Cyprus MPs reject EU-IMF bailout tax on bank depositors
From BBC
Cyprus’ parliament has rejected a controversial levy on bank deposits, proposed as part of an EU-IMF 10bn-euro (£8.7bn; $13bn) bailout package.
No MPs voted for the bill, with 36 voting against and 19 abstaining.
The finance ministry had modified the package, proposing an exemption for savers with smaller deposits, but opposition had remained fierce.
Thousands of protesters who had filled the streets outside parliament reacted with joy to the news of the vote.
EU finance ministers had previously warned that Cyprus’ two biggest banks would collapse if the deal failed to go through in some form.
But after the vote the European Central Bank (ECB) moved quickly to announce it would continue to provide support for struggling Cypriot banks “as needed within the existing rules”.
The bailout deal, announced after 10 hours of talks on Saturday, prompted widespread outrage on the island at the prospect of ordinary savers being forced to pay a levy of 6.75%
The Cypriot finance ministry announced a change in the plan on Tuesday morning, to exempt savers with less than 20,000 euros (£17,000), while those over 100,000 euros would still be charged at 9.9%. However, this was not enough to placate critics.
The plan to tax bigger deposits at a higher rate has angered Russia, as Russian nationals hold many of those larger deposits.
Meanwhile, the UK ministry of defence said a plane carrying 1m euros was heading to Cyprus as a contingency measure to provide military personnel and their families with emergency loans.
The money is to be used for British personnel and their families if cash machines and debit cards stop working.
Against the interests of Cyprus’
Several MPs during the parliament debate on Tuesday evening denounced the proposed plan as “blackmail” and not a single lawmaker backed the deal.
The BBC’s Mark Lowen in Nicosia said the vote had left the bailout in turmoil, sending a clear message to Brussels that the strategy needed a drastic rethink.
President Nicos Anastasiades had urged all parties to back the bailout, saying Cyprus would be bankrupt if the deal did not go ahead. However, he was aware that they were likely to reject the levy, regardless of the modifications.
“They feel and they think it’s unjust and that it is against the interests of Cyprus at large. But I have to admit that it was something which was not expected by the troika and by our friends, the Eurogroup.”
He has called an emergency meeting of political party leaders on Wednesday morning to discuss the way forward.
The president of the Eurogroup of eurozone finance ministers, Dutch Finance Minister Jeroen Dijsselbloem, emphasised on Monday that no other eurozone country would be forced to impose such a levy.
The Cyprus central bank chief, Panicos Demetriades, warned that scrapping the tax on small savers would scupper the plan to raise 5.8bn euros in total from bank deposits. He also predicted account holders could suddenly withdraw 10% or more of the total in Cypriot banks if the levy was imposed.
Fearing a run on accounts, Cyprus has shut its banks until at least Thursday. The local stock exchange also remains closed.
Cyprus’ banks were badly exposed to Greece, which has itself been the recipient of two huge bailouts.
Russian anger
Mr Demetriades said that he favoured imposing the levy only on deposits larger than 100,000 euros, with eurozone finance ministers also suggesting such a move.
Instead, they argue that wealthier savers should pay the levy at a higher rate – losing more than 15% of their investments, correspondents say.
Of the estimated 68bn euros in total held in Cypriot bank accounts about 40% belongs to foreigners – most of them thought to be Russians.
The government fears a higher levy on these larger deposits would prompt many large investors to withdraw from the island and would effectively destroy its financial sector.
Russia has also said it may reconsider the terms of a 2.5bn-euro loan it made to Cyprus in 2011, which was separate from the proposed eurozone bailout.
Cypriot Finance Minister Michalis Sarris arrived in Moscow on Tuesday to see if the repayment on that loan could be delayed until 2020, and whether the interest rate could be reduced. As his visit began, he denied rumours that he had submitted his resignation.
Officials said he would also be looking for “further investment” in his country, correspondents report, with some speculating this might mean Russian access to Cyprus’ large undeveloped gas deposits.
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Related previous stories
Cyprus President: Nation Faces Total Financial Collapse And Euro Exit Without Bailout
By Joe Weisenthal
In the early hours of Saturday, Cyprus agreed to a “bailout” with the EU and IMF that is very controversial because it imposes an immediate one-time tax on everyone with money in a Cypriot bank before banks reopen on Tuesday (Monday is a holiday).
The deal still needs to be passed by Parliament and that’s not a sure thing.
Ekathimerini has this report:
The Cypriot government is now sweating over a possible rejection by the island’s parliament of the shocking set of measures imposed on Nicosia for the eurozone to bail its economy out of a likely default, announced in the early hours of Saturday.
The Cypriot government is preparing the bill to be tabled in Parliament probably on Sunday in an emergency session, as everything will have to be voted by Monday night for Cypriot banks to open on Tuesday.
The stakes are incredibly high.
The following is a statement from Cypriot President Nicos Anastasiades warning of total financial collapse and euro exit if there’s no deal (via @dsquareddigest):
It is well known that the deep economic crisis and the state of emergency in which the country has found itself did not come about in the last fortnight since we have undertaken the administration of the country.
The state of emergency and critical nature of the times do not allow me, as they do not allow anyone, to embark on a blame game.
In the extraordinary meeting of the Eurogroup, we faced decisions that had already been taken and came across faits accomplis through which we were faced with the following dilemmas:
On Tuesday, March 19 we would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis, which would put a definitive end to the uncertainty and restart our economy.
A possible choice of the catastrophic scenario option would have the following consequences:
1. On Tuesday, March 19, immediately after the holiday weekend, one of the two banks in crisis would cease to operate, since the European Central Bank, following the decision already taken, would terminate the provision of liquidity. The second bank would suspend its work, and neither could avoid collapse. Such a phenomenon would instantly lead 8.000 families to unemployment.
2. The State would be obliged to compensate depositors in response to the obligation regarding guaranteed deposits. The capital required in such a case would amount to about 30 billion euros, which the State would be unable to pay.
3. A proportionate amount corresponding to the deposits of thousands of depositors for deposits over 100.000 Euro, would be led to a vicious cycle of asset liquidation, and these depositors would suffer losses of over 60%.
4. Such an uncontrolled situation would push the whole banking system into collapse with all the attendant consequences.
5. Thousands of small and medium enterprises, and other businesses would be driven to bankruptcy due to their inability to trade.
As a result of the above, the service sector would be led to a complete collapse with a possible exit from the euro. That, in addition to the national weakening of Cyprus, would lead to devaluation of the currency by at least 40%.
The second choice was the controlled management of the crisis, through the decisions taken and which can be summarized as follows:
1. Ensuring the liquidity of the banks and the rescue of the banking system through their recapitalization.
2. Rescuing 8.000 jobs in the banking sector and thousands of others which would be lost as a corollary of not maintaining the operations of banks.
3. Total rescuing of deposits, with just the exchange of a small percentage of savings with shares of the two banks. Currently, these shares do not have their full value, but with the economic recovery they will repay most it not all of the amount that will be cut.
4. This option results in a drastic reduction of public debt, makes it manageable and sustainable and relieves future generations from the burden of repayment.
5. It saves provident and pension funds and avoids taking other tough measures such as wage and pension cuts that were put on the negotiations table.
6. It avoids further recession and the risk of the vicious circle of a second memorandum.
We are not aiming to gloss over the situation. The solution chosen may be painful, but it was the only one that would allow us to continue our lives without adventures. It’s a decision that leads to the historic and permanent rescue our economy.
In the next few hours we will all have to take responsibility. Tomorrow I will address the Cypriot people.
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