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
    +1

    Comment number 404.

    There wa a famous bank robber called Willie Sutton in the US in the sixties i believe. Appearing before a judge for the umpteenth time the judge asked him why he robbed banks. Wllie lokked at him as though he were an assand replied "cos that's where the money is!"

    This is why the savers are paying and the bondholders are not suffering.

  • rate this
    -1

    Comment number 403.

    If only our UK financial industry like Cyprus's could have brought us very low taxes and high interest rates on our savings but all we got (like the rest of the rest non-tax haven EU) were pathetic interest rates. 4 years of rates of an average of 4.45% tax free on my savings since 2008 like Cyprus got and I would not be bothered at all by a 6.75% deduction. Better to be in Cyprus than here!!!

  • rate this
    +4

    Comment number 402.

    ..and the idea of UK ex pats living in Cyprus and not being levied this tax? If you go to live in a country you should have an affiliation to it and a loyalty..they want to live there in the good times and reap the benefits so they should be treated like the rest of the citizens and face the levy like everyone else.

  • rate this
    +2

    Comment number 401.

    392.Knut Largerson

    Sorry when did I say I wanted to go back to a gold standard? What you don't believe it will crash? All debt based fiat currency systems in history have crashed or been stopped before they did crash. i was just simply pointing this out. The way to go is a government issued value based currency that doesn't come with debt attached to it, makes it hard to repay.

  • rate this
    +3

    Comment number 400.

    Professor Athanasios Orphanides, former governor of the Central Bank of Cyprus says that the accounts seizure is a criminal act, and that The European Project is Unequal and is Dying!
    http://www.bloomberg.com/video/orphanides-on-cyprus-bailout-europe-s-banks-Aw79nWd1QH~jz5tVDF7cRA.html

    "Argentum et aurum comparenda sunt" :)

  • rate this
    -3

    Comment number 399.

    @385.Robbie

    ''...This could be the biggest event to happen to Europe since WW2...''

    Not really since alternative, more acceptable forms of theft will be found until Cypriot parliament agree. Either that or they will be ejected from the EZ and the Euro carries on regardless.

    Unless this wakes up the Greek people to really protest against austerity.

  • rate this
    +3

    Comment number 398.

    For me, it is very simple: if deposits up to €100,000 are protected under EU laws in the event a bank goes under, then those same EU laws must be similarly protect against any default on the part of a government or its central bank as well. That means any money up to €100,000 on deposit simply cannot be touched, otherwise what is the point, efficacy or even legality of such laws?

  • rate this
    -1

    Comment number 397.

    337. anthonygh "target the loans the bank makes to its customers.....take a slice”

    I can see you point, but, how many deposit acc t&c’s are there compared with loans? Would you hit payday loans with a further 10% (would they notice) would you put 10% on a mortgage. I cant see you taxing debt

    Mind you if I was about to retire, and HMG owed my scheme 2000Bn pounds I might be tempted by 10% LOL

  • rate this
    +4

    Comment number 396.

    @ 376 Why not? Our own government does exactly that. Moans about the personal debt mountain and then punishes savers with record low interest rates and inflation.

  • rate this
    -3

    Comment number 395.

    Personally i hope if its brought in it brings the Cypriot Govt down as a result of serious civil unrest as then the other govt's in the E.U might think twice about doing it in their countries.

  • rate this
    +2

    Comment number 394.

    They then formed a new peoples government from citizens, wrote a new constitution, and arrested and prosecuted high level executives and bankers who had created and exploited the crash. Well done Iceland.

    The 6.9Billion Euro's of British and Dutch Investors money written off rather helped in their economic recovery .
    The equivalent in the UK would be to write off the entire UK national debt!

  • rate this
    0

    Comment number 393.

    This is pure theft.
    I sympathise with our friends, the Cypriot people.
    I cannot believe anyone can be allowed to get away with this.
    Shameful politicians as usual.

  • rate this
    -2

    Comment number 392.

    367. hellblazer
    354.Knut Largerson
    "You might find this slightly overwhelming but they are all going to crash anyway".

    Err right.

    And you think a Gold backed currency is the way forward?

    No Country on the planet uses the Gold standard anymore.

    A return to it would benefit Gold producers China, USA, Australia, & Russia, & maybe people with the odd Ingot stashed away.

  • rate this
    0

    Comment number 391.

    Angela Merkel was right...its Cyprus' debt, ultimately who should shoulder the burden of a financial bailout, the Cypriots themselves or the Western European tax payer?

  • rate this
    +2

    Comment number 390.

    I just find this whole thing totally unexceptable. They should be bailed out on the same terms as others, rather than this odd collective punishment of savers. If you suspect money laudering freeze the accounts involved and investigate it's a seperate issue.

  • rate this
    +2

    Comment number 389.

    374.Rem Oteme

    "destroy inconvenient small island that used to have a life of its own before it was lured into EU."

    ***************************

    Cyprus is in this mess because it's banks lent loads of money to the Greeks and lost it. The EU has chosen a stupid way to fix the problem but it's not the EU that caused the problem

  • rate this
    -2

    Comment number 388.

    This idea for everyone to adopt the euro seems to be working so well.

  • rate this
    +3

    Comment number 387.

    The banks should have been allowed to go bankrupt.:

    Frauke petry of Alternative for Germany:

    "The Euro-rescue mechanism doesn't save jobs or day care centres for children or universities but banks."

    (My dodgy translation.)

  • rate this
    0

    Comment number 386.

    It is a pity that the European Commission which claims to be a champion of consumer rights has studiously ignored a hot potato for the past 20 years.

    Further details by searching in Google for 'Windle stops swindle'

    A Common Informer

  • rate this
    +2

    Comment number 385.

    Question - why am I currently watching an untranslated live feed of the Cyprus parliament, but the BBC is nowhere to be found?
    This could be the biggest event to happen to Europe since WW2 and the BBC is nothing more than a blogger repeating everyone else an hour after they report it!

 

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