News / Europe

Cyprus Reworks Divisive Bank Tax, Delays Vote

  • Bank of Cyprus employees sit in front of riot police during a protest outside Greece's Finance Ministry as the bank remains closed for third day in central Athens, March 21, 2013.
  • People line up at an ATM outside a closed Laiki Bank branch in Nicosia, Cyprus, March 21, 2013.
  • Employees of the Bank of Cyprus take part in a rally in solidarity with Cyprus outside the headquarters of the bank in Athens, Greece, March 20, 2013.
  • International Monetary Fund mission chief Delia Velculescu arrives for a meeting with Cypriot President Nicos Anastasiades at the presidential palace in Nicosia, Cyprus, March 20, 2013.
  • A man walks by graffiti that reads "Troika out" in the old city of capital Nicosia, Cyprus, March 19, 2013.
  • Demonstrators raise their arms in protest as Cypriot President Nicos Anastasiades's convoy drives to the parliament in Nicosia, Cyprus, March 18, 2013.
  • A protester shouts slogans outside of parliament during a meeting in Nicosia, Cyprus, March 18, 2013.
  • Cypriot President Nicos Anastasiades arrives at parliament in Nicosia, Cyprus, March 18, 2013.
Reuters
— Cypriot ministers are trying to revise a plan to seize money from bank deposits before a parliamentary vote on Tuesday that will secure the island's financial rescue or could lead to its default, with reverberations across the euro zone.

The weekend announcement that Cyprus would impose a tax on bank accounts as part of a 10 billion euro ($13 billion US) bailout by the European Union broke with previous practice that depositors' savings were sacrosanct. The euro and stock markets fell on concern the euro zone crisis was returning.

Before the vote, which is too close to call, the government was working to soften the blow to smaller savers by tilting more of the tax towards those with deposits greater than 100,000 euros ($130,700). Many of these depositors are Russians and the planned levy has already elicited an angry reaction from President Vladimir Putin.

The government says Cyprus has no choice but to accept the bailout with the tax on deposits, or go bankrupt.

A Cypriot source told Reuters the introduction of a tax-free threshold for smaller bank deposits - maybe up to 20,000 euros - was under discussion but not yet agreed upon.

The parliamentary speaker said debate on the bank levy would be delayed until 1600 GMT on Tuesday, suggesting banks, shut on Monday for a bank holiday, will remain closed on Tuesday.

The euro zone has indicated that changes would be acceptable as long as the return of around 6 billion euros is maintained. If the Cypriot parliament votes the deal down, the euro zone would face a risk of being dragged back into crisis.

"It is up to the government alone to decide if it wants to change the structure of the ... contribution [from] the banking sector,'' European Central Bank policymaker Joerg Asmussen, who was pivotal in the weekend negotiations, told reporters on the sidelines of a Berlin conference.

"The important thing is that the financial contribution of 5.8 billion euros remains,'' he said.

Residents on the island emptied cash machines to get their funds over the weekend. The move also unnerved depositors in the euro zone's weaker economies. Investors feared a precedent that could reignite market turmoil that the European Central Bank has calmed in recent months with its pledge to do whatever it takes to save the euro.

The euro fell before tempering losses. European stocks did similarly, dropping two percent before more than halving losses.

In the bond market - often the most reliable guide to euro zone stress - safe haven German Bund futures shot up while Italian equivalents dived, suggesting some concern that Cyprus could infect its larger neighbors.

"The most important question is what would happen the following day if the bill isn't voted,'' Cyprus central bank governor Panicos Demetriades told parliament.

"What would certainly happen is that our two big banks would need to be consolidated. This doesn't mean that they would be completely destroyed. We will aim for this to happen in a completely orderly way.''

Brussels has emphasized that the measure is a one-off for a country that accounts for just 0.2 percent of European output. The worst fear is that savers in other, larger European countries become nervous and start withdrawing funds, although there was no immediate sign of that on Monday.

U.S. economist Paul Krugman wrote in The New York Times: "It's as if the Europeans are holding up a neon sign, written in Greek and Italian, saying 'Time to stage a run on your banks!'''

Putin angry

Cyprus's banking sector dwarfs the size of its economy and its banks have been severely hurt by exposure to much larger neighbour Greece.

Its open economy has meant its banks also attract cash from Russians. Moscow is considering extending an existing 2.5 billion euro loan to help bail the island out and said the fact it had not been consulted about the bailout would come into play.

"It turns out that the euro zone actions ... took place without discussions with Russia, so we will consider the issue of restructuring the (Cyprus) loan taking into account our participation in the joint actions with the European Union,'' Russian Finance Minister Anton Siluanov told Reuters.

