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
    +3

    Comment number 444.

    I find this absolutely astonishing. Theft agreed by the unelected idiots in Brusselles.

    The really worrying thing it that the soles that agreed this are unelected and therefore insulated from being punished for their mistakes.

    YET ANOTHER EXAMPLE WHY THE EU NEEDS REFORM.

  • rate this
    0

    Comment number 443.

    As I understand this proposal, bank deposit customers are being required to purchase shares in their bank(s) to prevent same bank(s) from going bankrupt?

    Whilst I strongly object to this course of action being forced on the depositors, surly it is better than loosing all their savings if the bank(s) were declared bankrupt?

  • rate this
    0

    Comment number 442.

    I wonder if our local authorities have money in Cypriot banks like they did in Icelandic ones?

  • rate this
    +2

    Comment number 441.

    Cyprus as a country is bankrupt they need a loan and they only way they can pay the interest on that loan is by robbing people's savings accounts. Now if they had just put up VAT and PAYE and got citizens to actually pay it then that would have been legal, although still not very palatable. Piss up and brewery come to mind.

  • rate this
    +1

    Comment number 440.

    If Cyprus is not careful, and this EU/IMF deal falls through, resulting in them going bankrupt, with resulting civil unrest, they cold see a Turkish invasion of the whole island.

  • rate this
    0

    Comment number 439.

    Lots of opinions on what is wrong with this plan, and I agree. But how about some solutions??? I can't think of a WORKABLE solution, can you??? not some hysterical non starter of an idea.
    356

  • rate this
    +1

    Comment number 438.

    The EU will drop it for big savers when Russia cuts off the gas.

  • rate this
    0

    Comment number 437.

    This is just ridiculous. I would never do any business in Cyprus again. Stay in those mainstream countries.

  • rate this
    -10

    Comment number 436.

    Back from a business trip in the Med. To put it bluntly we are close to Weimar or right in it in some places. Weimar scare the pants off the Deutsche Menschen and they are starting to panic. There was a nasty banter between Italy and Germany after the elections. But quitting a-la-Farage will not spare the Uk from financial mayhem, empty gesture. The EU is a bad ride but is the only ride in town.

  • rate this
    +1

    Comment number 435.

    @369 Larryshaw48 - Funny, I thought most of them were following orders!

  • rate this
    +3

    Comment number 434.

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

    ...especially in Britain when they bailed out free-market TORY bankers - who followed reckless capitalist activities - to the tune of £1.2 trillion. Terrible, I agree.

  • rate this
    +4

    Comment number 433.

    Eurogroup decided to 'corner' Cyprus for 15 billion euro and that decision had a toll of 500 billion in international markets....does that sound rational? Or is the Eurogroup's decision (Germany, Finland) one more step of their plan for a 3rd World War through economy?? Your savings will be next...Prime Minister Chamberlain did not see it coming back then...do you see it today??

  • rate this
    +6

    Comment number 432.

    Funny none of this austerity is shown by those running this mess. They do not even balance their own books and are just making countries beg for bailouts. Is this the European dream - the political class and the elite driving around in huge cars and telling ordinary people what to do - making more rules and regulations that we every need. What an alice in wonderland world we are living in.

  • rate this
    +1

    Comment number 431.

    405.Robbie

    Oh dont worry Robbie i am sure the island is full of camera crews at every cash point and bank with intimate stories of how peoples lives are being wrecked. Perhaps this is the reason bank opening has been put back so as not to conflict.
    cynic mode off

  • rate this
    +3

    Comment number 430.

    Can the people who have planned this blatant theft of people's savings not be prosecuted for breaking the law? Because the law IS being broken, and I always understood that we had prisons for people who do that.

  • rate this
    +1

    Comment number 429.

    Never mind the emotions, the politics, the economic opinions and the hardships (especially of the smaller savers and pensioners) let's see the big picture here - the WORLD is watching because EVERYONE wants to know what is going to happen. Most people have some form of hard-earned savings however large or small, wherever. And we all thought they would be safe in a bank. Cyprus, get this SORTED!

  • rate this
    +2

    Comment number 428.

    I support emergency cash for military who cannot access their accounts but surely bailing out by ensuring those with cypriot accounts do not lose money is just supporting those who have used the banking system to gain extra interest. If one uses an off shore account to gain one has to take the negative side.

  • rate this
    -1

    Comment number 427.

    I think they should charge 25% tax on just Russian balances. They are a rude lot on this island & think they own the place.
    They cannot speak English or Greek & think they can make themselves understood by constantly repeating themselves in Russian.
    TBH its their dirty money which has given Cyprus a bad name.

  • rate this
    +1

    Comment number 426.

    I completely agree with those here deploring this proposed theft from ordinary work-a-day people.
    I even have sympathy with those with large deposits. Having a hunch it's laundered money doesn't make it so. And it's theirs.
    I feel it's all a bit moot anyway. Cyprus' parliament will reject it.
    Will they default or will another way to delay the inevitable be found?

  • rate this
    +4

    Comment number 425.

    This is why we need the 2nd amendment right. To protect our property not necessarily from a neighbourhood thief, but from a Tyrannical Government, hell-bent on violating our privacy and property rights - to steal what does not belong to it (our earned wealth), to give to its private banker friends.

    A government of the people, for the people? No such thing.
    "Argentum et aurum comparenda sunt" :)

 

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