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
    +8

    Comment number 364.

    I million worth of the euro loan for army being sent as we speak.Yet another loan.Its a joke,the whole stinking mess that is banking...

  • rate this
    0

    Comment number 363.

    341.Helmut

    Well how about this for a scenario helmet, the large depositors take the hit and there deposits with them.....the banks become bankrupt and cant pay there next or subsequent bonds....the small savers and others left get the EU compensation, how much will the German bond holding banks get hit and how much will be all Eu banks contribution ?

    would you like to reconsider ?

  • rate this
    +2

    Comment number 362.

    @350 Tiberius - so why target small savers in Cypriot banks? The Euro was extended to these countries when all was going well, and never should have been - their economies weren't ready for it. You might as well call it a Mark these days anyway!!

  • rate this
    -1

    Comment number 361.

    332.MJRPEEL
    "Now, at the expense of their peoples, politicians are fighting to keep their ludicrous dream project alive. Civil war beckons by 2020." I wouldn't crow too much about the possible demise of the European project. Your last 'wish' may well come true and I don't think anyone will be laughing then - except perhaps Farage and Griffin.

  • rate this
    -1

    Comment number 360.

    The problem with socialism is eventually you run out of other people's money

  • rate this
    +1

    Comment number 359.

    Having lived in Turkish Cyprus for a few years I joined in with the general surprise that the south was allowed into the Euro, at the time gas deposits weren't "widely known of". Turkey were trying very hard to gain entry to the Euro-Zone, but were constantly refused on human rights grounds..........Wonder what their views are now?

  • rate this
    0

    Comment number 358.

    We changed the paradigm in 1931 by coming off the Gold Standard, time to re-invent capitalism again by creating a new methid of money supply and control.

  • rate this
    +2

    Comment number 357.

    I think the Cypriot Govt should target the 20 million Euros of dodgy Russian money in their banks - maybe their whole economy is riddled with corruption?

  • rate this
    +5

    Comment number 356.

    Alastair Darling has a touch of the "Gordon Browns" - he thinks he saved the world. What he really did was perpetuate a corrupt banking system and under no circumstances should he ever be let near the reigns of power again!

  • rate this
    +5

    Comment number 355.

    The people of Cyprus must pay their debts themselves . All of them .
    No one will do it except them .
    The time for spending spree has finished .

  • rate this
    -4

    Comment number 354.

    Folks you can't hold Iceland up as an example of the way forward by cherry picking the bits you like.

    Yeah most people agree prosecuting the guilty is a good idea, and something that should be considered around the globe.

    But defaulting on Loans destroys a Countries credit and Iceland will take decades to recover.

  • rate this
    -1

    Comment number 353.

    @ 8.HotPepperMan

    All taxation is theft.... just for different causes. The governments of the world will decide to spend that money on the poor or the bankers regardless of our input. The only way in which we could rectify that would be to have voluntary tax.... would that work? Who knows, but at-least bad governance would be dictated by the people once more...

  • rate this
    +4

    Comment number 352.

    There are now reports that the Cyprus finance minister has resigned. Come on BBC, you're always an hour or two behind everyone else!

    Watch the markets for increased instability as the news spreads. A bad situation with no end in sight has just become worse. Are the crew of the sinking ship now getting in their lifeboats while the passengers drown?

    Also, Friday was the "Ides of March". Ironic?

  • rate this
    -1

    Comment number 351.

    Austrian Radio report on the new party "Alternative for Germany" is very encouraging to me e.g." Joerg Haider is not our modell." That statement is very important for me.

    I expect to be voting for them in the "EU" elections.

  • rate this
    +3

    Comment number 350.

    102. Michael Kilpatrick

    To understand why the Cypriot govt would rather hit the people than the bondholders/owners of Banks...

    1) Very few bondholders of Cypriot banks. Most are Russian/Cypriot Oligarchs
    2) The people might protest. But the Oligarchs can really hurt you and may well fund your party/campaign and know things about you, you'd rather keep secret. T

  • rate this
    +3

    Comment number 349.

    Judging from a Channel 4 news debate between representitives from the Cypriot government & the EU I saw last night, where each side was trying to blame eachother for this fiasco,I'd be quite suprised if this raid on savings goes ahead.

    Both sides seem keen to distance thamselves from what has become an international PR disaster.

  • rate this
    +3

    Comment number 348.

    341. Helmut

    Where would you expect Cypriots to bank? Where would you expect the French to ban? Where would you expect the British to bank?

    In their own banks of course, basically because it's impossible (for all intents & purposes) for small savers to bank any where else.

  • rate this
    -1

    Comment number 347.

    @Helmut
    Well said, all those people who thought they were so smart getting 4%/5% interest from a cyprus bank when in the UK they were getting less than 1%. That is why they paid so much it was a risky transaction! I really how Gordon Ramsey had done is nuts again like he did in iceland!

  • rate this
    +63

    Comment number 346.

    German taxpayers indeed should not be made to bail out anybody, but they don't seem bothered to vote out thir very "generous" government.
    Neither should Cypriot citizens be expected to bail their crooked banks out.
    The pain MUST fall on bondholders and shareholders this time. Let those banks fail, it will be a lesson to all banks everywhere.

  • rate this
    +2

    Comment number 345.

    Pay back time for Europe!! If Europe in the 21st century can accept only a partition (south) of the island into the union, and listen in Mono to weak political stand by the Greek Cypriots and ignore only Good faith from the Turkish Cypriots, there's only one ending..a bankrupt end.

    Ethics is what the European Union NEEDS..

 

Page 38 of 56

 

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