Residents of Cyprus reacted with shock yesterday after the government agreed to a €10bn ($13bn) bailout that includes an unprecedented levy on all bank deposits.
The debt rescue package, agreed with the eurozone and International Monetary Fund early yesterday morning after around 10 hours of talks in Brussels, is significantly less than the €17bn Cyprus had initially sought.
It includes €5.8bn to be raised through the bank deposit levy of up to 9.9%, which will apply to everyone from pensioners to Russian oligarchs and tens of thousands of British expats.
At the same time, a “withholding tax” would be imposed on interest on bank deposits, and Cyprus will have to hike corporate tax to 12.5% from 10% and sell off state assets so as to help balance the public finances.
Though it was reached too late for Cyprus newspapers, and other forms of traditional media were caught unawares, the bailout deal prompted some to queue up outside banks to withdraw cash from ATMs.
But analyst Sony Kapoor cautioned that there was no point, tweeting: “Dear Cyprus bank depositors, the time to line outside your banks was last week, no point now.”
A flood of angry comments flowed on the Internet.
“The Cyprus deal is exactly why I don’t keep money in the bank anymore. Brussels can commandeer your cash. Just like that,” one person wrote on Twitter.
“The British & Russians will think twice before retiring to the sun and placing their deposits in some dodgy peripheral bank,” said another.
One tweeter used the micro-blogging website to call for a protest outside the presidential palace against the “unacceptable eurogroup assault”.
Government spokesman Christos Stylianides tried to calm shell-shocked Cypriots saying: “The situation is serious but not tragic, there is no reason to panic.”
“The Cyprus government had to decide between saving the economy and a disorderly default,” he told the official CNA news agency.
The levy will see deposits of more than €100,000 hit with a 9.9% charge when lenders reopen their doors after a scheduled public holiday tomorrow. Under that threshold and the levy drops to 6.75%.
Co-operative bank branches, which, unlike the main lenders, usually open for business on Saturdays, kept their doors closed as their systems were shut down, officials said.
One furious customer reportedly parked his digger outside one such branch in the seaside resort of Limassol, claiming the government had “tricked” him into believing deposits were safe.
Ministers were in a race against the clock to trash out draft legislation and push it through parliament, which the speaker’s office said was expected to convene today.
The negotiations had dragged on as Cyprus fought its ultimately doomed battle to avoid the haircut on deposits, which it argued would trigger a run on its banks and ricochet on through the eurozone.
Cyprus — which accounts for just 0.2% of the combined eurozone economy — is the fifth country to secure a debt rescue package from its eurozone partners in the three-year debt crisis.
The price tag is very small compared with two rescues for Greece worth some €380bn ($496bn), Ireland’s €85bn, Portugal’s €78bn and 41bn for Spanish banks.
“It’s something that compared to other possible outcomes, is the least onerous,” Cypriot Finance Minister Michalis Sarris said, adding the arrangement meant his government “avoided salary and pension cuts” for the public sector.
The proposed bank levy raised concerns among finance experts over a possible bank run in bigger eurozone economies, where fragile public finances are also under scrutiny.
Shaun Richards, who described himself an independent economist, tweeted: “If those in charge in the Euro area actually wanted to start a bank run this charge on depositors in Cyprus should do the trick.”
Dutch Finance Minister Jeroen Dijsselbloem said the “upfront, one-off” tax was expected to raise €5.8bn on top of the loans still to be finalised by eurozone parliaments.
The Cypriot finance minister is also expected to visit Moscow on Wednesday to discuss easier terms on an existing €2.5bn loan.
Source: Caye Global News, Gulf Times
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