Crisis Bailout Backfires: Depositors fear loss of savings in Cyprus debt payoff
RT
Cyprus may make its citizens shoulder a 12.5-percent crisis tax on savings larger than €100,000, while reducing the tax for smaller deposits to 3 percent, Reuters reported. Panic ensued as Cypriots rushed to withdraw savings.
The Cypriot government has been discussing with its European creditors the idea of reducing the levy on deposits smaller than €100,000 to 3 per cent, Reuters reported citing an anonymous source who is close to talks.
To counterbalance the measure, the government proposed to increase the tax on large sums to 12.5 per cent from the originally proposed 9.9, the source said.
The last minute discussions are allegedly aimed at appeasing ordinary Cypriots who are about to share a major part of the anti-crisis burden imposed on Cyprus by the European Central Bank.
Cyprus became the fifth country to ask for immediate aid from the Eurozone. But in a drastic twist from the previous cases, the European finance ministers demanded Cyprus seize a significant portion of all deposits in the country’s banks in order to secure a €10 billion bailout.
The original agreement suggested 9.9 and 6.7 per cent levies on deposits above and below the €100,000 threshold respectively.
Although in general terms the bargain was settled with the European lenders late on Friday, the Cypriot government still has to come to an agreement on the exact details and pass a law that will allow such a move.
In the meantime all banks in Cyprus have frozen the amounts required to pay the tax on their clients’ deposits and stopped all transactions, including electronic, before going to a long holiday weekend.
Cyprus, a nation of 800,000 people, has an economy of under €18 billion [US$23.2 billion] and a banking system with some €68.4 billion [US$88.4 billion] in deposits, much of which is held by Russians and other foreigners.
If the levy goes through, those foreign investors will stand to lose the most.
In November, German publication Der Spiegel reported that Russians had deposited as much as $26 billion in Cypriot banks.
Deputy Economic Minister Andrei Klepach assured that Cyprus’ proposed levy on bank deposits likely will not affect domestic capital flows in Russia, Prime news agency quoted him as saying.
“I don't think [the tax] will have significant implications... This is a matter of increased risks, not [capital] flight,” Klepach said.
Russian banks had around $12 billion deposited in Cypriot banks at the end of 2012, according to ratings agency Moody's.
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http://rt.com/business/cyprus-bailout-bank-tax-deposits-401/
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