News / Europe

Cyprus Reconsiders Bank Deposit Tax to Solve Debt Crisis

A protester cries during an anti-bailout rally by employees of Cyprus Popular Bank, outside parliament, Nicosia, March 22, 2013.
A protester cries during an anti-bailout rally by employees of Cyprus Popular Bank, outside parliament, Nicosia, March 22, 2013.
VOA News
Cyprus is reconsidering whether to tax depositors' accounts at its troubled banks as the island nation desperately seeks a way to secure a bailout from its European neighbors.

Earlier in the week, the Cypriot parliament overwhelmingly rejected confiscating money from savers. But the deposit tax emerged again Friday as the Cypriot leaders neared a deadline imposed by the country's international lenders to raise $7.5 billion by Monday or face a cutoff in emergency funding for its banks.

The lenders have demanded that Cyprus raise the money as a condition for handing a $13-billion rescue package to the island.  Much of the money would refund the country's banks weighed down by bad investments in Greek government bonds.

If no solution is found, Cyprus could default on its loans, and possibly become the first country to leave the 17-nation euro currency bloc.

As parliament started consideration Friday night of several measures to raise the money it needs, the government said it envisions a 15-percent tax on accounts with more than $129,000, the threshold at which funds are not insured, while the defeated tax proposal covered insured savings as well.  A tax on the biggest deposits would impact numerous Russian oligarchs who have placed vast sums in the tax haven's banks.

Cyprus revived the deposit tax after it unsuccessfully sought more aid from Russia.  Prime Minister Dmitry Medvedev said Russia would only consider assisting Cyprus if the island first reaches an agreement with its European neighbors on a rescue package.

Cyprus said its future stands in the balance.  Government spokesman Christos Stylianides told the 56-member parliament that the Mediterranean country must be saved.

"The next hours will determine the future of the country.  We must all take responsibility," said Stylianides.

Cyprus is considering restructuring at least one of its key banks, Laiki.  The Bank of Cyprus and Laiki both urged parliament to impose a tax on the deposits of more than $129,000 as a way to resolve the crisis.
 
The island's banks are closed until Tuesday to prevent panicked investors from withdrawing large sums of money.  Anxious depositors, however, are able to withdraw limited amounts from automated teller machines.  

"We have not closed the door," said Medvedev. "We have not said that we would not discuss anything anymore and that we would not want even to hear anything because Cyprus is a European Union member state and it is not our business.  Of course, we have understandable economic interests there.  And we will and we are ready to discuss different options of supporting this country, bearing in mind that we have already given our support, we gave them a loan some time ago,  but only after a final scheme is worked out involving European Union countries and Cyprus itself.''

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