all euro country's are meant to be equal and will be treated as so in this democratic great and all powerful euro land of Oz

    Time for Brussels to eat some of what they have been shoveling to the rest of us!

  • rate this

    Comment number 1095.

    It is a problem no-one expected, especially when approved by the EU - to take money out of your bank account to save your bank.

    We were told our banks were safe - we were not told that if our bank was not safe we had to pay for it

    Now the only banks that will receive money are the ones that have a rich government to back them up (Luxemburg, Norway, maybe Finland and Germany)

  • rate this

    Comment number 1094.

    I call it the OFFICE-CON. Office workers, especially BANKERS, they do nothing but LEECH off the people doing the hard work in the 3rd WORLD.

  • rate this

    Comment number 1093.

    Yes you are right & it's probably because their rich daddy paid for their degrees & qualifications rather than their intellect gaining them! I'd bet that if the real truth were known then most of them wouldn't be able to tie their own shoe lace without a refresher course!

  • rate this

    Comment number 1092.

    The era of general taxation is over.

  • rate this

    Comment number 1091.

    1074. TheTakeleySocialist
    Why are you blaming capitalism?

    This is not Capitalism. We haven't had Capitalism for a long long time.

    Bankruptcy is an essential feature of Capitalism. (Risk).
    Preventing bankruptcy is an essential feature of Corporatism. (No Risk).

    What part of this don't you, the ECB, and IMF don't understand?

    We desperately need Capitalism to get us out of this Corporatist hole!

  • rate this

    Comment number 1090.

    "Cyprus bank deposits returned more than 24 percent over the past five years, almost double the returns on comparable German accounts."

    "“Banks in countries like Cyprus and Greece pay higher interest rates as they earn more on loans,” Dirk Becker, in Frankfurt, said by phone. “In addition, Cyprus banks invested a lot in high-yielding Greek debt in the past.”

  • rate this

    Comment number 1089.

    1081. Bastiat
    "I cannot agree with taxes though, sorry. As a libertarian I feel they're coercive theft by the state of private property, in the same vain as the proposed measures of the EU and IMF today."
    Unfortunately without fair taxes, no roads, infrastructure, schools, hospitals etc except those financed by private businesses in it for profit. PFI repayments bankrupting the NHS. Road tolls?

  • rate this

    Comment number 1088.

    I find these self styled Libertarians (ashamed to admit they vote Tory) akin to Jehovahs Witnesses.They bang on about not wanting to pay taxes and that they don't believe in public services etc just like jehovahs witness can bang on about blood transfusions until the day that their children need one.The same goes for a Libertarian who one day needs the NHS or the Fire Brigade.

  • rate this

    Comment number 1087.

    Is it just me or are bankers criminally incompetent all over world? The people in the top posts at any bank (bearing in mind taxpayers bailouts) are STILL paying themselves multi-million pound bonuses while producing a completely negative result for their 'efforts'. RBS have this year paid 95 people in the UK bonuses of over £1 milliion. The general public are being systematically robbed.

  • rate this

    Comment number 1086.

    Finally someone has turned round & told the Troika / politicians, you're not just in a parallel universe, you're stark raving mad. If we were buying a bank, a newspaper, a politician ( heard it can be done :-) ), we would do due diligence. But as we aren't we take them on their word, then get told we have to pay because we did. If we pay for foolish trust, we won't trust any of them any more.

  • rate this

    Comment number 1085.

    Yes raise INTEREST RATES and take from people in DEBT.
    .... and ALSO, take from the bank accounts of the CORRUPT Oligarchs and other SWINDLERS of the 3rd WORLD poor.


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