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 584.

    The next step might be the imposition of one of Von Rumpay's henchmen as Emperor , backed by threats of a handbagging by Frau Merkel. Best put the penniless British troops on full alert in case of invasion by Brussels. Someone will have to back down, and I suspect it wont be Cyprus , or it's a bust . Cyprus should seize all the Audi, Volks , and Mercedes off the forecourts and flog them quick.

  • rate this

    Comment number 583.

    Any government that subscribes to continuation of capitalism, no matter what particular country it is, will always protect the very rich and powerful capitalists, at the expense of everybody else, especially the poorest. If they are thwarted in one way, they will try some other way in due course. The seriousness of this collapse of capitalism ensures that these attacks will increase in severity

  • rate this

    Comment number 582.

    Why are we flying out euros for are gallant lads and lassies?
    I would have thought USD or good old Sovs would have been a better bet?

    (I remember someone telling me in the 80's that Sovs were mainly produced to pay overseas infrastructure labour.)

  • rate this

    Comment number 581.

    "President Vladimir Putin called it "unfair, unprofessional and dangerous". "

    A description that could so easily be applied to him as well. Makes you wonder why the Russians are so interested in keeping the Cypriots hooked on their loans and if they are paying more than just interest to Putin.

  • Comment number 580.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 579.

    bit of a difference between people with million pound homes and millions in savings compared to someone with an average priced home of £150k and with £100k saved at £2k a year over 50 years who
    hasn't wasted their money on booze, cars, fags, gambling etc and who has worked all their life to give yourself a poxy £3k a year interest to top your pension up.

  • rate this

    Comment number 578.

    This move is not about Cyprus but rivalry between Germany and Russia over the ultimate leadership of Europe. The daffy Eurogroup move was bound to fail and the mouse has roared. The move violated a major principle of banking , i.e. trust. Thus the future of the euro is now the issue not Cyprus.

  • rate this

    Comment number 577.

    People of Cyprus feel that their no is for all Europeans who believe in solidarity and justice. I hope British people appreciate this.

    Giorgos, Cyprus

  • rate this

    Comment number 576.

    Rejecting this bailout will have serious consequences for Cyprus.

    And I can't believe how short sighted the Cypriot public is (well at lease those on the streets protesting about this).

    Do they seriously think national bankruptcy is better than paying this new tax?

    And all this talk of a domino effect is just nonsense. The tax only affects personal bank accounts, not investment accounts.

  • rate this

    Comment number 575.

    As soon as the banks open, there will be a run on them. No one in Cyprus is going to trust that there money is safe in them anymore. It's quite ironic that this attempt to get an EU bailout to save Cypriot banks will destroy the Cypriot banks.

  • rate this

    Comment number 574.

    558.The revolution is being televised

    "Eh ! I missed something or is this meant to be funny. Was Hitler a banker?"

    Nope but Hitler was funded by banks on wall street. They were playing both sides of the table because wars are the most profitable business for bankers. More money must be loaned from them to pay for the wars.

  • rate this

    Comment number 573.

    After Ireland, Iceland as a nation has spent more money as a percentage of GDP rescuing its banks. Icelanders saw their savings fall by 50%, and Iceland isn't bound to the Euro.

    Már Guðmundsson - governor of the Central Bank of Iceland - describes it as a "myth" that Iceland allowed their banks to fail.

    So, please, can we drop the romanticism about Iceland and its miraculous recovery?

  • rate this

    Comment number 572.

    547. Bastiat
    I didn't know checking the veracity of quotes you admit are unoriginal was trolling. Are you insecure?
    Not at all - the reason I said it was unoriginal was because I had used it before. So to paraphrase just one more time...

    'Growth hits the rocks when the 99% run out of money for the 1% to take'.

  • rate this

    Comment number 571.

    Wonder if they'd take 10% off my overdraft.

  • rate this

    Comment number 570.

    Aye but surely this is now calling Troikas bluff ? If I was Germany I would refuse any bail out now - clear the banks are bust - so instead of Russians loosing 15% they can now loose all deposits. & The Government can honour deposits protection scheme for all. Simples...... if he Trokia give in - then Greece, Spain, Italy will expect the same, whos next - France ? Bank Run soon - Aye surely will

  • rate this

    Comment number 569.

    "Since you get shares in the bank in return, it's not really theft - and it won't be against the law either. Think of it as nationalising the banks - that's what many people on HYS have called for."

    Or much fairer, take the bankers' personal wealth, and politicians too, and give them the shares.

  • rate this

    Comment number 568.

    The Greeks are heaping piles of manure on the doors of the banks today, which despite being closed are under armed guard.
    I dread when these scenes appear on British streets.

    Parliament's vote delayed another day, so Banks are still closed until Friday it seems. What do you think will happen when they open?

    Protect you and your family's wealth, as I am :)
    "Argentum et aurum comparenda sunt"

  • rate this

    Comment number 567.

    529. Tiberius
    "The EU won't come up with the whole amount, as the Russian money would easily cover the rest.(Why bail out the Russians)"

    So, if EU thought that Russian money is heavily involved then it should invite Russia to participate in negotiations for Cyprus banks bail-out. But as far as we know, nothing of this kind happened - just Russian depositors were threatened with robbery instead.

  • rate this

    Comment number 566.

    No need for the banks to collapse they can trade insolvently same as all the other western banks by marking their assets to fanatsy prices.

    Was this honorable politicians voting to protect their people or the product of death threats from the Russian Mafia. Not a single vote for the levy.

  • rate this

    Comment number 565.

    To take this money from people would be an act of theft grander than The Great Train Robbery


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