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

Is Air Travel Safe?

Aviation expert says despite tragic losses of Malaysian Airlines flights 370 and 17, industry experienced lowest fatality rate in recorded history last year More

Multimedia 100 Days Later, Nigerian Girls Still Held

Activists holding rallies in Nigeria and several other countries to mark 100th day of captivity for more than 200 schoolgirls being held by Boko Haram More

Chocolate Too Bitter? Swap Sugar for Mushrooms

US food technology company develops fermentation process using mushrooms to reduce bitterness in cocoa beans, believes it will cut sugar content in candy More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Carriers Suspend Travel to Israeli
X
Carolyn Presutti
July 23, 2014 1:21 AM
The United States is prohibiting American carriers from flying to Israel's airport in Tel Aviv for 24 hours, because of rising violence between Israel and Hamas militants. The action was announced on Tuesday, after a rocket fired by Hamas militants in the Gaza Strip landed near the airport. As VOA's Carolyn Presutti tells us, international officials soon may have to determine which combat zones are too dangerous for commercial flights.
Video

Video US Carriers Suspend Travel to Israel

The United States is prohibiting American carriers from flying to Israel's airport in Tel Aviv for 24 hours, because of rising violence between Israel and Hamas militants. The action was announced on Tuesday, after a rocket fired by Hamas militants in the Gaza Strip landed near the airport. As VOA's Carolyn Presutti tells us, international officials soon may have to determine which combat zones are too dangerous for commercial flights.
Video

Video NASA Focuses on Earth-Like Planets

For decades, looking for life elsewhere in the universe meant listening for signals that could be from distant civilizations. But recent breakthroughs in space technology refocused some of that effort toward finding planets that may harbor life, even in its primitive form. VOA’s George Putic reports on a recent panel discussion at NASA’s headquarters, in Washington.
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.
Video

Video Relic of Saint Draws Catholics Worried About Immigration Issue

A Roman Catholic saint who is a figure of devotion for those crossing the border into the United States is attracting believers concerned about the plight of undocumented immigrants. Mike O'Sullivan reports from Los Angeles, where a relic of Saint Toribio has drawn thousands to local churches.
Video

Video US Awards Medal of Honor for Heroics in Bloodiest of Afghan Battles

U.S. combat troops are withdrawing from Afghanistan, on pace to leave the country by the end of this year. But on Monday, U.S. President Barack Obama took time to honor a soldier whose actions while under fire in Afghanistan earned him the Medal of Honor. VOA's Jeff Seldin has more from the Pentagon.
Video

Video Ukraine Rebels Surrender MH17 Black Boxes

After days of negotiations, a senior separatist leader handed over two black boxes from an airliner downed over eastern Ukraine to Malaysian experts early Tuesday. While on Monday, the U.N. Security Council unanimously demanded that armed groups controlling the crash site allow safe and unrestricted access to the wreckage.
Video

Video In Cambodia, HIV Diagnosis Brings Deadly Shame

Although HIV/AIDS is now a treatable condition, a positive diagnosis is still a life altering experience. In Cambodia, people living with HIV are often disowned by friends, family and the community. This humiliation can be unbearable. We bring you one Cambodian woman’s struggle to overcome a life tragedy and her own HIV positive diagnosis.
Video

Video Nature of Space Exploration Enters New Age

Forty-five years ago this month, the first humans walked on the moon. It was during an era of the space race between the United States and the Soviet Union. World politics have changed since then and -- as Elizabeth Lee reports -- so has the nature of space exploration.

AppleAndroid