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”

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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
    +2

    Comment number 344.

    If they tried to do this surely it would cause ethnic riotsing...after all, it's not the British who have got any saving in the UK!

  • rate this
    +14

    Comment number 343.

    There is something distasteful in the fact that the ordinary Cypriot saver gets hammered whilst those who made the poor banking or investment decisions walked away with a 6 figure bonus.

    The question is is what is happening in Cyprus a one off or is it to become the norm.

    This Eurocrat sponsored theft of money from peoples savings should be abhorrent to every right minded person in Europe

  • rate this
    +2

    Comment number 342.

    Do not forget that Greek gov't,banks and the people who don't like to pay tax are all responsible for the countries bankruptcy to varying degrees.
    I welcome this latest lower level exemption(£17000) for the lesser folk but think this is still very unfair on those same folk who have saved larger amounts than this over a lifetime through prudence and responsibility.
    Tax those who can afford it.

  • rate this
    -1

    Comment number 341.

    I think everybody who put his/her money into a Cyprus bank should be glad to get away with a loss of maximum 10%. If the banks go bankrupt I assume that most of the people would loose much more.
    And nobody told the happy savers to put their money in Cyprus banks in the first place. Everybody likes to take the benefits, but nobody wants to pay for the risks. But right, I am German, indeed,

  • rate this
    +3

    Comment number 340.

    293.Terry
    I have saved since I had a paper round 40 years ago. Gone without holidays, cars, nights out. Basically lived within my means and paid all my taxes.

    ....... Ah Terry - please treat yourself to a holiday. You can't take it with you and you will get punished for having money in your old age anyway. Enjoy some of it while you can.

  • rate this
    +8

    Comment number 339.

    As Alistair Darling said this morning, rather than rescuing the Cyrpiot banking system this may lead to its downfall if it results in savers withdrawing their funds in large numbers.

  • rate this
    +5

    Comment number 338.

    99.Khuli
    "I find it interesting that all those people that previously supported a wealth tax (eg mansion tax), are now against it when it applies to people like themselves."

    Perhaps it's got something to do with affecting not particularly wealthy people; whereas a proper wealth tax would rightly hit the truly asset rich and no-one else. But basically your point is gobbledegook.

  • rate this
    +5

    Comment number 337.

    Am I wrong.....or is it the case that when someone saves with or deposits money in a bank..the money is a loan to the bank?

    If so......why not also target the loans the bank makes to its customers.....take a slice of those as well.

    One case must be as 'legal' as the other.

    One wonders if history will record March 2013 as the beginning of the end of the great United Europe experiment.

  • rate this
    +1

    Comment number 336.

    326. Athame57
    5 MINUTES AGO
    Imagine they tried to do this in Britain? OMG! OMG!
    --
    Would we strike?

  • rate this
    +3

    Comment number 335.

    328.Lagerlord
    Fair comment.

    I guess it's aimed at making sure that any families based in Cyprus who may have a local account dont get robbed by the government there. I do know of just one RAF member who has married a local girl and know that they have a Cypriot joint account. I doubt there are very many though.

  • rate this
    +2

    Comment number 334.

    It's worth mentioning that although Russia are not the powerhouse that they were under USSR, it would be unwise for the EU to antagonise Russia especially since they are not in a strong position and Russia is an energy giant. People forget that since the EU embargo on Iranian oil and gas, EU countries especially those in Southern Europe are more dependent on Russian energy. Russia could retaliate

  • rate this
    +6

    Comment number 333.

    QE, inflation and low interest rates are applying the same level of bank tax in the UK. The only difference is it is being done be stealth. To control debt, you make it less attractive by raising interest rates. All the measures taken by the B of E so far have punished savers and rewarded the profligate, creating the seeds for the next financial crisis. If you are trapped in a hole, stop digging!

  • rate this
    +1

    Comment number 332.

    @202. I agree but it manifests itself in economics. The euro-zone has been awash with cheap money & governments have borrowed willy nilly to prop themselves up & invest in vanity projects. Fiscal prudence has never been something that S. EU countries have followed. Now, at the expense of their peoples, politicians are fighting to keep their ludicrous dream project alive. Civil war beckons by 2020.

  • rate this
    +2

    Comment number 331.

    329.Home_at_last
    Supermarkets run largely on cash, so food supply chains should not be disrupted
    -
    I don't mean to be alarmist (really, I'm just being practical and pointing something out), shops only have enough stock for three days trade in normal circumstances. In a panic - such as a banking collapse - that would be gone in 24 hours.

  • rate this
    +6

    Comment number 330.

    This levy is to save the banks? It actually only guarantees them going under, as anyone with any money will empty their account if not before the levy, most definitely after it.

    Genius! And these ministers get how much? to come up their great ideas.

  • rate this
    +3

    Comment number 329.

    I'm currently taking the daily max from the bankomat and in a couple more days will have just enough in my account for monthly online bill-paying. Will put money back only as needed. Mattress interest is about the same as the bank's anyway. Supermarkets run largely on cash, so food supply chains should not be disrupted. Anything else I should consider?

  • rate this
    0

    Comment number 328.

    292. Tio Terry “If you are there as a UK member of the Military it's because your Government sent you, it's not your choice so why should you suffer from somebody elses decision?”

    Having served abroad for the HMG, I fail to see any arguments on here about this. You get paid to a UK bank. Foreign ATM’s normally work, why would a squady want a foreign account? The forces move around a lot!

  • rate this
    +1

    Comment number 327.

    The EU needs to go, the only ones who still support this corrupt stealing from the poor old boys club are the left wing nut jobs.

  • rate this
    +4

    Comment number 326.

    Imagine they tried to do this in Britain? OMG! OMG!

  • rate this
    +14

    Comment number 325.

    This just proves that the unelected bureaucrats in Brussels are thick. For a relatively small amount ($5.2bn) compared to all other bailouts they have managed to destroy significantly more (trust, value, confidence, belief) with this move. A stunningly stupid move that puts all other weak Euro Banks at risk of a Bank Run. I certainly would be moving my money to Germany if I had a Spanish A/C.

 

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