President Vladimir Putin criticised the bank levy as unfair and setting a dangerous precedent.

"Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous,'' Kremlin spokesman Dmitry Peskov told reporters.

Approval in Cyprus's fractious 56-member parliament is far from a given: no party has an absolute majority and three parties say outright they will not back the tax. A vote initially planned for Sunday was rescheduled to give more time to build a consensus.

 On Sunday, a source close to the consultations told Reuters authorities were hoping to cut the tax to 3.0 percent from 6.7 percent for deposits under 100,000 euros. The rate for deposits above that would then be jacked up to 12.5 percent from 9.9 percent.

Cypriot President Nicos Anastasiades, a conservative elected just three weeks ago, said in a TV address that the tax was an alternative to a disorderly bankruptcy. It was painful, but "will eventually stabilise the economy and lead it to recovery''.

Savers who lost money would be compensated by shares in commercial banks, with equity returns guaranteed by future revenues expected from natural gas discoveries, Anastasiades said. But many legislators remain unconvinced.

 "Essentially parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law,'' said Yiannakis Omirou, speaker of parliament and head of EDEK, the small Socialist party. "We refuse to subscribe to this.''

You May Like

Reports of Mass Murder on Mediterranean Smuggler’s Boat

Boat sailed from Libya with 750 migrants aboard and arrived in Italy with 569 More

Video New Thailand Hotline Targets Misbehaving Monks

Officials say move aims to restore country’s image of Buddhism, tarnished by recent high profile scandals such as opulent lifestyle, drug and alcohol abuse, as well as child sex abuse More

Study: Dust from Sahara Helped Form Bahama Islands

What does the Sahara have in common with a Caribbean island? Quite a lot, researchers say More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Astronauts Train in Underwater Labi
X
George Putic
July 25, 2014 7:25 PM
In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.
Video

Video Not Even Monks Spared From Thailand’s Junta-Backed Morality Push

With Thailand’s military government firmly in control after May’s bloodless coup, authorities are carrying out plans they say are aimed at restoring discipline, morality and patriotism to all Thais. The measures include a crackdown on illegal gambling, education reforms to promote students’ moral development, and a new 24-hour phone hotline for citizens to report misbehaving monks. Steve Sandford reports from Bangkok.
Video

Video Virtual Program Teaches Farming Skills

In a fast-changing world beset by unpredictable climate conditions, farmers cannot afford to ignore new technology. Researchers in Australia are developing an online virtual world program to share information about climate change and more sustainable farming techniques for sugar cane growers. As VOA's Zlatica Hoke reports, the idea is to create a wider support network for farmers.
Video

Video Airline Expert: Missile will Show Signature on Debris

The debris field from Malaysia Airlines Flight 17 is spread over a 21-kilometer radius in eastern Ukraine. It is expected to take investigators months to sort through the airplane pieces to learn about the missile that brought down the jetliner and who fired it. VOAs Carolyn Presutti explains how this work will be done.
Video

Video Treatment for Childhood Epilepsy Heats up Medical Marijuana Debate

In the United States, marijuana is classed as an illegal drug by the federal government. But nearly half the states have legalized it, to some degree. Proponents say some strains of marijuana might have exceptional health benefits, for treating pain or inflammation in chronic conditions such as cancer, multiple sclerosis and epilepsy. Shelley Schlender reports on a strain of medical marijuana developed in Colorado that is reputed to reduce seizures in childhood epilepsy
Video

Video Airbus Adds Metal 3D Printed Parts to New Jets

By the end of this year, European aircraft manufacturing consortium Airbus plans to deliver the first of its new, extra-wide-body passenger jets, the A350-XWB. Among other technological innovations, the new plane will also incorporate metal parts made in a 3-D printer. VOA's George Putic has more.
Video

Video AIDS Conference Welcomes Exciting Developments in HIV Treatment, Prevention

Significant strides have been made in recent years toward the treatment and prevention of HIV, the virus that causes AIDS. This year, at the International AIDS Conference, the AIDS community welcomed progress on a new pill that may prevent transmission of the deadly virus. VOA’s Anita Powell reports from Melbourne, Australia.
Video

Video IAEA: Iran Turns its Enriched Uranium Into Less Harmful Form

Iran has converted its stockpiles of enriched uranium into a less dangerous form that is more difficult to use for nuclear weapons, according to the United Nations’ Atomic Energy Agency. The move complies with an interim deal reached with Western powers on Iran's nuclear program last year, in exchange for easing of sanctions. Henry Ridgwell reports for VOA from London.

AppleAndroid