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.

 

More on This Story

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +6

    Comment number 244.

    Banks can't be trusted, take your money out and buy some gold bars if you have any money to spare that is? The situation will get worse, you have been warned! Many Bonds will also collapse in the not too distant future and many will be worthless. When this starts happening the stock markets will crash to their lowest of levels, falling far further than people imagine. Banks are making the debt

  • rate this
    +4

    Comment number 243.

    No saver with less than 100K euro should be taxed, as the the level of protection guaranteed by the EU. Anything less could easily trigger a run on the banks across Europe as confidence in the safety of bank accounts is lost.
    So far all the solutions to the debt crisis have involved measures that favour creating more debt and have only made matters worse. It's time for a change in direction.

  • rate this
    +39

    Comment number 242.

    @ 200. Knut Largerson
    11 Minutes ago

    Follow the example of Iceland.....

    Err how exactly?
    ...........................................................................................
    By getting rid of their government who had signed the people onto debt AND actually prosecuting and jailing fraudulent bankers. Holding people accountable would be a good example to follow.

  • rate this
    +6

    Comment number 241.

    Every country needs to stop subsidising private banking and bailing them out and get back to banks serving the people not bankers and governments helping themselves to ordinary peoples hard earned cash.

    The President of Cyprus explicitly promised this would not happen only weeks before he agreed that the peoples savings were looted.

    Criminal.

  • rate this
    +15

    Comment number 240.

    No one should see this as a one off.
    The criminal elements behind this blatant theft are BETA TESTING.

    Ireland, Portugal, Spain and Italy, you have been WARNED;

  • rate this
    +2

    Comment number 239.

    229.Graham

    Rubbish. The banks lending money to people who couldn't possibly pay them back, increasing their credit limits and winding many millions of people into an accelerating debt, causing a bubble. That bubble burst because THE BANKS were lending money they would never see again, and they went bankrupt because of those poor choices. Get off your high horse.

  • rate this
    +5

    Comment number 238.

    Vote Gold (or Silver its more affordable).

  • rate this
    +1

    Comment number 237.

    test - am I blocked or is the message too long?

  • rate this
    -1

    Comment number 236.

    Its all very well everyone whinging about this but the options are stark. Pay between 7% and 10% of your savings and keep the remainder or pay 0% and probably lose 100% in the next few days anyway. This applies to all depositors with the Cypriot banks, not just the locals.

  • rate this
    +5

    Comment number 235.

    The shape of things to come? If the looting of modest sums in personal bank accounts is "successful" in Cyprus why not everywhere?

    The public accepted bank bailouts in one country - and then almost all states did the same. I think we have learned by now that the elite will do whatever they can get away with.

  • rate this
    +2

    Comment number 234.

    @218.Scott0962
    "If you or I walk into a bank and demand depositors' money it's called robbery. If government does it its called a "tax". ..... if a bank is robbed the depositors' money is insured, they suffer no loss, and the robbers go to prison whereas if government takes it depositors can kiss it good bye forever ....."

    before the politicians give it back to the bank!

  • rate this
    +1

    Comment number 233.

    Safer ways to invest your money than keeping it in a bank:
    1. Buy property - Even a small patch of land.
    2. Buy shares - not banking ones obviously
    3. Buy investments like art, colectors cars, antiques, precious metal etc.

  • rate this
    +12

    Comment number 232.

    I see the dead hand of Goldman Snatch, sorry I mean Sachs involved in this latest destruction of a sovereign states finances. I notice that yet again that bastion of banking probity and transparency HSBC are again in the news over money laundering. The banking system worldwide is rotten to the core, it way past the time for prosecutions & severe penalties including restitution and sequestration.

  • rate this
    +8

    Comment number 231.

    State sponsored theft. Please don't think that this can happen only in Cyprus.

  • rate this
    +2

    Comment number 230.

    222.
    Stuart Wilson
    Just now

    @215.Anthony Beecher
    "To quote George Bernard Shaw: "With all due respect I advise you. Vote Gold""

    And then get hammered with Executive Order 6102. Damned if you do, damned if you don't.
    -
    Then how about SILVER, it's a guarantee! Plus Executive Order 6102 was only possible in the US.

  • rate this
    -35

    Comment number 229.

    the amount of people bleating on about bankers this bankers that. You were not complaining when those same bankers where pushing the economy forward and putting money in your pocket where you? or when they gave you your mortgage, loans for cars credit cards. How about next time you screw up in your job we all come and say we should take away your pay fpr the year for making mistakes?

  • rate this
    +1

    Comment number 228.

    #205 Just out of interest, as Jersey, Guernsey and Isle of Man have their own separate parliament and UK laws do not apply to them (except where agreed by the relevant island) how exactly were you intending to impose your taxation idea on them?

    People with offshore accounts who do not declare interest on tax return are breaking the law, we have adequate powers already to deal with them

  • rate this
    -1

    Comment number 227.

    Abolish the Euro.

  • rate this
    +6

    Comment number 226.

    @216.LB

    "155.chiptheduck:This spiteful & despicable act of theft is no different to quantative easing that we are all suffering in the UK."

    No. You have the option of spending you money now, or movimg/investing it somewhere that can/could make some money back.
    That's not the same as this simple theft.
    ==
    Each time more money is printed my savings immediately devalue. Too late to move it.

  • rate this
    +1

    Comment number 225.

    Germany has perpetuated the problems in other countries with their dogmatic approach to the Eurozone. If the German people financially suffer then they can look only towards themselves and the pain they have indirectly afflicted on others.

 

Page 44 of 56

 

More Europe stories

RSS

Features

  • chocolate cake and strawberriesTrick your tongue

    Would this dessert taste different on a black plate?


  • Duke and Duchess of Cambridge and Prince George leaving New Zealand'Great ambassadors'

    How New Zealand reacted to William, Kate - and George


  • Major Power Failure ident on BBC2Going live

    Why BBC Two's launch was not all right on the night


  • Front display of radio Strange echoes

    What are the mysterious sequences of numbers read out on shortwave radio?


  • A letter from a Somali refugee to a Syrian child'Be a star'

    Children's uplifting letters of hope to homeless Syrians


BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.