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
    +4

    Comment number 124.

    People who have not been responsible for the financial crisis should not be punished if those that are responsible, or who tried to capitalize on it, have not themselves been punished, at least to the limit of their accountability.

  • rate this
    +5

    Comment number 123.

    The principle remains the exact same whatever the problem: privatise wealth and socialise debt. Works for the Tories in the UK.
    I remember a cartoon - trader fell from 50th floor but called to colleagues when he hit the floor with a squashed passer by under him: "It's OK, I'm fine luckily a tax payer broke my fall!"

    Plus ça change.

  • rate this
    +2

    Comment number 122.

    I cannot believe this can actually happen. The politicians of Cyprus will be out at the next election, Cyprus then defaults back to square one. Rather stupid.

  • rate this
    +1

    Comment number 121.

    It is surely the end of the line for the Euro in Cyprus - Would it not be easier and more palitable for inhabitants to have all their money converted overnight to local currency equivalent than trying to take money from bank accounts.

  • rate this
    +5

    Comment number 120.

    Tell me, is this any worse the the British government's robbery of UK savings by promoting high inflation and keeping interest rates low? They are effectively taking out 2-3% out of our savings EVERY YEAR! Mervyn King only had one job to do - keep inflation under 2%. Him bowing to Government dictat has cost all savers money.

  • rate this
    +5

    Comment number 119.

    This really needs to be stopped, the banks and bankers have gotten away with blind murder and whilst they continue to make huge profits and pay little tax, ordinary people have to give away their savings. This is disgusting, the Euro is the biggest pyramid scheme and supplies money to rich land owners. Someone must stop these banks!

  • rate this
    +4

    Comment number 118.

    The world is a filthy place. No more morals than a fly. However, isn't it the people who gave the banks that power in the first place? Complicit in the face of a false sense of security through borrowing too much to maintain an unsustainable lifestyle. Same old story; if you're "alright Jack", you couldn't give a damn. Sickening.

  • rate this
    +3

    Comment number 117.

    @69.Bob
    The Police and the Army would be mobilised with shoot to kill orders.
    ---
    Utter rubbish. For a start most of the police are not armed and would refuse to be armed. Secondly the vast majority of the armed forces would not obey this order as it would be unlawful under the laws of war.

  • rate this
    +3

    Comment number 116.

    11.Kitten Whiskers
    "...get money out of bank accounts and into the economy again."

    Where did you get the misleading idea that bank deposits just sit in a vault somewhere doing nothing? Actually, banks will loan all or most of the money out to others, who use it, within the economy, presumably.

    I suggest it is debt that is the problem, not savings.

  • rate this
    -1

    Comment number 115.

    Nobody yet seems to have differentiated between 'Deposits' and 'Current Accounts. Cypriot bankers seem to believe they are the same thing and all therefore 'caught' by any 'levy' (tax really). Many ex-Pats sensed something like this was coming - the Cyp Economy was in a Mess, the outgoing government refused to tackle the worsening problems - and had moved funds elsewhere (e.g mattresses). Phew!

  • rate this
    +5

    Comment number 114.

    Looting the accounts of savers to bail out banks and bankers? It has been a learning experience for me. I have taken note of this!

    I didn't know:

    1. It was legal for national authorities to loot the accounts of EU citizens.
    2. That there was any incentive for the authorities to do so (money isn't wealth, surely looting it just decreases the money supply?).

  • Comment number 113.

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

  • rate this
    +5

    Comment number 112.

    So the Eurocrats, in an unprecedented, compassionate move have reviewed their promise to the Cypriot people to safe guard up to 100,000 euros.
    They will only blatantly mug citizens with savings from 20,000 to 100,000+
    That’s better --- that’s only 4/5ths of a broken promise/obligation.
    Bless them!

  • rate this
    -4

    Comment number 111.

    When contracting the Agency we worked through handcuffed us to a accountancy company which charged us the earth & a rate of £100 a month if we wanted our earnings done elsewhere.The accountant(s) were based in Cyprus for THEIR OWN tax avoidance & they charged us £1 a minute on the phone if we had issues with our pay(which was often...) so I glad they are finally getting what they deserved!!!

  • rate this
    +4

    Comment number 110.

    96. "It is a marker of the pygmy sized intelligence of these Cypriot politicians that they seem to have entirely missed the EU rule that 'small deposits' of under 100,000 euros are supposed to be protected."

    Whether or not it's against the EU's rules, the EU wholeheartedly welcomed the deal, so trying to blame this on the Cyprus government is the flimsiest of flimsy excuses.

  • rate this
    +1

    Comment number 109.

    Anyone who thinks their money is safe because it's in a big European bank like Deutche Bank should know had it not been for President Bush agreeing to bail out AIG with over 180 bn US taxpayer dollars in 2008, those banks would have gone broke.European banks do not have insurance backup for depositors like US's FDIC

    Russia has the power to shut off gas to much of Europe at any time.

  • rate this
    +3

    Comment number 108.

    Whats the betting that Russia puts a levy on its gas to the EU to pay compensation to Russian savers who lose out.

  • rate this
    +4

    Comment number 107.

    All that people in the struggling Eurozone countries talk about is not leaving the euro because their money will be devalued. In the UK our money is devalued all the time due to exchange rates. It has been as high as €1.6 and low as €1. Right now the pound is being devalued, it is a fact of life, we accept it. Why won't they?

  • rate this
    +50

    Comment number 106.

    21gongladosh
    It sets a dangerous precedent when your money is safer under your matress than it is in a bank"

    Its a dangerous precedent when any Government beleives it can just take money from YOUR Bank account to pay for greed and mistakes by themselves and financial institutions

    Particularly when those people are vastly wealthy and continue to pay/award themselves huge bonuses, even now

  • rate this
    +45

    Comment number 105.

    Why don't they do an Iceland.
    Let the banks fail, jail the bankers and put up with a bit of hardship.
    Just look at Iceland now!

 

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