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 384.

    The banking crisis at a core is built on toxic money from the 3rd
    world and Russia etc, where the money has been gained by corruption
    and downright robbery from innocent hard working small people.

    The corrupt businesses and individuals have moved their money, and often themselves, to the safe, uncorrupt countries of
    the West, are inevitably corrupting the west. New top soil over toxic soil.

  • rate this

    Comment number 383.

    You all miss the point.Debts are artificial,created by banks not citizens.Why EU didn't let Greece+Cyprus receive Russian loans?Why EU decided last week to consider Greek EEZ as European?The game is who'll control &ultimately benefit from the huge resource discoveries in Greece+Cyprus.Usually done by guns but in this case impossible due to Greece being already NATO member.It's ECONOMIC WAR FOR GAS

  • rate this

    Comment number 382.

    This isn't a tax, it's theft. No matter how big or small the depositor, there is no other word for it. Theft, endorsed and encouraged by whatever self-appointed European authority is perpetrating it. If I had money deposited in any bank anywhere in the Eurozone it would be well on its way to safer havens by now.

  • rate this

    Comment number 381.

    This is typical of a Euro govt, its similar to what happens here ... save your money and you will have it taken from you at will. Drink it away and you will be catered for ... banks in Cyprus and elderly care in the UK. What it tells our young people is don't save for your future, someone else will pick up the bill.

  • rate this

    Comment number 380.

    This will be political suicide for the Cypriot govt if they go ahead with this. And i am assuming that the comments on here in favour of this are from people who currently dont have 2 pence to their name as i think you would be singing a whole different tune if they came after YOU.

  • rate this

    Comment number 379.

    360. AndyDaines

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

    ... so the same problem as Bankers' bonuses, then?

  • rate this

    Comment number 378.

    The savers are not the persons who caused this. Penalising them is wrong, unjust and unfair. Better to penalise the bank employees. Start at the top and claw back ALL bonuses for the last 3 years. Penalise all bank employees, in my experience if a trader knows that his own secretary is going to add salt to his coffee in future then he will be more careful!

  • rate this

    Comment number 377.

    Who do you think you are kidding fraulien Merkel that youve got us on the run?

    The subterfuge just gets deeper and darker,what a joke.

  • rate this

    Comment number 376.

    As a government you cannot lambast those with personal debt as irresponsible, then take thousands from those who have been prudent and saved when they had small excesses in their income. What kind of a message is that?!

    Also agree with the notion that people having the idea that their money is safer under the mattress than in banks is extremely dangerous.

  • rate this

    Comment number 375.

    There's now reports that the Cypriot Parliament is about to vote no on the bailout. They cannot get the votes they need to pass it, and it seems that the president has an "alternative plan" of some kind. Lets hope it's leaving the €, nationalising the banks, converting back to their currency and telling the IMF to go swivel.

  • rate this

    Comment number 374.

    Cypriots understand that Germany wants to destroy current economic model for Cyprus and send jitters across Europe to orchestrate a bank run from weak Southern European Banks to German Banks. A perfect plot to kill two birds with one stone: Suck all money in EU into Germany, penalize Russia and destroy inconvenient small island that used to have a life of its own before it was lured into EU.

  • rate this

    Comment number 373.

    So the EU says this piece of theft will only apply to Cyprus, the rest of the members are exempt from risk. The words of the EU are about as trustworthy as those of a politician. Time to consider whether saving in banks is to be trusted.

  • rate this

    Comment number 372.

    293 Terry Absolutely spot on!
    I'm in the same boat,saved since I could afford to,never in a high paid job,single,small house, no holidays, old car etc.
    Now jobless after 40 years of work,get nothing from the state,negligable interest on savings and spending savings to live whilst trying to get a small business started with no help.
    What have I done to deserve this.
    Still glad im not a Cypriot.

  • rate this

    Comment number 371.

    "RAF flight leaves for Cyprus carrying one million euros as emergency loans for military personnel."

    You could hardly make this sort of stuff up, could you?

  • rate this

    Comment number 370.

    So the the Cyprus central bank chief's name is Panicos? That's a very appropriate name...

  • rate this

    Comment number 369.

    Why are we worried? The 'ex pats' that live in Cyprus are only there to escape their fiscal responsibilities in the UK. So maybe the Cypriot Govornment should take a darn site bigger chunk of savings from incomers accounts.

  • rate this

    Comment number 368.

    Here they go with the juggling. When is a euro not a euro? When the government decides the cut-off level for who gets hit and who is spared. Cyprus had better start working on its olive production because as a banking center they are toast.

  • rate this

    Comment number 367.

    354.Knut Largerson

    You might find this slightly overwhelming but they are all going to crash anyway. Right now most of the west relies on borrowing money to keep the country going and this shows from mounting debts. All debt based fiat monetary systems have crashed throughout history, or been stopped before the inevitable happened. The BoE prints money, with debt attached, it's never ending debt

  • rate this

    Comment number 366.

    The answer of Cyprus parliament is NO. Every party in the parliament expressed their vote publicly and they all say NO except the big of the coalition party which they will not vote! The voting is happening tonight. In few hours this will be anounced.

    The plan is to re-negotiate with EU or try to find other sources

    Giorgos, Cyprus

  • rate this

    Comment number 365.

    Re: reliable source within Cyrpus based arm of a Global Big 4 consulting firm: Germany wants to kill all birds with one stone: punish Cyrpiots for doing business with Russia, destroy current economic model for Cyprus and send jitters across Europe to orchestrate a bank run from weak Southern European Banks to German Banks. Very dangerous game by Frau Merkel, aiming at Germany dictatorship in EU.


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