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 424.


    "German taxpayers indeed should not be made to bail out anybody, but they don't seem bothered to vote out thir very "generous" government."

    EUp: Practically they have not been able to. When it comes to the "EU" Germany, like the UK, has been a one-party state for a long time BUT now there are two groups going to offer them a chance - 1in Bavaria and a national one

  • rate this

    Comment number 423.

    Cyprus will go bust and leave the EU.At that point the Russians will move in and completely take over the banking system.Say what you will about dirty Russian money but at least the Russians do not have the type of shuddering incompetence which is the EU.Where are those idiots Barrosso and van Rompuy,I thought they had the answers?

  • rate this

    Comment number 422.

    I hope the British bases are well guarded , there could be a stampede of British pensioners trying to get in and get their hands on some of the 1m euros being flown in.

  • rate this

    Comment number 421.

    Someone needs to explain to the idiots at the IMF and EU that the banking system needs savers, they are the life blood and without their money being pumped around, the patient is in danger of expiring.

  • rate this

    Comment number 420.

    Simple solution.
    Stand by the insured deposits (strange to have Politicians keep their word)
    Let the rest collapse, if the bank cannot pay it's commitments, however this only applies to a couple of banks, even in Cyprus.

    Otherwise you will create a pan european bank run

  • rate this

    Comment number 419.

    IF this was to be repeated in the UK, is there any financial instituions that could not be levied, ie Building societies, Post office etc.

    Or do I actually have to invest in something like precious metals or property?

  • rate this

    Comment number 418.

    as an expat living in cyprus for the past 12 years i have seen many changes to the island,most of them for the benefit of the people living here,but this one is just down right stealing.

  • rate this

    Comment number 417.

    Don't worry Cyprus a rescue loan is coming your way to prop up your bank when you open your doors from the bank run.
    And even better it's all in Cash Euros "MoD flies emergency cash to Cyprus for British personnel"
    All 1 million Euros flying high in the sky.

  • rate this

    Comment number 416.

    AND THE PEOPLE LAYING LOW ON ALL THIS SHOULD CONTRIBUTE Like the bankers who got us all in this horrific mess! yet somehow they are STILL getting their £million bonuses i'm sorry David Cameron states the bankers need their bonuses to keep them sweet? they already make more money then any working class person i know so if that isnt enough maybe its time we looked for people who would appreciate it

  • rate this

    Comment number 415.

    The Cypriot government has assured that no-one with a bank account will vote for them again.

    They have also assured that savers will deposit no more money in their banks, and that a considerable amount of the money currently deposited will be withdrawn and invested elsewhere.

    Savers should be rewarded, not punished. Banks depend on them.

  • rate this

    Comment number 414.

    If I were trying to cause uncertainty amongst savers and investors in the security of their cash in banks, then I would carry out this dangerous measure. Investors and banks across Europe could suffer.

    Can the law makers of Cyprus not see that they are possibly destroying their future? They may decide to protect small saver, the majority, but they will still put off big investors.


  • rate this

    Comment number 413.

    The Russians talk and talk but they are a failed state [rich for now but won't last] and what they are going to do? Withdraw porn, prostitutes and pimps from the EU? Not sure if Godfather Vladimir want all the young Svetlanas back in Moscow. And give up bashing Germany, their society is more equal, fairer and do not elect clueless toffs as PMs [and they are not suckers to dodgy royals either...]

  • rate this

    Comment number 412.

    Jail the bankers why are we so soft in dealing with people who bankrupt countries? Bring back the death penalty maybe they will be more prudent in future

  • rate this

    Comment number 411.

    Savers did not cause the crisis and savers have already paid tax on the money they are saving.

    This is theft.

    -I think you will find that as over 50% of the money in Cypriot banks is Russian (The equivalent of 4 times Cyprus's entire GDP) that this is there to avoid paying tax!
    You argument would have more validity if Cyprus wasn't a tax haven with relatively high interest rates .

  • rate this

    Comment number 410.

    This could have been the UK, if it weren't for this Government taking radical steps back in 2010. If Labour won the election, people who work would be paying more tax, people with a mortgage would have higher interest rates and people with savings would be paying through the nose to sort out the cock-up left by the bankers and Mr Brown's Boys.

  • rate this

    Comment number 409.

    Sod the expats w/e their nationality - you made your bed in a small overexposed country you lie in it. After 6 months without sun here, I couldn't care less about your poor savings. Jealous? Bitter? You bet I am ;)

  • rate this

    Comment number 408.

    So will the end result be that "EU" - "citizens" will essentially subsidise the Russian Mafia by preventing them from losing even more, as they would have done if the Cypriot banks had gone bankrupt as they should have done?

  • rate this

    Comment number 407.

    “Legally” Stealing from peoples savings is always unacceptable it means they simply can’t trust banks with their money any more. I wouldn’t be surprised to see the Cypriot government overthrown and Cyprus leave the EU. I’d certainly be furious if this happened here and now the president has been set it could.

  • rate this

    Comment number 406.

    This is the equivalent of a negative savings rate of 10% - outrageous! Those victims of this daylight robbery should at the very least be given post-dated shares in the banks they bail out, Even the UK government eventually paid back its 1941-imposed 'post-war credits' - 95% were paid back by, wait for it - 1978.

  • rate this

    Comment number 405.

    Not really since alternative, more acceptable forms of theft will be found until Cypriot parliament agree.
    I mean the collapse of the € is the biggest thing to happen since WW2, and this is potentially what we are about to see. Either way, Cypriot banks are dead. The contagion of that is potentially the end of the European experiment. This is big and the BBC should be there!


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