Levy on Cyprus bank accounts in doubt
The Cypriot government is struggling to gain parliamentary support for its levy on bank accounts.
The government amended its initial proposal to shield small savers from the plan, which aims to raise €5.8bn in return for €10bn from other eurozone countries and the International Monetary Fund.
The total bailout money would go to prop up the country’s banks and public finances.
But even the modification, which will allow those with up to €20,000 in the bank to escape paying, opposition to the bill remained strong.
Four parties and an independent deputy, accounting for 34 of the total 56 seats in parliament have all said they recommend voting against the bill.
The Bill needs 29 votes to pass.
If it is rejected, it would endanger the international bailout, raising the possibility that Cypriot banks would collapse, the country would face bankruptcy and could even have to leave Europe’s single currency.
Officials have said a “Plan B” should be sought in case the Bill is rejected.
The governing DISY party proposed that the vote be postponed for a day once more and be held tomorrow, arguing that “could give everyone ... a chance to seek a solution that would end the big dangers that our country is facing”.
But house speaker Yiannakis Omirou said the vote would go ahead as planned tonight.
Under the amendment, people with between €20,000 and €100,000 in the bank would pay a tax of 6.75% on their deposits, and those with higher amounts would pay 9.9%.
In the initial proposal agreed on in Brussels late on Friday, there would have been no exemptions for those with small amounts in the bank.
The plan has been met with fury in Cyprus and has sent jitters across financial markets.
In a heated debate, MPs spoke of “raw blackmail” from Europe in forcing Cyprus into the deal, while hundreds of protesters gathered outside parliament chanting anti-government slogans.
Banks will stay shut until Thursday in an effort to prevent a run.
In a sign of the scale of disagreement over the deposit charge, the country’s central bank governor, Panicos Demetriades, recommended that no accounts below €100,000 be touched.
That level represents the amount of savings that are supposed to be insured if a bank collapses.
“The credibility of, and trust in the banking sector depends on this,” said Mr Demetriades, who conceded that he expects at least 10% of deposits to be withdrawn when the banks eventually re-open.
Failure to pass the bill could mean no bailout money from the eurozone and IMF and lead to Cyprus’s bankruptcy, which could reignite concerns in financial markets over the single currency’s future.
That would likely put deposits in the country’s banks under even more threat.
Although Cyprus is the smallest eurozone country to be bailed out, the details of the plan sent shockwaves through the single currency area as it was the first time savers’ banks accounts have been directly targeted.
Other bailed out countries such as Greece, Ireland and Portugal have raised funds by imposing new taxes.
Backers of the deposit seizure argue that this way gets foreigners who have taken advantage of Cyprus’s low-tax regime to share the cost of the bailout of the banks, which have been hit hard by their over-exposure to bad Greek debt.
About a third of all deposits in Cypriot banks are believed to be held by Russians.
Opponents say a blanket charge on people’s bank accounts will hurt ordinary Cypriots more, and could shake the confidence of all in the country’s banking sector.
By going after deposits, European policymakers have set a precedent that could be repeated in the future. The worry of bank runs across Europe lies at the heart of market concerns.
